Gabriel Collins, Morgan Bazilian and Simon Lomax – Earlier this month, the US government sounded the alarm over the use of forced labor in the nickel mines of Indonesia.
The finding has major implications for the energy transition because large amounts of nickel are needed to produce electric vehicle (EV) batteries and other low-carbon energy technologies.
Indonesia, which holds nearly a quarter of the world's nickel reserves, employs around 6,000 Chinese migrant workers under often exploitative conditions: low wages, extended hours, surveillance and isolation.
This new listing highlights what has long been known about Indonesia's troubled nickel industry and underscores China's determination to dominate critical mineral supply chains – regardless of the human or environmental cost.
Indonesia's nickel industry is under intensifying scrutiny, not only for labor rights violations but also for its severe environmental damage.
BASF's recent withdrawal from a US$2.6 billion nickel refinery in Weda Bay, Indonesia, reflects mounting global concerns. Although BASF attributed its decision to market dynamics, calls from environmental and human rights groups against the project played a significant role.
BASF's exit and the US Department of Labor's forced labor finding should serve as a wake-up call for the clean energy and automotive sectors.
Indonesia's nickel industry is powered by billions of dollars of Chinese investment. This threatens to tarnish the clean energy transition, particularly for companies that use nickel in EV batteries.
An investigative report from Bloomberg News paints a grim picture of Indonesia's collaboration with China. Rivers in the archipelago run red with mine waste while local ecosystems are being decimated, according to the report. Worker deaths and clashes have become disturbingly common, it said.
China's deep involvement in Indonesia's nickel industry, with around $30 billion funneled into mining and processing, has enabled this incredibly rapid expansion.
Over the last decade, Indonesia's mined nickel production rose from 440,000 metric tons in 2013 to 1,800,000 metric tons in 2023, according to USGS data. By 2030, Indonesia is projected to mine and refine over half of the world's nickel, positioning itself as a global leader – though at significant cost to its people and environment.
The economics of Indonesian nickel are compelling, but the true costs are hidden. In contrast, producers in markets like Australia, Canada, and the US face higher production costs while adhering to stricter environmental and labor standards.
The market does not yet price in the cost of deforestation, tailings pollution, workplace violence nor CO2 emissions. But calls from the likes of Australian mining tycoon Andrew Forrest to differentiate nickel sources based on CO2 emissions have been entertained by Fastmarkets, for instance.
Yet without clear carbon accounting, companies hoping to sell to the EU, for example, won't qualify for the EU Battery Passport. Further, companies that buy Indonesian nickel wouldn't qualify for US Inflation Reduction Act (IRA) tax credits under the US Treasury's Foreign Entities of Concern guidelines.
Western manufacturers and investors should weigh the risks of sourcing "blood nickel" from Indonesia. Beyond the immediate cost savings, long-term reputational and operational risks loom.
Public backlash could lead to significant brand damage, particularly for companies touting sustainability commitments. As US regulators begin scrutinizing corporate greenwashing, manufacturers could face penalties for sourcing materials that contradict their stated values.
"The longer we hesitate, the more children will be forced into hazardous mines, the more workers will endure exploitation and the more entrenched labor abuses will become in critical mineral supply chains," US Deputy Undersecretary of Labor Thea Lee said during a September 5 briefing on the global state of child and forced labor.
"We must locate new clean energy investment in countries that are committed to respect for fundamental workers' rights," Lee said.
Auto executives and supply chain managers must recognize the risks below the surface. Short-term savings from Indonesian nickel could become long-term liabilities.
Whether it's the US Department of Defense's reliance on nickel for military hardware or car buyers seeking ethically produced EVs, the risks of Indonesian nickel are too great to ignore.
[Gabriel Collins is a graduate student researcher in Mineral and Energy Economics at the Colorado School of Mines. Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines and a former lead energy specialist at the World Bank. Simon Lomax is a policy and outreach advisor to the Payne Institute and a former climate change reporter for Bloomberg News.]
Source: https://asiatimes.com/2024/09/indonesia-blood-nickel-risks-too-grave-to-ignore