The rapid acceleration of climate change, alongside rising global temperatures, has underscored the urgent need to expedite decarbonization efforts across sectors over the globe. In particular, in today’s era of globalization, the value chains of goods and services are increasingly larger and complex alongside the growth of carbon emissions. Accordingly, industrial decarbonization strategies should no longer be viewed solely from one industry-specific perspective; instead, a holistic approach which includes the entire value chain must be considered.
Efforts to decarbonize and greening value chains have been promoted by many countries and international organizations, as a way to achieve more effective climate goals while, at the same time, enhancing value chain resilience. Moreover, supply chain decarbonization will play an increasingly important role in industrial development. As environmental standards become more stringent and complex, they are also becoming essential for maintaining industrial competitiveness in the global market. Neglecting supply chain decarbonization risks not only undermining more ambitious climate goals but also constraining long-term industrial development.
As part of Indonesia's decarbonization efforts, the government has introduced strategies for green industrial development, with a particular focus on developing battery-based electric vehicles (EV). This initiative was started with the implementation of an export ban on nickel ore, designed to accelerate the development of downstream of industrial process by promoting the transformation of raw materials into final products (i.e. battery). According to the Ministry of Investment/BKPM, total investment in Indonesia's battery and electric vehicle ecosystem has reached approximately USD 11-12 billion as of July 2024. The government’s prioritization of this sector is driven by two factors. First, the transportation sector is the second-largest contributor to global emissions, following the energy sector. Second, Indonesia’s vast reserves of critical minerals present a strategic opportunity for the country to emerge as a leading global hub for EV battery production. Notably, Indonesia nickel reserves, a key materials for EV battery manufacturing, make up around 42% of the world's reserves. This resource positions Indonesia to play a pivotal role in enhancing its competitiveness within the global EV market.
Although Indonesia possesses one of the largest nickel reserves in the world, this alone does not automatically enable the country to establish a fully integrated domestic EV battery industry. The development of lithium-ion batteries requires a variety of other critical minerals in which Indonesia does not hold a strong comparative advantage, such as manganese and lithium. Consequently, incorporating international cooperation into the development strategy of the EV industry has become increasingly inevitable. In this context, identifying and assessing the competitiveness of the EV battery industry across each stage of the supply chain is essential for formulating an effective industrialization strategy. Such an assessment can also provide an important basis for evaluating existing policies that aim to foster the development of a domestic lithium-ion battery and EV industry.
Despite the strong potential of Indonesia’s EV industry development, the growth of its nickel-based battery industry also faces significant climate-related challenges. According to CSIS' study, Indonesian EV sector has been compromised by the excessive waste generated during mineral extraction, as well as the emissions from coal-based captive power plant, in which does not fully align with sustainability principles. Moreover, there is risk that the country’s heavy reliance on coal-fired electricity which leads to higher emission may undermine its competitiveness and, hence, its ambition to become a global battery production hub. As a result, the green industrial development expected from the growth of the battery and EV industry risks becoming merely a facade.
All these issues might not only undermine Indonesia’s efforts to greenhouse emission, but also its comparative advantages in downstream nickel-related products, especially for battery and EV manufacturing, in global markets. In this regard, this research seeks to assess the competitiveness level of Indonesia’s EV and battery industries across the supply chain, in order to assess whether it is truly feasible for Indonesia to become a regional production hub for batteries and electric vehicles. Furthermore, the study examines the potential implications of greening supply chain, not only on carbon emissions, but also on public health and broader socio-economic outcomes.