The Nickel Paradox: China, Indonesia, and the Green Transition

[Music] Hello dear listeners, thank you for tuning into the European Guinexi Podcast. We bring together young scholars, professionals and experts to strengthen dialogue and understanding about the evolving relationship between the European Union and China, but also between China and the world. To dive deeper into this theme, make sure to catch our new episode every two weeks. I am your host Audrey and today I have the pleasure to host Mr. Mui-Yi Young from Embour Energy. So before we dive into today's conversation, let's take 30 seconds to understand why the topic we're addressing today matters beyond Indonesia and China, because we're focusing on these two countries today and why it sits right at the heart of China's rise as a clean tech superpower. Mui, why don't you kick this podcast off by explaining to our listeners what is nickel and why doesn't matter in the global supply chain, why is China leader and where Indonesia sits in this global supply chain? First of all, I would like to thank you for having me. This is a very important timely topic because many countries they want to promote green tech about these sectors and green industries and nickel is one of the critical menus widely used in clean technologies, especially batteries and EVs. And because of that, there has been a concern that we are actually expanding a clean tech industry sectors on a full-sube base. This is not actually contributing to the climate change challenge we are trying to address by adopting clean technologies and Indonesia, and it's basically the largest nickel suppliers in the world and China is one of the largest consumers of nickel because China is hosting the largest clean technology sectors in the world. And that's why it makes these topics very important. And the key question is that how to avoid building a clean tech industry sector on a full-sube base? Yes, how do we build this green transition while this green transition is being built on some of the dirtiest power on earth? That is the core question of war answering today. Thank you so much for this introduction. I hope it's clear to our listeners what is nickel and why it's so paramount today. I guess we have to firstly take a more grounded perspective on nickel dependency and nickels for to reliance. It deeply connected with Indonesia's downstream strategy. And Indonesia's strategy is to use its resource advantage to pull in value-adding activities, starting with nickel processing, refinery, and eventually higher value segments. I think that has been the downstream strategy. And we have to recall that the uncomfortable truth is that nickel processing is extremely energy intensive. And in many industrial parks, conditions needed for clean doesn't in place yet. And in Sulawasi for example, and hydro power and wind are less viable in some areas because of the limited water resources and very low wind speed. The solar has some potentials in Indonesia, but it went into land constraints. In many places, the available land is protected forest. And large scale solar can all you can risk concerns about impacts on local communities indigenous land, red, and biodiversity. And apart from that, and another option is to connect to the great power grid. And that means that we can source clean electricity from somewhere else. Nickels, smelters, and industrial parks are situated in resource-rich but remote coastal areas in Indonesia. The local electricity demand is very low. Very long planning cycles that takes years to the great expansions can take even longer. So full meaningful project developer or industrial companies working on very high time lines waiting for the national grid is often not realistic. And because of that, they call become a very attractive option for them. Whole power plant can be built relatively quickly and they provide stable, round-the-clock power that energy intensive smelter all very require. So in this context, coal becomes preferable options. So we have to recall that this industrial reality. That's a very interesting point you're you're making that there are many other actors that are also very much active in the Indonesian nickel production industry. And I think it's quite worth mentioning that Indonesia did ban raw nickel exports in 2014 and again in 2020. In China firms moved rapidly downstream like you said. So today, Chinese link companies control almost three quarters of Indonesia smelting capacity, which is really important. And so my question is to what extent did these Chinese investment models which were very intensive both in speed and skill shape the industrial path that Indonesia ended up taking today? Because historically, China did rely also heavily on coal to guarantee energy security during its industrial takeoff. And I think that Indonesia also wants to have this quick takeoff before becoming a renewable tech giant. Do you think that Indonesia is kind of replaying what China old fossil fuel development phase used to be? I think there are a few points that I don't know how to mention here. One thing I think it is too simplistic to say that Chinese model or Chinese investors defined Indonesia's industrial trajectory. But I think after the export ban, there was a very strong push from Indonesia's will move downstream quickly at speed and scale. And Chinese companies were able to respond because they had the capital technology and experience to do so. But the choice of coal based power was not something foreign companies imposed. It's reflected in natural reality. Indonesia's existing planning framework, power system constraints and regulatory settings. All these conditions make coal the most attractive options to support energy intensive processing. And I think the more