Tropical forests are vulnerable to the environmental impact of mining activities. Current and projected growth in the demand for critical minerals poses a threat to the continued conservation of tropical rainforests. Mining-related deforestation destroys the carbon storage capacity of tropical forests, threatens key biodiversity areas, as well as the livelihoods of indigenous peoples and local communities. Moreover, the high density of wetlands and rivers in tropical areas increases the probability of water being polluted by toxic substances, such as the acids used to separate the metal content from the mined crude ore. The loss of forest cover and inadequate regulations of mining practices can also cause landslides that negatively affect local communities.
New energy vehicles trigger surge in demand for nickel
Chinese firm CATL and Ford Motor have signed a partnership to build a new lithium battery plant in Michigan. As the world’s leading battery manufacturer, CATL will help Ford boost its electric vehicle production and cut manufacturing costs. Based on America’s “Inflation Reduction Act”, Ford can also receive U.S. government subsidies for new energy vehicles, as well as considerable subsidies for domestic production and assembly of batteries. Consumers will also receive subsidies for purchasing electric vehicles that meet certain requirements.
In addition to its technological leadership, CATL has controlled the corresponding upstream critical metal resources, which is also the source of its favorable recognition and cooperation confidence. As a battery manufacturer, CATL is actively acquiring nickel and lithium ore sources overseas. In Indonesia, CATL invested in 2022 to start nickel smelting and battery production.
Nickel is an important mineral for batteries, electroplating and steel making. Nickel is needed for coin minting, electric vehicles, wind turbine manufacturing and nuclear power plant construction, and it is also used to make stainless steel alloys that are resistant to corrosion and extreme temperatures. With the development of new energy vehicles, the demand for high nickel ternary lithium batteries is becoming increasingly strong. The increase in the composition of nickel in ternary lithium batteries can increase the driving range of vehicles.
Both the U.S. and China lack nickel deposits, meaning both countries must rely on foreign supplies. To limit global warming, it is essential that we transition from fossil fuels to renewable energy as soon as possible. However, in doing so, the damage caused to nature, biodiversity, and people must be kept to a minimum.
Ecological challenges in Indonesian nickel mines
With about 21 million tons of nickel resources, Indonesia is home to the world’s largest reserves and annual production, making it a hot spot for battery manufacturers and material companies.
Nickel, like palm oil, is the new gold. Nickel mining is a significant contributor to Indonesia’s GDP. In 2020, Indonesia was the world’s largest nickel producer, churning out approximately 800,000 metric tons. According to data from the Central Statistics Agency of Indonesia, the mining and quarrying sector, which includes nickel mining, contributed 10.21 percent to Indonesia’s GDP in 2020. The industry has grown rapidly in the country due to the increasing demand for electric vehicle batteries.
Nickel mining is located in North Sulawesi, where several large nickel mining companies operate. These are Vale Indonesia, the Brazilian mining giant Vale subsidiary, and PT ANTAM Tbk, an Indonesian state-owned mining company. Other significant Indonesian nickel mining industry players include Harita Group, Gag Nickel, and Indonesia Asahan Aluminium (Inalum). Although smaller in size than in North Sulawesi, some nickel mines exist in Tanah Papua, the island with a large intact contiguous forest, for nickel mining in Raja Ampat.
Papua has enormous nickel deposits. The Weda Bay nickel deposits, owned by Eramet, a French mining company, and its Indonesian partner PT Weda Bay Nickel, is estimated to contain over 9 million tons of nickel, making it one of the largest undeveloped sources of nickel in the world. Other smaller nickel deposits are also located on Gag Island, owned by Harita Group, an Indonesian mining company.
Since 2009, an IUP (mining business license) cannot be granted to a foreign entity. But an IUI for smelter can be granted to a foreign entity. So there are two permits for upstream and downstream nickel production: IUP (for mining only) and IUI (for smelter only).
Both China and Indonesia are committed to the Convention on Biological Diversity, and most of the nickel reserves in Indonesia, which are in forested areas of the eastern regions of Indonesia. Additionally, this region, including Sulawesi, North Mollucas, and West Papua, are high in biodiversity.
In 2020 Indonesian President Joko Widodo announced a ban on outbound shipments of the metal ore, limiting exports to refined products. The nickel ban is part of a long sequence of policies Indonesia has brought in since 2009 based on Law no.4/2009. The law is not only related to the acquisition of foreign mining companies’ Indonesian operations, but is also aimed at controlling both upstream and downstream natural resources.
In the two years since, the value of Indonesia’s nickel exports have soared from $3 billion to $30 billion and the country had surpassed China as the top nickel producer by 2021. Jokowi’s vision is not just to increase tax revenue and jobs; it is also for Indonesia to become a major manufacturer of EVs.
One of the reasons why Chinese investment in nickel mining in Sulawesi and Halmahera exceeds that of other countries combined is that Chinese companies have the advantage of high-pressure acid leaching (HPAL) technology for effective nickel refining. However, HPAL is a costly and polluting wet process. Investors are betting on high nickel prices and low ore and labor costs, at the expense of large tropical rain forests and environmental damage — public benefits that are a lower priority for investors and the Indonesian government.
In addition to the destruction of rainforest by mining, the environmental degradation caused by nickel smelting is also manifested in the disposal of tailing. Nickel mine tailing contains other rare earth elements and pollutants, and the local tropical rainforest climate receives frequent rainfall, causing pollution outflows to seep into groundwater or the ocean. Local factories have also been exposed for numerous discharge violations in the disposal of nickel ore waste.
