Yige Xu | East Asia Fellow
Open pit Copper/Moly mine in Mongolia. Image sourced from Pjriccio via Flickr.
Ulaanbaatar is well aware of the global energy transition's necessity. Mongolia’s past two winters were the deadliest in half a century, with 90 per cent of the country suffering from a severe combination of extreme cold, heavy snow, and high winds — an occurrence known as ‘dzud’.
While dzuds used to occur about once every decade, there have been six in the past ten years — a trend scientists say is linked to climate change. By the end of March 2024, over five million livestock had frozen to death, devastating the livelihoods of one million nomadic herders (a quarter of Mongolia's households).
While Mongolia is suffering firsthand the extreme consequences of climate change, it is also receiving wide international recognition for its abundant critical minerals (CM) endowments, which are essential to the energy transition. High-income countries within the 'critical minerals race' are increasingly looking to Mongolia, promising high diplomatic and economic benefits in return for rare earth exports.
However, Mongolia's resource blessing is also a curse. The country's economic dependence on resource exports, weak institutional capital and neoliberal policy settings have disproportionately privileged the interests of multinational mining companies to the detriment of the public and environment. In extracting CM for the global energy transition and economic benefit, Mongolia should ensure it is not also sacrificing the livelihoods of its most vulnerable communities.
Critical minerals a blessing for foreign partners
Mining is central to Mongolia’s economy, accounting for 25 per cent of GDP and 75 per cent of foreign direct investment (FDI). Minerals account for 90 per cent of all export revenue, though much of the country’s deposits remain untapped. As global renewable capacity is expected to increase almost 75 per cent between 2022–27, demand for critical minerals such as copper, of which Mongolia has an estimated US$1 billion reserve, will continue to surge.
Realising Mongolia’s renewable resources potential, high-income countries are lining up to partner with Ulaanbaatar to diversify their clean energy supply chains and ramp up green manufacturing. Mongolia signed Memorandum of Understandings (MoUs) with South Korea in February 2023 and the United States in June 2023 to enhance cooperation in CM supply chains and technologies. October 2023 saw the signing of a landmark US$1.7 billion uranium mining deal between Mongolia and France, setting Mongolia to be the world’s seventh largest uranium producer.
Mongolia’s resource curse
While Mongolia's new CM partnerships are framed as vital opportunities to drive economic development and gain energy independence, their potential effects should be considered with a view to the country’s fraught history of resource exploitation. Since large-scale exploration began in the 1970s, mining in Mongolia has been characterised by top-down control.
Following the Soviet Union’s collapse, FDI-conducive institutional frameworks were established to capitalise on mining as a key revenue source. The discovery of major coal and copper deposits in the early 2000s coincided with the global commodity boom, seeing high growth rates continue from the mid-2000s.
Loose investment settings and a 'myopic focus' on mining has seen Mongolia's development trajectory hijacked by foreign-owned corporate interests, valuing profits over people and the environment. A 2020 report exposed how companies such as Rio Tinto and Turquoise Hill Resources, along with their state backers, pushed the Mongolian government into a substandard deal over the Oyu Tolgoi mine. Construction on this gold and copper mine commenced in 2010, promising to unearth riches and solve Mongolia’s financial woes after the global financial crisis. However, cost overruns and delays eventually rendered Mongolia’s 34 per cent stake in the mine near worthless, while leaving irreversible environmental consequences.
Mongolia's “resource blessing” is also a curse, leaving the economy vulnerable to commodity price shocks. Volatility is exacerbated by policy reforms, such as the 2014 amendments to the Mineral Resources Law, which ostensibly support 'good governance' while dismantling public checks and balances in practice. While these policies have loosened barriers to foreign investment, social and environmental impacts are rarely considered.
Mongolia’s environmental justice paradox
Due to the immense power imbalance between decisionmakers and those shouldering the negative environmental, health and social externalities, the relationship between mining developers and local communities is highly tense. With Mongolia’s new CM agreements signalling the potential takeover of grazing lands for exploration and extraction, the question of environmental justice remains as pertinent as ever.
The top-down nature of mining in Mongolia is evident in the absence of any domestic legally binding requirement for project proponents to publicly disclose impact assessments and invite feedback. Though grassroots protests have successfully led to the cancellation of some licenses and permits, there have been no systematic improvements in environmental, social and governance (ESG) safeguards. Consequently, the displacement of Indigenous communities that have historically struggled to secure exclusive land rights continues.
As Mongolia prepares to ramp up its CM exports under a banner of contributing to global climate mitigation efforts, its top-down policies are leaving local communities behind. With policy settings reflecting a narrow view of the environment as a resource to be exploited, a tragic irony emerges — though best positioned to manage the land, local livelihoods and knowledges are being irreversibly destroyed.
Which way forward?
While high-income countries feel the pressure to accelerate the transition to net zero carbon emissions, it is critical to analyse how the benefits and consequences of this transformation are unequally distributed along existing global, national and communal configurations of power.
High-income countries and mining companies operating in Mongolia must bear greater responsibility to ensure adherence to leading ESG standards, transparency and accountability — principles which should be central to the US–Mongolia–ROK Critical Minerals Dialogue. Greater institutional scrutiny and public pressure should keep these countries and companies in check.
Additionally, Mongolia’s top-down policies should be reconsidered by better integrating local stakeholders. Land and resource planning would greatly benefit from deeper incorporation of traditional ecosystems thinking and land use methods, and municipalities should be granted more rights to natural resource management.
Above all, Mongolia should take a longer-term view — ensuring its wealth from minerals extraction is used to reduce its dependence on the resource sector to break its critical minerals catch-22.
Yige Xu is the East Asia Fellow for Young Australians in International Affairs. She studies the Bachelor of Philosophy at the Australian National University, where she majors in International Relations and Chinese.