Indonesia, explained.
The process of creating renewable technologies, including EVs, causes environmental damage (Lauren DeCicca/Getty Images)
Efforts to capitalise on nickel dominance has carried an environmental cost.
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Indonesia’s EV gamble: Green on the surface, dirty underneathIndonesia’s EV gamble: Green on the surface, dirty underneath
Demand for cars powered by fossil fuels has already peaked. Electric cars are taking over. In Indonesia, leaders gambled they could propel the country into global electric vehicle supply chains by leveraging the country’s vast nickel reserves, an essential input to certain EV batteries.
The world’s largest nickel industry and mounting foreign investment into EV manufacturing and battery production are signs this roll of the dice has worked.
Our recently published research at the Lowy Institute has demonstrated that Indonesia’s industrial policies were crucial to this success. But these same policies have imposed incredibly high costs on workers, the environment and the global climate.
What’s labelled as “green” only appears to be on the surface – behind the scenes, the process of creating renewable technologies, including EVs, is anything but.
Failing to embrace climate-friendly policies is self-defeating for the government’s EV strategy.
Nickel workers face unsafe conditions, and toxic by-products are polluting ecosystems, threatening local agriculture and fisheries. Rising nickel production has only been possible with a sharp increase in the number of coal power plants to supply smelters with the energy they need, undermining any claims of sustainability.
A country’s economic competitiveness is tied to its governance quality. These costs indicate Indonesian industrial policy governance is lacking.
With Indonesia touting it may recuse itself from the Paris Agreement – the cornerstone of global climate change mitigation – after the US withdrew and stepped back from a key climate financing arrangement, Indonesia’s green credentials are not likely to improve any time soon.
Indonesia’s adoption of electric vehicles is too slow – only 17,000 were sold in 2023. A rapid transition to electrify Indonesia’s transportation sector will be critical in building the demand for EV industry expansion. Without demand creation, the industry will stagnate and remain nascent.
What’s more, Indonesia is notorious for uncompetitive manufacturing. Liberalisation of the economy is incomplete. Another problem is the attachment to local content rules that push local production of inputs over higher-quality imports.
Failing to embrace climate-friendly policies is self-defeating for the government’s EV strategy. Combined with the inaction on reforms, Indonesia’s competitiveness appears fragile. EVs may have been a good bet but Indonesia still needs to execute.
Read the Lowy Institute Analysis “The future of Indonesia’s green industrial policy”.
About the authors
Robert Walker
Robert Walker is a Research Fellow at the Lowy Institute and works as an economist in the Institute’s Indo-Pacific Development Centre.
Hilman Palaon
Dr Hilman Palaon is a Research Fellow at the Lowy Institute’s Indo-Pacific Development Centre. His work focuses on digital economy issues in the Indo-Pacific region, including financial inclusion, economic empowerment, and technology innovation.
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