Indonesias EV dreams at odds with deforestation pledge

Global electric vehicle makers have set their sights on Indonesia, attracted by its abundant reserves of key EV battery ingredient nickel, government backing for the industry and the market potential of the worlds fourth most populous nation.

Such ambitions are on parade at the ongoing Indonesia International Auto Show, on the outskirts of Jakarta.

Automakers from China, South Korea and elsewhere are counting on the Indonesian governments push to increase EV sales, one of the ways in which Jakarta hopes to reduce the countrys CO2 output as it aims for net zero emissions by 2060.

Indonesias Ministry of Industry, for example, is aiming for EVs to account for 20% of vehicle sales by 2025. It is also working to become an EV manufacturing hub.

But Southeast Asias largest economy, home to more than 270 million people, faces an uphill battle in turning its EV production and consumption dreams into reality.

Already, environmental concerns have the government vowing to fight deforestation, which could hinder its mining of the worlds most extensive nickel reserves, analysts warn.

Chinas Wuling Motors is among the companies touting affordable EVs at the show, which began on Thursday and runs until Nov 21.

Han Dehong, vice-president of Wuling Motors Indonesia, said the company will launch its GSEVs, or global small EVs, in Indonesia next year, and that it has plans to make them in the country in the future.

The price will surely be affordable, Han said. As a global player and local manufacturer in Indonesia, Wuling always supports the government programme to accelerate the vehicle electrification and vows to participate in building the EV ecosystem, he said.

British auto manufacturer MG, now under Chinas SAIC Motor, also said it will be launching an EV in Indonesia, though it offered no details.

The Indonesian government has introduced several incentives to spur sales, including slashing the luxury tax for fully electric vehicles to zero. EVs are also exempt from Jakartas road rules, which ban cars from running on main roads on certain days based on license plate numbers.

Indonesia is also keen to build a full domestic EV supply chain, from mineral mining to battery and vehicle production. This would position the country as a key player in the global EV supply chain.

It would also make it possible to lower the costs of zero-emission vehicles, making them affordable to more of the public.

Already, global companies like Tesla of the US, Chinas CATL and Taiwans Foxconn have expressed an interest in developing Indonesias EV and battery industry.

For South Korean and Chinese automakers, riding Indonesias EV push is a means to break into an auto market dominated by Japanese makers, whose combined share exceeded 90% for the nine months ended in September, according to industry figures.

Japanese companies have lagged in electric vehicles, giving rivals from other countries a chance to make inroads among consumers.

Hyundai, which is showcasing its Ioniq and Kona EVs at the show, has doubled down on Indonesias ambitious plans.

It and fellow South Korean company LG Energy Solution in September kicked off the construction of a US$1.1 billion electric vehicle battery plant in the country. Hyundai is also building an automobile factory nearby with production slated to start next year. The factory is to produce EVs as well.

We as a manufacturer and industry strive to provide the best products, Makmur, managing director of Hyundai Motor Indonesia, said at the auto show.

Charging station infrastructure is already available from Medan to Ambon, he added, referring to cities at the western and eastern edges of the archipelago. What is clear is that the EV era has begun, and we all support it.

Companies are particularly interested in Indonesia for its rich nickel reserves, indispensable to EV batteries. Indonesia led the globe in nickel production in 2020, producing an estimated 760,000 tons of the metal.

It has a further 21 million tons of reserves, according to the US Geological Survey more than anywhere else in the world. The country accounts for roughly 30% of the worlds nickel production and about 22% of global reserves and is critical to ensuring a stable supply of battery materials.

But analysts warn that efforts to develop an EV value chain may be hindered by the governments pledge to protect the environment.

President Joko Widodo told world leaders who gathered earlier this month in Glasgow, Scotland, for the 26th UN Climate Change Conference of the Parties (COP26) that the forestry and land sector in Indonesia will reach a net carbon sink by 2030.

Indonesia also signed up to the Glasgow Leaders Declaration on Forests and Land Use, which commits to halting and reversing forest loss and land degradation by 2030.

We believe that this pledge will likely pose a risk to the continued development of Indonesias electric vehicle (EV) supply chain, Fitch Solutions said in a recent report, as it could result in more red tape to establish new nickel mines and could see the countrys miners come under increased pressure from automakers to stem deforestation.

A net carbon sink means absorbing more carbon from the atmosphere than is released.

According to Global Forest Watch, Indonesia had the fifth-highest tree coverage loss from 2001 to 2020. Of the 11,700 sq km of primary forest that disappeared in 2019, 10,700 sq km were lost to commodity-driven deforestation, according to its database.

This means that Indonesia could come under increased pressure from investors, other governments and automakers to halt its deforestation as companies adopt stricter Environmental, Social and Governance (ESG) strategies, Fitch Solutions said.

This will then pose a risk to the global EV supply chain as Indonesia remains a key component to the future EV supply chains especially when it comes to more efficient nickel-heavy NMC batteries.

Indonesias dilemma was best summed up by Siti Nurbaya Bakar, Minister of Environment and Forestry, in a series of tweets during COP26.

Widodos pledge to turn the forestry sector into a net carbon sink by 2030 should not be interpreted as zero deforestation, she said on Twitter.

For example, she went on, in Kalimantan and Sumatra, many roads are not connected because they have to pass through forest areas. Meanwhile, there are more than 34,000 villages located in the forest area and its surroundings. If the concept is that there is no deforestation, it means that there should be no roads. Then what about the people, should they be isolated? The massive development of President Jokowis era must not stop in the name of carbon emissions or in the name of deforestation.

Bhima Yudhistira, director at the Center of Economic and Legal Studies, a local think tank, however, said it is not impossible that EV industry development can be done while taking account of Indonesias COP26 pledges.

The government has to realise that the nickel mining sector, from its exploitation activities, already has an environmental impact, and not turn a blind eye to this just because the material is becoming the prima donna for EVs, he said, adding that the government needs to remain firm to ensure that nickel production can be greener.

The governments new carbon tax, set to come into effect next year, can be applied to nickel producers as though they are coal miners, the director suggested.

Source: https://www.freemalaysiatoday.com/category/business/2021/11/16/indonesias-ev-dreams-at-odds-with-deforestation-pledge/?__cf_chl_jschl_tk__=I_bDaLH6WctTwOKdP7U7.P4z7.72Xk_qyWvA1Numg94-1637133602-0-gaNycGzNDf0