fundamental question is that we can repeat industrialization through clean pathway or a fossil based pathway is inevitable. Because in the word history, I don't think any country has achieved deep industrialization on a clean platform at scale. Every successful industrial leaders like Japan, China, UK relies on fossil fuels at some stage. So it is not surprising that countries like Indonesia, which are keen to industrialize quickly would initially follow a fossil based pathway. And I think that's a historical pattern. But today's context is different. And clean technologies are becoming cheaper. Collaborative risks are more visible and global markets are starting to reward clean their supply chains. This creates a possibility of a different pathway. And at the same time, I think this is just transition towards green industrialization is not easy. This is not a settled or risk-free transition because no country has done this before at scale. So uncertainties and experimentation and trail and error are unavoidable. Technologies and market and regulations and business models all have to involve together and there is no readily available blueprint to get all this involvement and transition. And because of that, I think cooperation is needed. Thank you so much, Mui. Now that you've talked about that actually, I think it's quite interesting to keep on digging into the complexity of this topic. We'll touch upon the EU later in this topic because the EU is a very big leader when it comes to green transition. But first, let's come back to China and Indonesia. Coal for nickel is labeled green transition finance under Indonesia's taxonomy. And I think taxonomy is in a very important topic to talk about, especially if we'll talk about the EU later when we'll talk about the CBAM. So are we witnessing green washing at systemic scale? Where coal is rebranded as sustainability? Can we talk about green washing in this case or is it a little bit too stretched to use this kind of expression? I think you touched upon a very important issue, the green finance taxonomy. My personal view is that Indonesia's green finance taxonomy reflects its current developmental priority and local countries. And then one particular area is that it labels coal for nickel as transition finance. And this can be interpreted in different ways. And it can be interpreted as a loophole for green washing, but it can also be interpreted as buying time under existing conditions. But weather that actually helps or hinden transition depends on what counts next. I think we should not waste time on debating whether this is good or not, but we should really look at how we can move things forward in practice. The reality is that there is no one-size-fits-all loophole print for a clean industrialization. And the whole nickel-related industrial park and production process and downstream sector technologies that needs to be redesigned. And this redesign has to be happened around a local circumstance. Resource availability, great stress, geographical situations, land use, institutional capability and project timeline and many others seeing regulations and local community interests and so on. So what would that means that what works in one country or industrial park may not work in others? And I think that's why the key issue is whether Chinese finance simply follow Indonesia's taxonomy or asking for a striker one. The more important question is better China, Indonesia, and other partners work together to design a credible, clean pathways for industrial development. One that goes beyond transitional labels and actually changes the underlying system gradually over time. Ultimately, I think this is not about co-developing a pathway that makes green industrialization feasible in practice. Yeah, thank you so much for talking about some policy recommendation and this idea that there is no one size fits all. I think that's quite important to take away for our listeners. You've talked about the fact that they're trying to buy time, right, Indonesia. It's just that their economic model cannot really catch up with all of these regulatory demands and these very clean energy ambitions that we set for ourselves, especially in the EU. Is there such thing as a development trap of the global South where coal remains the only energy source capable of delivering large scale reliable power? I think in the history, all major countries that has become industrialized, they tend to follow fossil-based pathway. The reality is that no country has done this before at scale. So there's no ready-made blueprint to follow. There's no model that we can follow. And this means that trial and error is an essential part of the process. In China, we always say crossing the river by filling the stone. Probably, I think this describes this transition better than any other grandmaster class and strategies. For example, China's Zero Accompanied Industrial Park Initiative. It is designed to start with a limited number of pilot projects where clean energy electrified process, new standards, and new financing models can be tested and their real industrial congusses and circumstances. And if those pilot works, the lesson can then decraterally scale up and extend it to other industrial parts and sectors and bridges. If something doesn't work, then it can be adjusted without jeopardizing the whole system. And that's how China has historical and managed complex transition from market reforms to industrialization and to energy transition in more recent times. So finding a new model for industrialization is not about announcing an ideal and state and forcing everything to comply overnight. It is about building confidence through practical success, reducing risk step by step, and allowing new clean industrial models who