Southeast Asia a Key Link in Renewable Energy Supply Chain Resilience

Supply chain resilience and renewable energy transitions dominated discussions at the Indo-Pacific Economic Framework (IPEF) ministerial meeting in Los Angeles, USA from 8-9 September 2022, where half of the participating countries were ASEAN member states. Whilst countries recognise the importance of promoting renewable energy and greener economies, the energy crisis, geopolitical rivalry, and supply chain bottlenecks will undeniably continue to hinder efforts. Europe’s rush to find alternative energy sources, following Russian gas export cuts, has also demonstrated geopolitical risks to energy security and the importance of having diversified energy supply chains.

Southeast Asia should learn from Europe’s experience. Given the current geopolitical climate, Southeast Asia should recognise that economic policymaking cannot be separated from political considerations.

The US and the International Energy Agency (IEA) have recently encouraged Asian countries to diversify their energy and critical minerals supply chains, so as to reduce dependency on China and Russia. Recent IEA reports suggest that China dominates the global supply chain for electric vehicle (EV) batteries while its global share of all the manufacturing stages of solar panels is over 80 per cent. Since supply chains of critical minerals and renewable energy technologies are so highly concentrated, they are vulnerable to disruptions – whether from pandemics, natural disasters, or geopolitical conflicts. A prime example is how China halted rare earth exports to Japan following a maritime conflict in 2010. There are also growing concerns that China’s solar panel supply chains rely on Uyghur forced labour in Xinjiang. This has prompted the US to ban imports of solar panels from China. The European Union is poised to follow suit.

The good news for Southeast Asia is that it can help to diversify the global supply chains of critical minerals and renewable energy technologies. The IEA has noted that Southeast Asia is a high-potential supplier of critical minerals essential to global energy transitions, such as bauxite, nickel, and rare earth elements.

Myanmar, for example, is the third largest producer of rare earths, accounting for 13 per cent of global production. Vietnam and Thailand reportedly have vast rare earth resources that have not been utilised. As for Indonesia, it has some of the world’s largest deposits of nickel, tin, and copper, which are essential components in EV battery production. Indeed, the Indonesian government recognises this potential and is actively seeking to make Indonesia an important producer of EV batteries. For Thailand – a country that is already a major hub of automobile production – there are national plans to increase EV production to 30 per cent of cars produced domestically by 2030. More generally, ASEAN has started to study how to promote regional cooperation on critical minerals.

To get around trade barriers imposed by the U.S. and Europe, Chinese firms have been investing in solar manufacturing in Southeast Asian countries such as Malaysia and Vietnam – which are now the second and third largest global manufacturers of solar cells. Despite domestic concerns that Chinese components are used in Southeast Asian solar panel exports, Washington decided in June 2022 to waive tariffs on solar panels imported from Cambodia, Malaysia, Thailand and Vietnam for two years. This is so that U.S. renewable energy transitions can continue relatively uninterrupted, whilst the government pushes for rapid development of a domestic solar manufacturing industry.

Aside from measures to encourage technological transfers from Chinese firms and foster homegrown innovations, Southeast Asian countries should commit to using only sustainably-sourced components where labour rights are well protected, so as to avoid loss of market opportunities in the future.

The IEA has noted that Southeast Asia is a high-potential supplier of critical minerals essential to global energy transitions, such as bauxite, nickel, and rare earth elements.

There is no doubt that governments will view their possession of large deposits of critical minerals as economic blessings. However, mineral mining can become a quagmire resulting in serious negative environmental and food security consequences such as water and air pollution, reduction in fish resources, and reduction in biodiversity.

The IEA is also concerned that increased mining activities could displace local communities and violate workers’ rights. In Indonesia and the Philippines, for example, nickel deposits lie in large areas beneath rainforests, so mining these deposits will reduce the forests’ carbon absorption capability and destroy biodiversity. A satellite imagery analysis by Global Witness suggests that there are now over 2,700 rare earth mining sites in northern Myanmar, covering an area approximately the size of Singapore, which harm ecosystems and undermine locals’ access to safe drinking water. Profits from rare earth mining are likely used to strengthen military rule in Myanmar.

Environmental and social impact assessments, which are sorely lacking for most economic projects in Southeast Asia, are needed to evaluate mining projects. These assessments will help governments to commit to finding policies and technological solutions that enhance the projects’ socio-ecological sustainability. Large-scale recycling can also relieve some of the economic pressures to mine new minerals, but recycling infrastructure for battery metals and rare earth elements in Southeast Asia is still in its infancy. Many more recycling plants will be needed, given that regional EV sales are expected to increase rapidly.

To ensure future energy security, it is crucial that Southeast Asian governments step up their efforts to diversify renewable energy supply chains. Energy security and renewable energy transitions are simply too important to be left in the hands of a few countries, let alone those that do not share many Southeast Asians’ political values and environmental concerns.

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