The EU-Indonesia Fight Over Nickel and Who Gets to Own the Clean Energy Future

Indonesia boasts some of the world’s richest mineral deposits, but it has long focused on digging them up and shipping them to other countries for processing.

The government in Jakarta has been trying to change that, but is facing fierce resistance from the West. Raw nickel exports have been banned since December 2020 and Indonesia is instead trying to force foreign buyers to invest in smelters in Indonesia in order to access the country’s vast deposits. According to Asia Times, that plan has been working as “the mineral’s value-added increased from US$1.1 billion to $20.8 billion in 2021 alone.” The same restrictions were put in place on bauxite shipments on June 10. Tin and copper bans are scheduled to come next.

The EU and the US need the nickel to power their clean tech futures. The problem is they produce little of it themselves. More from the Peterson Institute for International Economics:

Nickel is one of the mineral lynchpins of the industrial sector because it is used in stainless steel, lithium-ion batteries to power EVs, and other renewable energy technologies. It is also a mineral produced in only small quantities in the US (0.5 percent of global production) and the EU—albeit thousands of miles from Europe in France’s New Caledonia territory in the South Pacific. Accordingly, the US and EU have designated nickel a critical mineral/raw material.

The EU and US are worried that if Indonesia develops manufacturing capability they won’t have control over clean tech. The EU is asking businesses to take countermeasures (what these are remain unclear) against Indonesia’s nickel ore export ban as a battle between Brussels and Jakarta plays out before the World Trade Organization. Jakarta has appealed a WTO ruling against its protective mineral policy and has maintained the export ban in the meantime. More from The Jakarta Post:

The Trade Ministry’s international trade negotiations director general, Djatmiko Bris Witjaksono, told The Jakarta Post on Thursday that the EU had placed “antidumping and antisubsidy” measures on Indonesian steel products.

Hikmahanto Juwana, an international law professor at the University of Indonesia, called the EU measures an “unfair contravention”, because the WTO’s ruling through the Dispute Settlement Body had yet to become legally binding, as Jakarta was appealing with the Appellate Body.He urged Jakarta to “fight back” by stopping all ongoing negotiations on international trade.

“The EU has brought the law of the jungle back into human society: The stronger one wins.”

The battle playing out between the EU and Indonesia is indicative of the larger struggle over who gets to own the clean energy future, and the critical minerals needed in everything from car batteries to windmills. From Down To Earth:

[Rob Davies, former minister of trade for South Africa] says for developing countries being able to use tools like localisation is critical. Minerals needed for green technologies, such as bauxite and copper ore used in wind turbines, or lithium and nickel ore used in electric vehicle battery, are concentrated in a few countries many of which are developing economies. Indonesia, for example, supplies 40 per cent of the world’s nickel ore, as per the International Energy Agency (iea). Since 2014, Indonesian has instituted a ban on the export of nickel ore and requires it to be processed domestically for export. As a result, its share of global refined nickel output rose from 1 per cent in 2013 to 30 per cent in 2021. The EU took the issue to wto claiming that the ban violated trade rules; wto agreed. Indonesian President Joko Widodo now plans to appeal the ruling. He may now ban export of bauxite in 2023 (it holds 3.75 per cent of the world’s reserves). Paul Butarbutar, co-founder of Indonesia Research Institute for Decarbonization, says: “When one company sets up a nickel smelter to process the nickel, it employs more than 12,000 people and local and central governments earn revenue. So, this protectionism helps our local eco- nomic development.”

WTO panelists suggested that Indonesia could only block exports in acute crises like mass starvation—and not in response to the needs of economic development, writes Todd N Tucker, director of industrial policy and trade at the Roosevelt Institute, US, in The Washington Post. This suggests wto would not leave much room for countries to manage economic transitions for the benefit of their own workers and producers, he adds.

