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Indonesia at the crossroads: Balancing economic growth, mineral wealth and sustainable development

Indonesia finds itself at a pivotal juncture, balancing significant economic growth driven by mineral exports—particularly nickel and coal—with the urgent need to address environmental challenges and transition towards sustainable practices, including reducing greenhouse gas emissions.

  1. Economic growth and resource dependence: Indonesia’s economy has thrived on the extraction and export of minerals, becoming a global leader in nickel production and maintaining substantial coal exports. However, this reliance on mining has raised environmental concerns, including deforestation, soil degradation and significant greenhouse gas emissions from coal-fired power plants.
  2. Environmental and climate challenges: The country faces severe environmental issues such as rising sea levels impacting coastal cities like Jakarta, extreme weather events, and deforestation linked to mining activities. These challenges underscore the urgent need for Indonesia to pursue decarbonization and sustainable development pathways.
  3. Decarbonization and energy transition: Indonesia has committed to reducing its greenhouse gas emissions, aiming for a 32% to 41% reduction by 2030. Key strategies include deploying renewable energy sources like solar and offshore wind, enhancing grid infrastructure, and phasing out subsidies for coal in favor of renewables. However, the geographical and economic challenges, including the high costs of solar and wind power deployment, pose significant hurdles.
  4. Industrial strategy and mineral trade: Indonesia seeks to enhance its industrial strategy by moving up the value chain in mineral processing and manufacturing, aiming to develop refining facilities, hydrometallurgical plants, and battery factories. This shift involves divesting foreign companies, imposing export bans on crude ores like nickel and bauxite, and seeking to expand trade partnerships beyond China to include the US, EU, and Eurasian Economic Union.
  5. Challenges and considerations: Despite its ambitious goals, Indonesia faces complexities such as geopolitical tensions affecting trade agreements, fluctuating global commodity prices impacting nickel exports, and the need to manage mining’s environmental and social impacts. Moreover, navigating the transition away from coal while maintaining economic stability remains a delicate balance.
  6. Future directions: To achieve sustainable development goals, Indonesia must prioritize innovative solutions for mining waste management, uphold high environmental, social, and governance (ESG) standards in its industrial activities, and foster a clean battery industry aligned with global ESG criteria.

In summary, while Indonesia’s economic prospects are promising due to its mineral wealth, the country faces formidable challenges in balancing economic growth with environmental sustainability and achieving its decarbonization goals. The pathway forward involves robust policy frameworks, international cooperation, technological innovation, and a commitment to sustainable development practices across its industrial sectors.

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