The Myth of Indonesia’s Green Energy Revolution: Assessing Indonesia’s Nickel Industry

Indonesia Nickel

The convergence of conversations about “loss and damage” for developing economies at COP27 and Indonesia’s decarbonization commitments as host of the G20 summit led to the announcement of a Just Energy Transition Partnership for Indonesia. Within this partnership, the US and other developed economies will cooperate with private investors to provide Jakarta with $20 billion in concessionary loans, guarantees, grants and other financial instruments to wean Indonesia off its reliance on coal to generate energy. [1] 

On the surface, this partnership appears to dovetail with President Joko Widodo’s (widely known as Jokowi) plan to position Indonesia as a leading producer of green commodities by leveraging its vast nickel and bauxite reserves. However, many questions surround the efficacy of this package; Indonesia has steadily constructed more coal-powered plants in the last six years to fuel its green commodity production, and key members of Jokowi’s cabinet remain dominated by the coal lobby. Specifically, this essay seeks to uncover the myth behind Indonesia’s pledge to reduce its emissions by showing how its nickel ambitions are polluted by its unflinching commitment to dirty coal.

Nickel Ambitions

Electrification is the buzzword for countries and corporations seeking to cap and reduce carbon emissions over the next few decades. Batteries are at the heart of this electrification drive, specifically lithium-ion (Li-ion) batteries, which are needed in electric vehicles (EV) and energy storage systems (ESS). While there are various cell chemistries for different Li-ion batteries customized to suit the needs of individual EV/ESS brands and model types, two common raw materials stand out: lithium and nickel. Home to 22% of the world’s known nickel reserves, this is a golden opportunity for Indonesia to position itself as a leading green commodity producer and exporter. [2] It certainly grabbed this opportunity with both hands and shovels. Since the early 2010s, Indonesia has set up nickel-focus industrial parks, established state-owned nickel mining-and-processing companies, and encouraged foreign investment and joint ventures to provide the necessary expertise and capital. 

In Sulawesi, an island east of Borneo, sits the crown jewel of Indonesia’s rapidly-expanding nickel industry: the Indonesia Morowali Industrial Park (IMIP). Jointly invested and founded by Shanghai Decent Investment (66.75% share), a subsidiary of Tsingshan Steel, one of the world’s largest steel producers, and Indonesia PT Bintangdelapan Group (33.25%), the plant commenced its operations in 2015. [3][4] Crucially, the IMIP isn’t just a mining site for the extraction of nickel sulfide/laterite ore; it hosts nickel smelters and refineries to produce nickel pig iron (NPI), nickel matte and nickel sulfate, materials which are crucial intermediates for components of EV batteries. 

Indonesia’s Coal Problem

Despite these developments, Indonesia’s green ambitions are blighted by dirty, polluting coal. Indonesia’s primary nickel product, NPI, is a low-grade smelting product which is both energy-intensive and contains a high carbon footprint. Researchers from the Swedish Royal Institute of Technology estimated NPI energy consumption at 598kJ per ton of Ni produced, and emissions of 69 metric tons of carbon dioxide equivalent per ton of Ni produced. [5] Future plans by Chinese battery materials (e.g. CNGR Advanced Materials) producers to convert NPI into nickel matte, a higher-grade nickel product crucial in EV batteries, will generate even more carbon emissions, roughly six times that of producing NPI. [6][7] Since these processes rely on kilns that run largely on coal-powered electricity, “the carbon per kilowatt-hour of power generation [in Indonesia] is much higher than most of the rest of the world,” said Andrew Digges, Asia partner at global law firm Norton Rose Fulbright. [8]  

Aware of the size of their carbon footprint, nickel producers have started signaling their intent to expand the use of renewable energy to power new nickel smelters. For instance, Tsingshan has plans to build a hydropower plant and a large-scale solar power plant in its joint venture with Merdeka Copper Gold, a local miner. [9] The Indonesian government has also pushed for the development of a green industrial park in North Kalimantan, Borneo, promising up to 23 gigawatts of potential hydropower from big rivers running through the province. [10] Further, the government is reportedly considering a progressive tax on nickel products, which, if calibrated according to carbon intensities, could lead to greater efforts to reduce carbon emissions. The $20 billion multilateral climate partnership between Indonesia, the United States, Japan, and other developed countries announced on November 15, 2022 is supposed to reflect Indonesia’s commitment to accelerate this green transition and bring forward its net-zero target by a decade. [11]

