Could Tariffs (Accidentally) Accelerate Renewables?
Developing nations can grow through energy transition following the disastrous climate retreat of the United States
Time and time again, the new(ish) U.S. administration has made its disregard for climate policy, including energy transition, perfectly clear: it’s just not interested.
Yet, the tariffs that Donald Trump is imposing on countries around the world could serve the counterintuitive purpose of accelerating the transition where it needs to happen most rapidly — in the big, developing nations of the world.
That irony is not lost on economists and energy-watchers for whom rapid decarbonization, especially in the world’s biggest, most energy-intensive, and highest-polluting economies, can’t come soon enough.
Case-in-point: Bloomberg’s head of trade analysis, Antoine Vagneur-Jones, on WhatsApp that the tariffs “will speed up a recent trend of China exporting to more middle and lower-income countries.”
That is a welcome trend for the fate of global energy transition. The rich world — and China — may still be on fossil fuels to power their data centres, agriculture, and transport sectors.
But the rich world’s dirty-energy curve is flattening and will inevitably bend downward as solar becomes a real alternative to fossil gas, much less coal.
It’s the big, developing countries where the energy transition battle really needs to be won.
Energy-hungry powerhouses such as Brazil, India, India, Nigeria — even South Africa — must skip over the rich world’s two centuries-long, disastrous experiment with carbon pollution, and aim for a rapid transition to energy that is clean, cheap and not dependent on the whims of geopolitics and fossil fuel price swings.
America’s climate retreat leaves a huge vacuum — one that can be filled by developing nations with huge energy potential and a desire not to be reliant on anyone else by themselves (and the sun and wind of course).
Indonesia represents a good case study.
This giant island archipelago is the world’s fourth most-populous country, and an energy superpower. But almost all of that energy is dirty. of its power comes from solar and wind, even though there is plenty of potential for these clean energy technologies there.
China, the biggest investor in the Indonesian resource sector, has bypassed this nation in terms of exporting its world-leading solar, wind and battery-storage technology and products. To date, the lion’s share of China’s investment in Indonesia has been in resource extraction, notably nickel extraction and processing, which depends on coal-fired power plants. (Then, of course, there’s palm oil).
This, says Dinita Setyawati, an energy analyst with Ember, a consultancy, “is quite curious” coming from China, the global leader in solar panel manufacturing. In contrast, she says, the Chinese are in Pakistan and Africa’s transition to solar.
Understanding why comes down to politics — and to cold, hard cash.
Why does the largest consumer of coal in Southeast Asia not switch to a more economical and sustainable energy source such as solar or battery packs? I posed this exact question to Usha Haley, an expert in Southeast Asian energy markets at Wichita State University in Kansas.
Her answer? “In emerging markets, politics and institutional factors trump economics.”
In other words, shattering the status quo, and specifically, government officials’ vested interests in the domestic coal and nickel industries, has still not swayed the pendulum enough for a country like Indonesia to seriously explore other options. Thus, it’s energy economics as usual, and all the pollution and harmful effects that come from burning coal to dig up and process nickel, power air conditioners, etc.
Unfortunately, Haley says, China has no real interest in upsetting the status quo in Indonesia if it does not have to. “China,” she says, “may see no reason to invest in renewables in Indonesia — just loaning money with very strict terms can keep the country within its sphere of influence.”
The Chinese are already in Indonesia’s nickel mining operations (which are powered by dirty coal). The Indonesian President says he’s committed to keeping the processing of raw nickel inside Indonesia. But what’s less discussed is how Beijing is largely in control of mining and refining, even if the latter is kept in-country.
So what’s it going to take to break the stranglehold of coal and other dirty energy in countries that still, directly or indirectly, still find a way to justify its use?
Because if the Indias and Indonesias of the world don’t transition — it’s game over.
Committed to coal?
First, we have to understand that there are structural variables hindering a country like Indonesia’s transition away from dirty energy. (And what happens in Indonesia matters across the rest of the region, and indeed across the big developing countries of the world).
The first and arguably most important barrier is a lack of energy-related education. Indonesia has very few domestically trained energy modellers. Most, says Setyawati, come from Europe or Australia. So getting an accurate picture of what energy transition actually looks like (on paper), then communicating that to the political class is a challenge.
The second major challenge is a huge increase in so-called ‘captive coal’ — coal-fired power plants not connected to the national electricity grid, and in service to run industries, notably nickel mining and smelting. “Captive coal has grown nearly fivefold, from 2.3 GW in 2014 to 11.2 GW in 2023,” Ember in a report. “This significant increase is mainly driven by a massive expansion of mineral smelting industries in North Maluku and Sulawesi.”
The state-run electricity network that systematically favours (and is built off of) coal-powered electricity production. That is not by accident; coal in Indonesia is priced thanks to subsidies and renewable policies that favour its use despite the many serious environmental and health-related effects of burning it.
Critics of Jakarta’s environmental and industrial policies allege that coal comes out on top because far too many senior officials in the government have a vested interest in the coal and nickel-mining sectors.
“The conflicting interests,” says Imam Shofwan, a former investigative journalist turned environmental activist “are very high.” He reads me a list of officials both in the national cabinet as well as the legislature that have deep financial connections to coal plants, nickel mines and smelters.