Jakarta’s export bans are part of its struggle to avoid the “resource curse,” in which natural resources actually end up hurting a country’s development. Additionally, countries with deposits pay a heavy environmental cost getting them out of the ground, and want to see more of the rewards for such sacrifice. Indonesia’s efforts seem to be having success, which explains the opposition. Ford, for example, earlier this year signed an agreement to partner in a $4.5 billion HPAL plant on Indonesia’s Sulawesi island. Other mineral-rich countries like Zambia and Tanzania are attempting similar efforts, with China playing an integral role. From ESP News:

Other African countries are also looking to control the export of their raw materials. The current tensions between Europe and the U.S. with China make Africa an exciting investment place. Unfortunately for some Western corporations, many Chinese companies are already present in the continent, ensuring they have first bids on the large deposits.

The big player in Indonesia is also China. Unlike the EU, IMF and others in the West, Beijing has not opposed Jakarta’s efforts. It has poured billions into nickel producing areas in Indonesia. From Nikkei Asia:

Still, there are early signs that the planned export ban on bauxite, the primary source of aluminum, could be having an impact. Already used extensively in aircraft construction, building materials and consumer durables, aluminum demand is expected to soar given its applications in solar cells, wind turbines and electric vehicles, among other green technologies.

China’s Shandong Nanshan is reportedly planning to expand its new alumina plant on Indonesia’s Bintan Island, creating a $6 billion aluminum smelting complex by 2028. The company did not respond to Nikkei Asia’s request for comment.A joint venture between China’s Hongqiao Group and Indonesian miner Cita Mineral Investindo completed an alumina refinery expansion on Borneo island last year.

“China’s primary aluminum smelters are looking to transfer some capacity abroad, mainly into Indonesia,” Tang wrote in a March research note.But investors from elsewhere have not responded in kind, which is worrying for Indonesia’s bauxite miners struggling to finance construction of their own smelters.

The IMF is also trying to ramp up pressure on Jakarta over its mineral exports. From Asia Times:

In a sharply worded statement accompanying its 2022 country report, the IMF called for Indonesia to phase out the restrictions and not extend them to other commodities. “The increasing use of trade measures and industrial policies may destabilize the multilateral trade system,” the IMF said.

But it increasingly looks like the EU is one at risk of being left out in the cold. The US is in no position to cry foul at the WTO over Indonesia’s export bans due to its protectionist Inflation Reduction Act. Washington is instead trying to negotiate a free trade agreement with Jakarta so that it can have access to its minerals. Indonesia officials said the deal is expected to be similar to the one the US and Japan agreed to in March. According to the  Peterson Institute for International Economics:

The success of Indonesia’s industrial policy may have the Indonesian government thinking about capturing value-added even further down the supply chain. Plans to develop a domestic EV battery industry include taxing ferronickel exports—a refined, higher value-added nickel product used in EV batteries—as a means of providing lower-cost inputs for Indonesian industry. Unlike outright export bans, such a tax would be WTO-compliant and, if the recently concluded US-Japan limited FTA covering critical minerals is any guide, also consistent with US goals for these limited trade agreements. The US-Japan agreement affirms both parties’ obligations not to restrict trade in critical minerals other than via recognized instruments like taxes and duties, per both countries’ obligations as elaborated in Article XI:1 of the General Agreement on Tariffs and Trade. But given Indonesia’s success with export bans in the past, it is fair to wonder if its government might pursue them in the future on value-added products like ferronickel.

Another problem for Washington’s plan for a FTA agreement with Jakarta is that because China has invested so heavily in mineral operations there, the Chinese firms would end up benefitting from the tax credits in the IRA.

German Chancellor Olaf Scholz has also pushed for an EU trade agreement with Indonesia, although it has been complicated by the disagreement over the export bans. Scholz also claims the agreement would be a way for the bloc to reduce its reliance on China, but again it’s hard to see how the EU would do so with China’s heavy involvement in the Indonesian mineral industry.

