Hans Nicholas Jong, Jakarta – Indonesia's largest coal miner, PT Adaro Energy, faces claims of greenwashing over its plan to build coal-fired power plants on the island of Borneo to provide electricity for its aluminum smelter there.
At its annual shareholders' meeting in Jakarta on May 11, two shareholders protested against the planned captive power plants, known as such because they're designed specifically to supply certain industries and not to feed into the grid.
"Stop the development of new coal plants. One billion people will be threatened by the climate crisis due to coal plants," one of the shareholders shouted while being escorted out of the meeting.
The plants, with a combined capacity of 2.2 gigawatts, will supply Adaro's aluminum smelter in an industrial park, itself branded as "green," in North Kalimantan province. The park is being touted, once completed, as the largest of its kind in the world, home to Indonesia's first electric vehicle battery production, alongside petrochemical and aluminum industries.
The smelter project, estimated to cost $2 billion, has entered the preconstruction phase and is expected to start commercial operation in 2025. Once running at full capacity in 2029, it will be able to produce 1.5 million metric tons of aluminum a year, the company says.
Aluminum is used in the lithium nickel-cobalt-aluminum oxide (NCA) cathodes that are the most widely cathodes currently found in EV batteries. Because of this, and the adjacent EV battery plant in the industrial park, Adaro is marketing the aluminum smelter project as a flagship green and renewable development for Indonesia.
"Seeing the future development of electric vehicle (EV), the Company is ready to participate in providing aluminium for the EV's material and support green economy for sustainable living," Adaro said in a filing to the Jakarta stock exchange.
But building the smelter will start with building the coal-fired power plants to run them. Only later, in 2030, will the smelter switch to using power from a hydroelectric plant.
Adaro said that while the main power source for the industrial park will be renewables, coal will still be needed in the initial stages of the smelter as it takes longer to build renewable power plants.
Binbin Mariana, Southeast Asia energy finance campaigner at climate group Market Forces, noted that state-owned aluminum producer PT Indonesia Asahan Aluminium (Inalum) is also building a smelter in North Sumatra province – powered by two hydro plants.
"By using hydropower plants, the cost of the aluminium production is much cheaper compared to using coal-fired power plants," she said. "The cost if using hydropower is less than 5 U.S. cents per kilowatt-hour, compared to 6 to 8 U.S. cents if using coal."
And even after Adaro makes the switch in 2030, it's not clear whether the captive coal plants will be decommissioned, according to the Center of Economic and Law Studies (CELIOS), a Jakarta-based research institute.
"Is there any guarantee that when the hydropower plant is ready, the captive coal plants will be shut down? No," CELIOS executive director Bhima Yudhistira said.
He added that's because the master plan for the "green" industrial park explicitly allows coal power: the estate's environmental impact assessment maps out two zones, green and blue, with factories and smelters in the blue zone permitted to use power from coal plants.
Even using the best available technology to minimize emissions, the captive plants will still emit an estimated 5.2 million metric tons of greenhouse gases per year, according to Market Forces.
Greenpeace Indonesia energy campaigner Bondan Andriyanu said this goes against the Indonesian government's pledge to phase out coal and switch to renewables in a bid to mitigate climate change. The planned coal plants will also dash any hope of meeting the wider goal to limit global temperature rise to 1.5 Celsius (2.7 Fahrenheit) above pre-industrial levels.
The International Energy Agency says there can be no new coal-fired power plants after 2021 if the world is to stay within this threshold, agreed on by nations including Indonesia in the Paris climate pact to avoid the most catastrophic impacts of climate change.
"The development of a new coal plant will only exacerbate the impact of the climate crisis, pollute the environment, harm the people and Indonesia's commitment in reducing carbon emissions from the energy sector," Bondan said.
Less money for coal
Nabilla Gunawan, Indonesia campaigner for Market Forces, called the smelter project "greenwashing" since it's being marketed as sustainable. With other environmental groups also pointing this out, Adaro has reportedly struggled to raise money from international banks to finance the project.
The company had planned to get $1.1 billion in bank loans to help meet the $2 billion price tag, but several global banks that had previously done business with Adaro now say they won't finance the smelter. This includes Singapore's DBS and OCBC, and the U.K.'s Standard Chartered.
For coal companies like Adaro, it's becoming increasingly difficult to get funding as a growing number of banks and investment funds announce their commitments to tackling climate change by no longer funding industries that contribute to greenhouse gas emissions, according to Binbin of Market Forces.
Many of these institutions are part of the U.N.'s Net-Zero Banking Alliance, accounting for about 40% of global banking assets. To date, 115 banks in 41 countries have joined the alliance.
That leaves a shrinking pool of banks willing to fund coal, especially for companies like Adaro, which not only plans to build new power plants, but also still has plans to prospect for new coal reserves, Binbin said.
"What's funny is that if you look at Adaro's annual report in 2021, it says that they're still exploring new mines," she said.
Adaro's coal production hit a record high in 2022, amounting to 62.8 million metric tons, a 19% increase from the 52.7 million tons it mined in 2021, casting further doubt on the company's commitment to transition away from coal.
Adaro Minerals, the subsidiary in charge of the smelter project, has denied that the company is struggling to get funding for the project.
"The rumor is not true," Adaro Minerals director Wito Krisnahadi said as quoted by CNBC Indonesia, adding that they've been able to secure financing from at least five banks. Wito declined to name the banks.
Adaro Energy's head of corporate communications, Febriati Nadira, said separately that the company is in the process of finalizing the deal to finance the project.
Adaro Minerals has also denied allegations of greenwashing. President director Christian Ariano Rachmat said the company remains committed to transitioning toward green energy, but will need time to build the hydropower plant to meet the aluminum smelter's demand for electricity.
Christian also said that three-quarters of aluminum smelters around the world still use coal, hence Adaro's case wasn't an outlier.
"One day, we want to produce green aluminium, but it needs time to get there, at least until our hydro [plant] is finished," he said.
Hyundai driving into controversy
Besides Adaro, critics have also gone after South Korean automobile giant Hyundai, which signed an agreement in November 2022 to buy aluminum from Adaro for its EV production. Hyundai described the aluminum as "green and low-carbon" because it would be produced using hydroelectric power, and thus would "accelerate" the transition to sustainable energy and help the company meet its net-zero emissions goal by 2045.
But the agreement fails to mention that hydropower will only come into the mix at a later stage, with the smelter initially relying on burning coal. That makes any purchase of aluminum from Adaro's smelters a violation of Hyundai's Carbon Neutrality Principles, Binbin said.
Those principles require Hyundai to cut not just its own emissions, but also those emissions associated with assets it doesn't own – like the aluminum it plans to buy from Adaro. These are known as Scope 3 emissions, and in 2022 Hyundai reported 18.3 million metric tons of Scope 3 emissions from its supply chain, up from 17 million metric tons in 2021.
"This means that this 18 million tons of emissions have to be reduced," Binbin said. "But if Hyundai buys aluminium from Adaro, the emissions [from its supply chain] will increase. So this doesn't make any sense."