Before 2010, the Indonesian government had no restrictions on the export of raw nickel ore in order to encourage mineral development. After 2010, Indonesia tightened the export of raw ore, including nickel ore. In 2012, the Indonesian government enacted a regulation to provide for a plan to reduce the shareholding of foreign mining companies to domestic investors. In June 2020, 20 percent of Vale Indonesia’s shares were acquired by Indonesia’s state-owned mining holding company.
China’s nickel and carbon neutrality
China only has around 4 million tons of nickel reserves of its own, accounting for about 4.4 percent of total global deposits. However, China ranks first for global consumption, so its external dependence is very high. Countries that used to export nickel ore to China include the Philippines, which has large deposits. Due to geopolitical influence, imports from the Philippines are not reliable, and there is sometimes friction with Australia and Canada, the other major nickel exporters. In 2023, the Chinese Ministry of Natural Resources plans to set up a “new round of strategic action office for finding breakthroughs in mining”, with the intention of increasing the search for strategic minerals such as lithium, nickel and rare earths, which are urgently needed for new energy development in China.
In 1957, China’s first nickel mine opened in in Huili, Sichuan Province. During the following year, Jinchuan Nickel Mine opened in Jinchang, Gansu Province, boasting the largest reserves in China, and Jinchang was thus named “Nickel Capital”. The output of nickel and platinum group metals of Jinchuan Group here used to account for more than 90 percent of the country’s output, and was the largest nickel and cobalt production base in China. Jinchuan Group, Qinghai Yellow River Mining, Xinjiang Xinxin Mining and other leading companies occupy half of the domestic nickel market. The development of nickel mines in these environmentally sensitive and fragile areas in the northwest does require effective protection for local ecosystems. Gansu, Qinghai and Xinjiang are places with huge potential for solar and wind energy, given their geographical and climatic advantages, meaning that mining firms with electricity to effectively use these renewable energy sources, can significantly reduce carbon emissions.
Nickel mining itself causes ecosystem damage, and the process of mining and smelting nickel is also energy intensive. The unit carbon emission of nickel products is in the range of 10-16 tons of carbon dioxide equivalent, second only to aluminum, which is the second highest carbon emission per unit product among non-ferrous metals. In the context of national requirements for carbon neutrality and carbon peaking, Chinese domestic nickel producers should start their low-carbon transition as early as possible to reduce greenhouse gas emissions in the production process of nickel products.
For example, nickel-related companies can set short, medium and long-term emission reduction targets to reduce carbon emissions by improving installations and systems, building energy recovery devices, and reducing electricity consumption. One is to cooperate with the requirements of the double carbon target of the province where they are located, and then to increase production and reduce production costs by reducing the carbon emissions per unit of product.
The new EU battery regulation requires battery manufacturers of new energy vehicles to disclose the carbon footprint of the batteries they sell in the EU. This is an inevitable challenge in terms of reducing carbon emissions in the nickel supply chain. ESG principals are also particularly important for Chinese firms and products aimed at US and EU markets.
In December 2022, the EU decided to impose a carbon border tax on some EU imports starting in 2026. The Carbon Border Adjustment Mechanism, known as the “green tariff”, will require non-EU companies to pay a carbon tax on some emissions-intensive products in order to reduce the difference between the carbon price in the country of origin and the EU.
Urban mines should not be neglected
Compared with natural mines, “urban mines”, often labeled as waste, are no less valuable for exploitation. Used appliances, computers, TV remote controls and batteries are rich in various rare metals that can be recycled. Among them, small electronic appliances are often discarded as garbage, polluting the environment.
A large number of appliances and electronic products are renewed and scrapped every day in China, with the vast majority concentrated in large and medium-sized cities. We should promote advanced recycling technology to develop “urban mines” instead of just opening up new sources in nature. It is a long-term solution for the supply of critical metals, resource security, and ecosystem protection.
Audi Motor Company recently partnered with battery recycling startup Redwood Materials to collect rechargeable batteries from everyday consumer devices, phones, hearing aids, electric toothbrushes and game controllers, as well as household lithium-ion batteries and larger electric vehicle battery recycling efforts.
On average, Redwood’s technology can recover more than 95 percent of the materials used in lithium-ion batteries, such as nickel, cobalt, copper, aluminum, lithium and graphite. These materials can then be returned directly to the supply chain to make batteries for new electric vehicles and energy storage products. The U.S. Department of Energy has now provided a $2 billion loan to help it expand its campus and scale up domestic battery cell production in the United States.
China’s public investment should not only focus on domestic and foreign natural mines; “urban mines” should also be given policy and financial support. As China’s nickel demand increases, its secondary resources are actually accumulating, forming new “social” nickel mines. Although urban mines are not hard to find, the government and large corporations are often oblivious to them. In the history of commercial mining, companies have become accustomed to excavating and mining increasingly fewer mines at a higher environmental and social cost, and mining equipment manufacturers are naturally happy to see this happen.
There is a finite amount of nickel available on the planet, and one day nickel reserves will be exhausted, just like oil. Governments should work to reduce dependence on nickel by developing advantageous and convenient public transportation systems to reduce the pressure on the mineral materials needed to manufacture private cars.
Promoting the mining of urban mining resources requires the establishment of social collection channels and networks for relevant waste materials. The degree of perfection and scope of the network determines the stability of the raw material supply system of these companies, which requires management and policy support.