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  1. SocalJimObjects

    It’s not just minerals, Jakarta had also decreed that all handsets sold in the country must have at least 30% local content, hence the presence of Samsung, Xiaomi, and Oppo factories in the country among others.

    Given that next year will be Jokowi’s last year as President of Indonesia, it’s critical that his successor will continue all the good things that he’s done ….. and more. The country has a ton of potential but corruption is still endemic, and it will take at least 10 to 20 more years of good governance IMHO before Indonesia can realize her possibilities.

    1. PlutoniumKun

      Jokowi is perhaps the most underrated leader of any developing country – he has done an excellent job under very difficult circumstances.

  2. PlutoniumKun

    What Indonesia is doing is admirable and correct and the EU should know better than to act as a bully in a battle it probably can’t win, it has zero to do with renewables or attempt to shore up supply chains for EV’s, etc.

    Nickel is only a minor player in renewables – maybe 4% of nickel use worldwide is in batteries or related electronics. The reason for nickels importance is all about steel production. The reason for the EU’s actions are set out clearly in publicly available documents – it is about protecting the EU’s remaining steel industry. For various political and historical reasons, the steel industry still has clout in EU capitals well above its real economic importance, although of course there is a good argument that the EU should be trying to onshore as much core metals production capacity as possible.

    1. Ignacio

      Thank you for the additional data provided. Regarding bauxite, Germany is an important Aluminium producer to the point that in some applications they tend to use excessive amounts of Al in some applications. For instance there is a company that makes solar fences which in my opinión have an excess of Al that makes them unsuitable and unsustainable outside a few subsidized farms and luxury buildings in Germany. It is an excess very much like unsustainable Tesla cars, IMO.

      1. MicaT

        What’s a solar fence?
        I couldn’t find anything online that seemed to fit what your talking about?

        1. Ignacio

          These are fences designed to fit within, as part of the fence, solar modules so they can serve dual purposes. Being set vertical, the solar modules have a different production pattern compared with typical solar farms (with an early morning peak and a smaller evening peak). In this way they produce about 10% less than optimal orientation but are compatible with agricultural activities and expand solar coverage by several hours yearly. I have a so far stalled project on solar fences (stalled by grid not so real limitations) in Spain but fighting to revive it.

          1. Micat

            I’ve seen such in the US.
            But almost all ground mounts in the US are made of steel not aluminum.

    2. vao

      What completely stumps me is that meanwhile, the 5th largest nickel producer worldwide, located in New Caledonia (i.e. France), is nearly bankrupt, working at only half its capacity.

      So on the one side there is a nickel boom, with everybody scrambling to lay hands on the coveted metal, and the EU protesting because Indonesia no longer wants to export the raw ore; on the other hand, the EU has a major nickel mining and refining capacity within its control that is laying fallow, and nobody seems that interested in taking it over.

      Something does not jibe.

  3. Ignacio

    The ROW has to de-risk from the West not the other way around. Rather than de-risk It is to de-colonise and stop being just the suppliers of cheap raw materiales for the “garden” on rules written by such garden. What is left there for the EU… sanctions? Don’t you think that the economic war with Russia has been an eye opener for the ROW? If the EU is unable to help with development in countries like Indonesia in order to protect the garden It risks becoming the pariah region of the world without natural resources and unable to reach any agreement that would give access not just to raw materiales but processed metals. Countries in África and South América must be playing close attention. Some sensitivity with respect to genuine sovereign interests on employment and development wouldn’t go amiss.

    1. sinbad66

      Countries in África and South América must be playing close attention. Some sensitivity with respect to genuine sovereign interests on employment and development wouldn’t go amiss.

      Which is why the multipolar world message that is being preached by China and Russia is carrying a lot of weight and is so appealing to the Global South right now.

    2. Butch

      I agree with your argument Ignacio but wonder how leaders who can’t tell they’re losing a war can be hoped to understand the ROW is sick of their b.s.