The new Indonesian president, Prabowo Subianto, has vowed to get the country off of coal power by 2040. But ? In a lengthy conversation with me over Zoom, Shofwan went through a long list of government officials with interests in the coal and nickel mining sectors.
Sixty per cent of the Members of the Parliament in the previous government of Jokowi, he told me, were financially invested in the extractive industries — and the situation isn’t any better now.
“That’s why every legislation benefits the [extractive] businesses — and the [approvals] process will be short,” he says.
Window dressing
Like other petrostates, official policy around ending coal in Indonesia also mostly .
For instance, Indonesia’s ‘National Electricity Master Plan’ focuses heavily on carbon capture and storage. This is hardly a sincere commitment to move away from coal. It doubles down on captive coal. Coal, literally and figuratively, .
During the COVID-19 pandemic, “diminishing export markets have incentivized the politically well-connected and highly concentrated Indonesian coal industry to lobby for the construction of coal-fired power plants in order to raise domestic demand,” observed Jose Antonio Ordonez, the lead author of a 2021 on the topic.
“There is also a strong incentive to sustain coal mining as a key economic activity, as associated royalties significantly contribute to local and national public budgets. Local pollution and climate change mitigation are of low priority.”
The vested interests, Shofwan says, became even more closely held after the previous Indonesian president, Jokowi, announced plans to keep more of the smelting operations inside Indonesia, rather than shipping raw material outside of the country for processing.
Jokowi’s so-called ‘downstreaming’ policy may have created economic opportunities in places like South Sulawesi, Central Sulawesi, and North Maluku. But, Shofwan says, these industries have brought serious social and health-related consequences, from poor air quality, to a range of debilitating industrial accidents, to massive deforestation and pollution of local waterways.
“Worker safety,” he says, “is very bad. That’s why over and over again.”
And yet, just the fact that China produces more than twice as many solar panels as the rest of the world combined should be an incentive to get on with the job.
“This massive expansion in supply has helped drive down the cost of renewable energy for consumers, acting as a counterweight to the rising cost of capital needed to develop solar farms,” The Economist .
In other words, there’s money on the tree — use or lose it.
Nickel and timing it.
The bulk of the messaging around nickel by the Indonesian government is around transportation. The electric vehicle transformation, Jakarta says, is why Indonesia should sink so much energy into its nickel mining operations.
The impact of all that nickel mining and smelting in rural communities is impossible to ignore, at least if you manage to make it to some of those places. Imagine skies filled with toxic smoke, rivers and waterways polluted by runoff from the smelters, massive deforestation.
But Shofwam says the political incentives are too difficult for Indonesia’s power-brokers to turn their backs on. The other inconvenient reality — of Indonesian nickel is destined for electric vehicle batteries, Kompas Data, a prominent Indonesian news media and fact-checking outlet. The rest goes to stainless steel production (think about that next time you contemplate purchasing cheap flatware from the dollar store!).
In fact, nickel and cobalt are no longer the primary in-demand metals for state-of-the-art car batteries. BYD, the Chinese EV automaker, a lithium ion phosphate (LFP) battery-powered car, it claims, can charge up in five minutes. There is also a lot of active research — yet no smoking gun discovery — in the solid state battery space.
Jakarta, Shofwan says, persistently justifies the nickel mining and smelters as part of a broader, global clean-energy transition – and electric vehicles. The government, he says, “always states that [nickel] is ‘the new energy’ because it’s low carbon.” The reality, he adds, is that it’s an industry that is “highly dependent on coal-fired power plants to [power up] nickel smelters.”
“I think the Indonesian government should realize this huge potential for solar manufacturing rather than focusing on EVs, on batteries,” says Setyawati. “Because they will be missing out on all of these market opportunities, and there will be stranded assets created by fossil fuels in the future.”
Outside pressure
China does not need help decarbonizing its electricity grid; it’s already well on its way. But other nations that are serious about decarbonization could help countries like Indonesia (or, for that matter, India, South Africa, Brazil) cut their coal consumption.
Enter: Singapore.
This wealthy yet resource-poor city state is powered overwhelmingly by fossil gas and oil. Its banks still invest heavily in fossil fuels (for example, Singapore-based OCBC, along with two other banks, are major financiers of Indonesia’s coal-powered nickel mining operations, as by The Strait Times, a news outlet).
But, as so much in the climate and energy-transition space, two things can be true at the same time. In its , Singapore has committed to boosting its solar capacity to 2 GW. For a tiny country, this means relying on its neighbours — Indonesia, Vietnam, Cambodia, even Australia, grabstand to benefit.
The challenge, building a grid to bring that energy to the Lion City.
The political commitment is there on the part of the Singaporean government, says energy analyst Dinita Setyawati. “However, what would be hindering this electricity trade would be the political commitment from the countries that Singapore is planning to import the renewable energy from.”
Hence the importance of a positive, economically forward-thinking narrative in Jakarta, Hanoi, Phnom Penh, and elsewhere: If the Chinese can get rich off solar, and live a healthier life, then so can you.