prove themselves before they become the mainstream. And at the same time, we have to expect that the old model may proceed for some time as the new model gradually scale up. Thank you so much, Mui, for talking about this model. We need to anticipate for the following years to come. And actually, and I think that it's worth mentioning that even within Europe, despite massive renewable deployment, coal still plays a significant role in electricity generation in countries like Germany, Poland, and parts of Eastern Europe. So this is not an exception that is just affecting Asia or East Asian countries. I just want to jump to Europe in understanding nickels global supply chain because the EU has the CBAM, the carbon border adjustment mechanism, and through this CBAM and battery regulation, the EU is effectively telling the world, if you want to access to our market, your materials must be low carbon. It has to be traceable and ESG compliant. And this gives Europe enormous normative power over global supply chains. But at the same time, the EU continues to be very dependent on imports of cheap batteries, on EVs, electronics, and energy. This is quite a paradoxical relationship, right? So does the EU have the legitimacy to impose such strict climate standards on producers like Indonesia, who is, like you've said, the biggest nickel producer with the largest nickel reserves? If it is not willing to co-invest at scale in the clean energy system, need it to meet those standards. I think that's a very important issue. The CBAM and battery pass bowl and a few other traits, we have to look at these things in a border context. Measures like CBAM and the battery regulation, they are not assulated tree measures. They signal a deeper shape. And the global market has become increasingly climate sensitive. China announced the last year the sustainable mining initiative, together with some Africa countries. All these things are signaling that the external operating environment for national economies are changing. And competitive needs won't depend on only on who has the resources like nickel. It will increasingly depend on how these resources are produced, whether they are produced responsibly. And an emission intensities and China is actually rebasing is industrial economy on a clean platform domestically. By expanding clean energy supply electrification and a cleaner industrial system at scale. The challenge is that supply chain extend beyond national borders. If upstream sectors lack the hand and they can become a bottleneck for downstream competitive needs, for example, the nickel supply is actually situated outside China in Indonesia. And so to remain competitive, and in a climate sensitive global market, the upper stream countries, they also need to consider that we want to reliance on the legacy model or actively explore the clean industrialization model. If those countries don't move earlier, they risk lacking behind and they risk being left out of the next based of industrial in addition to that. I think it is also important to be more realistic. It is one thing for a country to cultivate a strong internal policy and commitment to pursuing a new model for development and industrialization. But that strong commitment also needs to be met, with capacity to act. And that means that they need capacity to expand the grade and to deploy clean power and energy at scale, to plan institutions and regulations, the technique to have the capability. And that's where external partners like China, European countries, and DBs and multilateral organizations can play a very constructive role by providing financial and technical expertise and assistance. So I think to sum it up, the external environment is changing and future competitiveness will increasingly dependent on who can produce industrial product and resources more responsibly. And to support many developing countries to act on that and the capacity support would be needed. And that's where international partners and DBs and multilateral organizations can help. You explain in your paper from Ember Energy that the real battlefields is rules and incentives. You're saying that this is where the bottlenecks are and you're saying that it's not so much about innovation. It's really about just institutional power who sets the standards, who is controlling the finances, and who shapes market incentives to go in one direction versus the other. I mean, I can think of, for example, I think guaranteed demand at premium prices for China. So I think how it works is battery or EV companies sign 10 to 15-year contracts to buy green nickel at a stable price with bonuses for lower emissions intensity. And this affects, I think, companies like Tesla, BYD, Airbus, or Boeing. And so the positive outcome is that smelters can invest in renewables because revenue is guaranteed. Can you think of any other forms of incentives that are already in place that you think that is worth building on? I think there are two things. One thing is to strengthen the external signal that future competitiveness will be increasingly dependent on environmental responsibility, not only about who has the resources. And there are many things like C-BAM and battery passcode, a green taxonomy, and procurement requirements, all these things. And these are external signals that many countries, including Indonesia need to recall that the global market is shifting. You have to reposition yourself against this changing reality. At the same time, we need domestic effort pursue a new industrialization pathway that can expand industrial activities on a clean platform. I think two things are important. One thing is the strong, sustained commitment because there will be some success and positive outcomes. There will also be failures and