The Prospects of Indonesia’s Nickel Boom Amidst a Systemic Challenge from Coal

Indonesia’s Mining Industry and Sustainable Development Goals (SDGs)

Indonesia has 42% of the world’s nickel reserves, as well as substantial reserves of copper, gold, tin, and, notably, coal. This wealth in natural resources has given the mining industry crucial importance in Indonesia’s economic growth and has recently taken an even more prominent place: Indonesia has managed to become the world’s largest nickel producer within just a few years, as its share in global nickel extraction grew from 5% in 2015 to 50% in 2023. The country is also the world’s third copper ore exporter.

Coal and energy transition minerals have progressively replaced oil and gas in Indonesian exports. Between 2011 and 2023, oil and gas exports fell by nearly two-thirds and their share in the national exports decreased from 20% to 6%. In 2023, export revenues from copper were larger than those of oil and equal to gas earnings.

Diversification of Trade Partners and Value Chains

Yet, having major mineral deposits and mining activities is no longer considered sufficient by the Indonesian government. So far, the mineral industry’s growth has relied hugely on Chinese investments and on low-added-value activities, especially in pyrometallurgy processing. Diversification of trade partners and expansion into new, entire value chains is, therefore, a key objective for the Indonesian government.

Indonesia is seeking to boost trade with the United States (US), the European Union (EU) and even the Eurasian Economic Union. However, negotiations over respective agreements are currently encountering hurdles due to American legislation (the Inflation Reduction Act and Foreign Entities of Concern status), which could seriously threaten Indonesian exports of battery mineral components to the US market while they also face hurdles to entering the EU due to environmental regulations.

Development of New Industrial Segments and Environmental Concerns

The second part of Indonesia’s strategy focuses on the development of new industrial segments of value chains: refining facilities, hydrometallurgical processing plants, battery factories, etc. To develop these activities, the Indonesian government is using two main tools: the divestment of foreign companies in local firms and export bans on crude ore exports. Such bans have been introduced for nickel in 2020 and for bauxite in 2023, while they are expected for copper in 2024 and perhaps even later for tin.

Indonesia is today also confronted with the negative repercussions of mining activities on its soil, including protests over the lack of safety in its mines and smelters, citizens’ expropriations, the presence of indigenous tribes on mining sites, and, above all, damage to the environment.

Decarbonizing Indonesia’s Economy

Such damage also has its roots in the substantial amounts of energy used to feed smelters, which mostly rely on the use of coal. Decarbonizing Indonesia’s economy has thus become a central challenge for the country, where the consequences of climate change are already palpable on the archipelago’s soil, with extreme weather events and the sinking of the capital city – Jakarta – as sea levels rise.

To carry out the tremendous transformation towards net-zero emissions while ensuring steady and sustainable development, the country has signed a Just Energy Transition Partnership and prepared decarbonization scenarios within this framework. Key priorities in the coming years include renewable energy deployment, grid development and an early phase-out of coal.

Challenges and Pathways Towards Decarbonization

Deploying renewable energy sources as well as large and resilient grids is made more difficult by the country’s geography. The archipelago includes 17,000 islands, some of them being undeveloped, hard to access and far away from each other. Furthermore, the levelized costs of solar and wind power are currently high in Indonesia compared with other developing countries, while public subsidies for coal do not favor low carbon generation sources.

If the two first points are thus very challenging, the last one appears to be the hardest, considering the Indonesian economy’s tremendous dependency on coal. Concerns are therefore rising about Indonesia’s ability and even willingness to pursue a genuine, albeit differentiated decarbonization pathway.

Mineral Trade Strategy and Economic Stability

There are also many questions regarding Indonesia’s mineral trade strategy. New bans on crude ore exports are expected to come into force, while new mining and mineral processing operations are under development across the archipelago, as quantities of nickel produced in the country are at historic highs.

This extraordinary increase in nickel production, concomitant with a global economic slowdown, has resulted in a sharp fall in nickel prices, with nickel losing half of its value between January 2023 and February 2024. As a result, many producers are finding themselves in danger, especially in Australia or New Caledonia.

While there could be a deliberate strategy to flood the markets and neutralize competition, notably by Chinese companies that control 75% of the global nickel supply (mainly from Indonesia but also from the Philippines), the country faces serious dilemmas. Indonesia’s oil and gas production is diminishing, and it increasingly relies on nickel exports and higher nickel prices for its economic stability, with coal also remaining very important. Indonesia’s resource nationalism and industrial strategy, which include attracting foreign investments, notably via its OECD membership pledge, require a credible pathway to reduce the carbon footprint of its electricity generation.

Pathways Towards Sustainable Development

1. Deploying Renewable Energy Sources

• Especially solar photovoltaic (PV) power and offshore wind farms
• Progressively transferring subsidies from coal to renewable energy sources

2. Developing a Clean Battery Industry

• Based on high environmental, social and governance (ESG) criteria
• Utilizing the wealth of Indonesia’s subsoil, which includes most of the metals used in battery manufacturing

3. Protecting Climate and Biodiversity

• Favoring innovative solutions for mining waste management
• Upholding high ESG standards

SDGs, Targets, and Indicators

1. SDG 7: Affordable and Clean Energy

   • Target 7.2: Increase substantially the share of renewable energy in the global energy mix.
   • Indicator: Deployment of renewable energy sources, especially solar photovoltaic (PV) power and offshore wind farms.

2. SDG 9: Industry, Innovation, and Infrastructure

   • Target 9.2: Promote inclusive and sustainable industrialization and foster innovation.
   • Indicator: Developing a clean battery industry based on high environmental, social, and governance (ESG) criteria.

3. SDG 12: Responsible Consumption and Production

   • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.
   • Indicator: Protecting climate and biodiversity by favoring innovative solutions for mining waste management and upholding high ESG standards.

Table: SDGs, Targets, and Indicators

Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The issues highlighted in the article are connected to SDG 7 (Affordable and Clean Energy), SDG 9 (Industry, Innovation, and Infrastructure), and SDG 12 (Responsible Consumption and Production).

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s content, the specific targets that can be identified are:

• Target 7.2: Increase substantially the share of renewable energy in the global energy mix.
• Target 9.2: Promote inclusive and sustainable industrialization and foster innovation.
• Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, there are indicators mentioned or implied in the article that can be used to measure progress towards the identified targets:

• Deployment of renewable energy sources, especially solar photovoltaic (PV) power and offshore wind farms, can be used as an indicator for Target 7.2.
• Developing a clean battery industry based on high environmental, social, and governance (ESG) criteria can be used as an indicator for Target 9.2.
• Protecting climate and biodiversity by favoring innovative solutions for mining waste management and upholding high ESG standards can be used as an indicator for Target 12.2.

Copyright: Dive into this article, curated with care by SDG Investors Inc. Our advanced AI technology searches through vast amounts of data to spotlight how we are all moving forward with the Sustainable Development Goals. While we own the rights to this content, we invite you to share it to help spread knowledge and spark action on the SDGs.

Fuente: ifri.org

Join us, as fellow seekers of change, on a transformative journey at https://sdgtalks.ai/welcome, where you can become a member and actively contribute to shaping a brighter future.