The Inner Mongolia Autonomous Region (IMAR) of the Peoples’ Republic of China (PRC), which has considerable coal reserves and generates electricity for export to other provinces, depended on coal to meet more than 90% of its energy demand in 2008. As a result, although it had less than 2% of the PRC's population, its sulfur dioxide (SO2) emissions were 5% of national emissions. Coal burning for district heating, which largely utilized inefficient neighborhood coal-fired boilers with low capacity and efficiency and an aging and poorly insulated pipe network that suffered high distribution losses, contributed 10% of IMAR’s SO2 emissions.
On the other hand, despite its being a major producer of natural gas, IMAR’s consumption of this widely considered cleanest fossil fuel was less than 2.5% of its total energy consumption. This was lower than the national average and was attributable to the underdeveloped natural gas transmission and distribution infrastructure in the region.
The Inner Mongolia Autonomous Region Environmental Improvement Project (Phase II) built on an earlier version of the project, approved by the Asian Development Bank (ADB) in December 2006, which provided district heating and natural gas distribution infrastructure to the Bayannur and Wuhai districts of IMAR. Phase II, approved by ADB for a loan of $150 million in August 2010, aimed to extend the improved and diversified district heating and natural gas supply to other urban areas, including more remote and poorer municipalities and counties. Its expected impact was improved energy efficiency and environment in IMAR, and intended outcome was improved air quality in targeted urban areas.
The project originally comprised two outputs: (i) six district heating supplies (DHS), and (ii) a natural gas supply (NGS). But some revisions to IMAR’s district heating and NGS development plan became unavoidable because of rapid urbanization. As a result, certain subprojects in the original scope were implemented without using the ADB loan as the respective project implementing agencies (PIAs) decided to implement them expeditiously with funds from local governments. Minor changes in scope and implementation arrangements were approved by ADB during project implementation, with the project finally comprising seven DHS subprojects. The changes strengthened the project’s relevance and facilitated the attainment of the project outcome. Loan reallocations and extensions maximized the use of ADB loan proceeds and accommodated the completion of the subprojects included at a later stage.
At completion, the project helped improve air quality in the project areas to grade II. It fully achieved its outcome target for energy efficient district heating in the urban areas, with the avoidance of coal consumption by 1.562 million tons, thereby avoiding annual emissions of CO2 by 2.436 million tons, SO2 by 29,707 tons, total suspended particulates (TSP) by 39,494 tons, and nitrogen oxides (NOx) by 6,563 tons. Surpassing targets, it heated a floor area of 50.96 million square meters, benefiting 1.489 million residents with adequate and reliable district heating. In addition, it facilitated the closure of 482 inefficient high-pollution, small coalfired boilers, against the target of 453.
However, because of a completion delay of 4 years, limited economic viability, and less than likely sustainability, the project was rated less than successful by ADB’s East Asia Department. The government of IMAR was the executing agency while the PIAs of the participating local governments were the implementing agencies.