Ominously, the success of this partnership remains severely hamstrung by Indonesia’s nickel ambitions and the influential coal lobby in the country. Indonesia’s energy grid remains heavily reliant on coal — accounting for up to 60 percent of its electricity capacity — and its nickel industrial parks alone consume up to 15 percent of the country’s coal power output. [12] Expansion plans for these parks are estimated to increase this share to 24 percent, after having accounted for increases in renewable energy production. [13] Coal’s dominance in energy production is best explained by the lucrative public revenue received through coal royalties at different levels of government, and the vested interests of key political functionaries. In the resource-rich regions of East Kalimantan and South Sumatra, coal mining represents a profitable activity, with up to 80 percent of royalties accruing to district and provincial governments, with the remainder to the central government. [14] Officials of these provinces also form a powerful coalition with members of Indonesia’s parliament and Jokowi’s key supporters who own coal-mining assets, such as Luhut Binsar Pandjaitan, the former Coordinating Minister of Maritime Affairs with oversight of the Ministry of Energy and Mines. [15] Despite Jokowi’s stated goal of phasing out coal in electricity production by 2056 (and possibly earlier), it is difficult to imagine a path for its realization in consideration of the staying power of the coal lobby, and without sacrificing a large part of its nickel industrial expansion plans. To date, Indonesia is the world’s third-largest coal producer after China and India, with Indonesian coal miners expected to increase their output goal to 629.9Mt in 2022 in accordance with targets set by the government. [16] In fact, the coal industry has successfully lobbied for the construction of additional coal-fired power plants for the next few years. [17] Jokowi’s reliance on coal as a source of jobs and revenue, paired with his determination to transform Indonesia into a nickel superpower, likely means that the partnership will join the ranks of many other disappointing climate agreement outcomes. Indonesia’s green energy revolution remains a dirty myth.   


References:

[1] Resty Woro Yuniar, “G20: Indonesia signs US$20 billion deal with US, Japan, other nations for ‘promising path’ towards clean energy,” South China Morning Post, November 15, 2022, https://www.scmp.com/week-asia/health-environment/article/3199737/g20-indonesia-signs-us20-billion-deal-us-japan-other-nations-promising-path-towards-clean-energy.

[2] NS Energy Staff Writer, “Profiling the top six countries with the largest nickel reserves in the world,” NS Energy, February 11, 2021, https://www.nsenergybusiness.com/features/nickel-reserves-countries. 

[3] “Indonesia Morowali Industrial Park,” Indonesia Industrial Estates Directory 2018-2019, n.d., https://www.industrialestateindonesia.com/files/estates/V7Hev4DsqCgPQzB1RI9NS2TzxE72HEAwzCnGtYQF.pdf.

[4] Antonia Timmerman, “The Dirty Road to Clean Energy: How China’s Electric Vehicle Boom is Ravaging the Environment” Rest of World, November 28, 2022, https://restofworld.org/2022/indonesia-china-ev-nickel.

[5] Wenjing Wei, Peter B. Samuelson, Anders Tilliander, Rutger Gyllenram and Pär G. Jönsson, “Energy Consumption and Greenhouse Gas Emissions of Nickel Products,” Energies 13, no. 5664 (2020), pp. 1-22, http://doi:10.3390/en13215664.

[6] Erwida Maulia, “Indonesia’s High-Carbon Nickel Key Challenge in Global EV Uptake,” Financial Times, September 1, 2022, https://www.ft.com/content/2ca51587-4b51-4019-9040-4ddedac252d9.

[7] Richard Mills, “Stripped of its ESG Credentials, Tesla Continues to Pursue Dirty Nickel in Indonesia,” AheadOfTheHerd, May 20, 2022, https://aheadoftheherd.com/stripped-of-its-esg-credentials-tesla-continues-to-pursue-dirty-nickel-in-indonesia.

[8] Erwida Maulia, “Indonesia’s High-Carbon Nickel Key Challenge in Global EV Uptake.”

[9] Ibid. 

[10] Ibid.

[11] Resty Woro Yuniar, “G20: Indonesia signs US$20 billion deal with US, Japan, other nations for ‘promising path’ towards clean energy.” 

[12] Rodrigo Castillo, Lilly Blumenthal and Caitlin Purdy, “Indonesia’s Electric Vehicle Dream Has A Dirty Nickel Problem,” Brookings, September 21, 2022, https://www.brookings.edu/blog/up-front/2022/09/21/indonesias-electric-vehicle-batteries-dream-has-a-dirty-nickel-problem.

[13] Ibid.

[14] Jose Antonio Ordonez, Michael Jakob, Jan Christoph Steckel and Anna Funfgeld, “Coal, power and coal-powered politics in Indonesia, “ Environmental Science and Policy 123 (2021), pp. 44-57, https://doi.org/10.1016/j.envsci.2021.05.007.

[15] Ibid.

[16] “Indonesia’s Coal Production To Grow by 2.6% in 2022 Amid Strong Demand from Europe,” Mining Technology, September 13, 2022, https://www.mining-technology.com/comment/indonesia-coal-growth.

[17] Jose Antonio Ordonez, Michael Jakob, Jan Christoph Steckel and Anna Fünfgeld, “Coal, Power and Coal-Powered Politics in Indonesia,” Environmental Science & Policy 123 (2021), pp. 44-57, https://doi.org/10.1016/j.envsci.2021.05.00.

Author

weijun.tan@hmc.ox.ac.uk