  4. The Rev Kev

    I don’t think that is so much about the clean energy future as much as Indonesia decided to claim more value parts of the nickel supply chain. Just exporting nickel does not do that much for your economy except for the miners and the ports. But if the nickel is actually refined in-house so to say, then that is when things start to happen. The article says that 12,000 people can be employed with one smelter but then you have to take account of all the companies and businesses that will grow up around that plant. The revenue generated can then be put to work in local infrastructure like schools, hospitals, etc. which helps with generating future businesses. You would think that the EU would be glad as the Indonesian workers would be cheaper than the EU workers and the EU is having problems with supplying energy to such energy-intense industries. Seems though that they would prefer that Indonesia stick with a basic ‘rocks & crops’ economy which means being more easily exploitable. Maybe the next step for Indonesia is to start supplying finished products of nickel itself. Only question that I have is that supposedly the WTO found for the moment against Indonesia. But hasn’t the US been blocking the appointment of any new WTO judges so that they can no longer make any decisions? Either way, the next time Indonesia has contracts to let out, I do not think that EU corporations need apply.

    1. John

      “Rocks and crops” is another way to spell colonialism. China acts in its own interest by accepting that Indonesia has a stake here and building processing and manufacturing plants in Indonesia. The Eu and the US do not appear to understand the obvious and do likewise.

      1. wnatw

        That’s because the US and EU don’t use state-owned companies to carry out geopolitical objectives. If building and operating a smelter isn’t economically profitable (and very few are in Indonesia), then no US or EU companies will be interested in building them (unless they’re forced to; e.g. Freeport).

        China, on the other hand, directs its state-owned companies all over the world to take massive financial losses, balanced against improved political favour with governments like Indonesia. They don’t mind the rampant corruption; they know how to navigate it.

        I’m not passing judgment on either approach, but we should be clear-eyed on why the West has abandoned the field in SE Asia.

  5. Henry Moon Pie

    “The EU and the US need the nickel to power their clean tech futures.”

    Noting PK’s correction about the real role of nickel, when it comes to minerals that are critical to the imagined “clean tech future,” mining expert Simon Michaux dispels the notion that there’s any way that enough of these minerals can be mined to supply this future by existing technologies and existing mining firms.

  6. Mario

    I thought WTO courts were blocked by the US because it refused to appoint or confirm its members? Has that changed?

  7. dandyandy

    IMF, WTO, EU… demanding of an underdeveloped country of ~300mil people that they should cease and desist trying to develop their society but that they must, in return for an assortment of trinkets and shiny objects, continue to give over the very essence that enables that development. Just as in the good old Colonial Times.

    It is incredible that on so many different fronts, people who hold the reins of power in the Garden, are painting themselves so deeply into non-negotiable corners from which the only exit is war.

    But even if the Garden Junta’s choice was war, how do they imagine to effect that? Will Luftwaffe be flying across the world on USAs LNG? Of course, some of the leaders in the Jungle are beyond reproach, corrupt and all that. But even so, the Jungle’s visible critical mass is such that the traitors of the cause will be disappeared within 3-4-5 years.

    The Western Elites are so totally saturated with chancers, people who have no idea what they are doing but happy to try whatever gig may keep them in lucrative employ in DC or Brussels, even if this will, as it seems increasingly likely, lead to a total destruction of their native societies. And as much ordinary people get to see this more and more clearly, there exists absolutely no legal tools which could result in the removal of this collective brain parasite. I would be so desperate if I were setting out on the life journey right now.

    1. Xiaolei Mu

      I wouldn’t call Indonesia underdeveloped. In terms of GDP PPP, it’s ranked 7th in the world. Ahead of G7 countries like France or the UK. Even in nominal GDP terms (which is a garbage measurement), it’s still on 16th place, ahead of countries like Turkey and Saudi Arabia.

  8. Susan the other

    Is there an industrial smelter process that can separate alloys and thus recycle them?

  9. Irrational

    Has the EU considered whether they can afford the energy to process the nickel and bauxite? /s

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