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Opinion - Indonesian presidency of G-20: Transition to clean energy

2022-11-18  Staff Reporter

Opinion - Indonesian presidency of G-20: Transition to clean energy

Ari Hadiman

Indonesia hosted the G-20 Summit on 15 and 16 November 2022, in Bali, the main tourist destination in Indonesia. The summit not only reflected Indonesia’s leadership capacity but also its desire to play constructive role to shape the world. 

The Indonesia presidency in G-20 has three priorities, namely: Global Health Architecture, Digital Transformation, and Sustainable Energy Transition.

Since Indonesia took over the G-20 presidency from Italy on 31 October 2021, Indonesia has achieved key goals in the three priorities. In the health sector, US$1.4 billion of Financial Intermediary Fund (FIF) has been collected. Indonesia has managed to enhance start-ups connectivity between countries and facilitates the flow of capitals to finance the development of start-ups. In the clean energy sector, during Indonesian presidency, G-20 has concluded the establishment of the Bali Common Principles in Accelerating Clean Energy Transitions (COMPACT).

Clean energy transition

With regard to the energy transition, Indonesia takes the momentum of G-20 to promote its objective to accelerate the conversion of fossil-based vehicles to electric vehicles (EV). In the G-20 Summit, the government of Indonesia shows its firm commitment by providing EVs as the main mode of transportation for the heads of state/governments, delegates, and security personnel. To support its objective, Indonesia has built necessary infrastructures, including the EV charging stations and legal framework.

Indonesia commitment to provide legal basis in the sustainable and clean energy transition is reflected in the Presidential Instruction signed in September 2022, ordering central and regional governments to use EVs for official duties. 

The latest Presidential Instruction complement the already in place legal framework to support the development of EVs ecosystem. Previously, the government of Indonesia has issued a regulation to promote the battery-powered road vehicles (PP No. 55/2019); Presidential Regulation No. 22 Year 2017 on General Planning for National Energy, stipulating policies on EV development; and Law No. 30 Year 2007 on Energy.

The Coordinating Minister for Economic Affairs, Airlangga Hartarto, said the government of Indonesia increasingly promoting the use of EV, as part of efforts to achieve clean energy transition. The development of domestic EV market in the country will reduce greenhouse gas emissions. In this regard, Indonesia has committed to reduce 29% of its GHG emissions against the business as usual (BAU) scenario by 2030. The presence of EVs will be the key for green economy in the future. Based on the Electric Vehicle Production Roadmap of the Indonesian Government (July 2021), Indonesia ambitiously plans to produce 400 000 EVs by 2025, 600 000 EVs by 2030, and 1 000 000 EVs by 2035.

According to the Ministry of Transportation of Indonesia, on July 2022, there were 22 671 units of EV in Indonesia, ranging from 6 units of commercial EV, 43 units of bus, 19 698 units electric motorcycle, 270 units three-wheeler vehicle, and 2,654 units of passenger EV. The growing number of EVs in Indonesia coincides with the rising population of EVs in global market. 

According to the report of Global EV Outlook 2022 by IEA, electric car sales reached 6.6 million in 2021, significantly increased from 120 thousand EVs in 2012. Furthermore, there were approximately 16.5 million of electronic cars on the world’s roads. Global sales of electric cars have kept rising strongly in 2022, with 2 million sold in the first quarter, up 75% from the same period in 2021.

Indonesia’s take on the EV Battery Supply Chain

Indonesia’s clean energy transition through the provision of EV coincides with the expected rise of global and domestic sales of EV leading to the increase demand of the nickel, main component of the EV’s battery. With this background, the country intends to become key actor in the global supply chain of EV battery by maximising its position as the world’s largest nickel miner, with about 21 million tonnes of reserves. Indonesia has initiated series of actions to set its position as the major producer of EV battery serving local and foreign markets, with the goal to produce EV batteries with a total capacity of 140 GWh per year by 2030.

Indonesia has started course of actions by introducing supportive policies and embarking on economic diplomacy to attract foreign investment in the EV battery industry by promoting incentives for EV battery producers, EV manufacturers, and EV buyers. The policy has driven more investments into the country and boosted Indonesia’s nickel processing capacity (battery grade). Thus the investment is expected to strengthen Indonesia capacity overtaking China in nickel processing by 2025.

With regard to investment, according to the minister of Investment/Chairman of Indonesia Investment Coordinating Board, there are four foreign investors in the ecosystem of battery and EV invested in Indonesia, namely LG Energy Solutions, the world’s second-largest EV battery maker, has invested US$9.8 billion; Contemporary Amperex Technology (CATL), the world’s largest battery maker, has invested US$5.2 billion; Foxconn will invest US$8 billion; and British Volt will invest US$2 billion. 

The four investments are in line with government’s plan to downstream end of the supply chain, namely the processing of the nickel and manufacturing of the battery. While in the upstream end of the supply chain, the government has introduced a policy to restrict the export of raw materials, resulted on more mining companies investment in the processing and smelter facilities in Indonesia.

Regardless the opportunities of being a key player in the EV battery supply chain, Indonesia faces serious challenges. At present markets in different regions are observing the ongoing and devastating impact of pandemic on income and purchasing power of consumer, creating uncertainty in the future development of EV market and sizeable investment in the industry. Other challenges rise from the standardization of EV battery and further skill transfer to develop the technology. 

Aside from this, Indonesian Battery Corporation (IBC) – the newly formed State-Owned Enterprise consist of mining industry holding company (MIND ID), nickel miner Aneka Tambang (Antam), the State Electricity Company (PLN), and oil and gas company (Pertamina) – that manages the integrated EV battery industry from upstream and downstream investment may has inadequate experiences on manufacturing EV battery. 

From the perspective of environment concerns, the investment on nickel mining might cause deforestation, pollution, and disturb the local indigenous people. In addition, development in the nickel processing industries rely heavily on carbon-intensive method. It indicates the use of coals in the industry, jeopardizing government objective to decarbonise and reduce gas emission.

Indonesia recognises the importance of collective action and inclusive collaboration among nations in the effort to achieve clean energy transition and tackling the potential challenges. In the context of G-20, Indonesia has managed to discourse the issues and concluded an important initiative, the Bali Energy Transitions Roadmap and Bali COMPACT, to drive and expedite clean energy transitions. The Bali COMPACT offers an inclusive framework for G-20 members and beyond to accelerate clean energy transitions that leave no one behind.

As mentioned in the Bali Energy Transitions Roadmap, the Bali COMPACT designed as a whole-of-government approach to address social, environmental, and economic impacts and support just and inclusive energy transitions. The Bali COMPACT will ensure the resilience on transitioning to clean energy while supporting economic growth through development of EV battery supply chain. The Bali COMPACT is expected to guide Indonesia on achieving its goals while tackling challenges.

*Ari Hadiman is the Head of Department for Information and Social Cultural Affairs, The Embassy of Indonesia in Windhoek. The views and opinions expressed in this article are those of the author.

2022-11-18  Staff Reporter

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