Australia and Indonesia are building closer economic ties based on what the two countries can offer each other in the clean energy transition. Indonesia is emerging as a manufacturer of electric vehicles and the batteries that power them. Australia has lithium reserves that Indonesia needs.
During their visit, Indonesian President Joko "Jokowi" Widodo and Prime Minister Anthony Albanese pledged close cooperation on energy transition.
The leaders' joint statement on Tuesday highlighted Indonesia's efforts to develop electric vehicle production. Widodo is trying to enlist Australia's help in achieving Indonesia's goal of becoming a global hub for electric cars and batteries.
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What is the goal of Indonesia?
In line with its commitment to the Paris Agreement, Indonesia has set an ambitious target for its auto industry. By 2025, at least 20% of cars produced must be electric. This corresponds to about 400,000 cars.
Indonesian government programs such as incentives for low-cost green cars and regulations for low-carbon cars are driving this change.
Most of the cars made in Indonesia are joint ventures with foreign manufacturers. Indonesia has set up a joint venture with Korean company Hyundai and Chinese company SGMW to manufacture electric cars.
The government aims to turn Indonesia Battery Corporation (IBC) into a manufacturing hub for electric vehicle batteries. Rich nickel deposits can be exploited in Indonesia. However, the country lacks other materials to produce these batteries, especially lithium.
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Why does Indonesia want Australian lithium?
By 2040, Indonesia aims to become one of the world's five largest electric vehicle battery producers. To do this, access to other metals, including lithium, must be secured. Australian mines supply nearly half of the world's lithium.
Other important suppliers are Chile (24%) and China (16%). But Indonesia's proximity makes Australia a more attractive supplier.
To date, most of Australia's lithium exports have gone to China. With geopolitical changes (such as the nationalization of Chile's lithium industry) and global supply chain disruptions (war between Russia and Ukraine, tensions between China and the US), Australia will also benefit from Indonesia's lithium exports.
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Australia does not have the capacity to fully recycle lithium
Australia is the world's largest producer of spodumene. This mineral is rich in lithium.
However, Australia has limited capacity to process all spodumene into lithium hydroxide, which is used to make lithium batteries. Therefore, it makes sense to use this resource as part of a global supply chain, connecting with the battery and automotive industries in Indonesia and other countries.
Australia is a small player in global manufacturing trade. However, its share in the global production network is increasing.
Australia has a clear competitive advantage in specialty ingredients. These include finished products such as aircraft parts and related equipment, vehicles, construction and mineral processing equipment, and medical and surgical equipment.
However, Australia is disadvantaged as an exporter due to its geographical location. Exporting to large and distant markets costs more.
Specializing in materials with high quality-to-weight ratios helps overcome the 'tyranny of distance'. Australia is better off exporting products (including lithium) and importing derivatives to produce high-value products.
to read. Australia has rich deposits of minerals important for green technologies. But we are yet to make the most of it
What can lithium deal with?
In February 2023, the Western Australian Government and the Indonesian Chamber of Commerce and Industry (KADIN) signed a Memorandum of Understanding (MOU) to explore partnership opportunities. The focus is on the supply of important minerals in the battery industry. Widodo and Washington Prime Minister Roger Cook signed a follow-up plan this week.
Australia and Indonesia are expected to sign a memorandum of understanding that will accelerate cooperation in the global battery and electric vehicle industry. The joint statement issued on Tuesday included a commitment to achieve this goal.
As both countries begin to decarbonize, they need to take advantage of complementary aspects of their economies. Both are initiating energy transitions to meet the challenges of climate change.
However, it is important not to limit efforts between the two countries. First, an electric car battery requires much more than nickel and lithium. Many of its components must have come from other countries. The electric vehicle battery industry needs to be integrated with the automotive industry that supplies the global market.
Joint ventures may also extend to mineral processing. In Indonesia, most huts are coal-fired. Energy transition cooperation should include transitions to clean wind, hydropower and solar energy.