other losses. So we need a strong commitment to move things forward. Another thing is that we do it gradually. You do something more incremental. Like we do a small scale capital renewable plus storage. And try to do one low-carving industrial park and to test the outcomes and to scale it up if the outcome becomes positive. Because, like I said, if you are trying to transform a very complex industrial system and things won't happen overnight, and it can only take place gradually. And that's why I think the key is to find the right balance between stability and transition. And to do that, and always work on the increment, not the existing system. And try to build the incremental park and then scale it up. In China, we always said establishing before breaking. And we try to establish a new industry model based on a clean platform and scale it up gradually. And once this system can become self-sustainable, then on its own feet, it will start replacing the old model. At the same time, when the new model scale up, it also provides lots of opportunities for existing companies to diversify themselves. And to re-base their future growth on a clean base. And gradually, their interests re-align with the transition. Then they are not opposing to the transition. They become natural defenders for a deeper transition, because deeper transition means more opportunities for them. Yeah, that's again, so many interesting points that you've shared there. You know, about not breaking the structure that we already have, but building on it and building around it. If I remember well, China has set up this green supply chain management framework. Where Chinese authorities have adopted a tool to enforce closed-loop management, requiring manufacturers to prioritize green design and green procurement using life cycle assessments. And also something that I thought was interesting to share, because we're talking about downstreaming. It's that recycling, when it comes to nickel, is actually possible, infinitely without loss of quality. Unlike some other minerals, we've talked about downstreaming. What about the other side of the spectrum? What does it look like now? And what do you think? Where are we headed in the other side of the spectrum? As you rightly mentioned, China is not actively attempting to re-base its industrial economy on a clean platform. And that shift is difficult, risky and uncertain. But it sends a very strong signal to the rest of the world. China is changing even when the alternative is uncertain. It's not only about one policy instrument or one financial incentive. It is about we consider all these things together. And the direction China is moving towards. And China is moving towards green industrialization. And provide a platform for other countries to work together with China, to experiment new technologies and the new financial models. And to actually approve that green industrialization is not unrealistic. It can be done in reality. And I think that that matters. And that will open lots of opportunities for collaboration with external partners and investors, including those from Europe as well as the global sauce countries. Yeah, actually, again, thank you so much for sharing these insights. I think it's important to note that the EU is very dependent in terms of a lot of minerals. But especially in the imports for nickel supply, the demand for nickel is projected to soar by 285,000 tons by 2030. Finland is the EU's leader when it comes to nickel production. For the sake of comparative analysis, when we compare, for instance, Finland to Indonesia, yes, Indonesia relies a lot on cope for its nickel production. But Finland, 5% of its nickel production relies on electricity from fossil free sources. However, I think it's very important to precise that out of that 90%, 40% is almost nuclear energy. And nuclear energy is quite a tricky source of energy, right? In some countries it's considered clean and some others not really. So like you've said so many times, the picture is very complex. When it comes to green energy transition, I hope that our listeners will want to read deeper into this topic and learn more. I welcome the listeners of European Guinexi to check out the report that Amber Energy wrote on this topic very extensively. It's a 41-page report, but it's very, very clear. And I think it does depict very clearly the complexities from regulatory to standards to trade investments. By lateral agreements, the role of China and Indonesia in this topic. And I welcome also people to read generally anything that's the work of Amber Energy. They're very reliable source when it comes to understanding different kinds of energy topics. And once again, thank you so much, Mui, for joining me. Mui is specialized in China energy systems. So be sure also to follow his work at Amber Energy. And thank you once again for taking the time to join me on this podcast and talk about Niko. From so many different angles, I hope it was also a good chat for you. Thank you so much, Andrew. I think this type of dialogue is very important for the transition. It cannot be done on their own. And cooperation is essential. But we also need to be honest with ourselves that the cooperation against the current geostrategic circumstance is not easy. Cooperation needs to be based on trust, but trust that's not come from goodwill. And it comes from mutual understanding. That's where dialogue adds lots of value so that we understand each other's interest and the real difficulties and the complexities. So that we can come up with more practical solutions. That's why it's in dialogue like this would be very valuable. Once again, thank you so much. And I think hopefully I offer some useful insight or some meaningful further discussion. [Music] (music)