US lawmakers challenge proposed critical minerals agreement with Indonesia

Resistance centres on Chinese dominance of Indonesia’s nickel processing industry

US lawmakers are attempting to halt a proposed critical minerals agreement (CMA) with Indonesia, throwing a spanner in the works for the Inflation Reduction Act’s (IRA’s) ability to meet climate objectives. In October, a bipartisan group of senators submitted a letter to government secretaries contending that a CMA - a limited free trade agreement (FTA) targeting critical minerals - with Indonesia would inadvertently benefit Chinese firms such as Huayou and Chengtun Mining Group that dominate its nickel sector. For a vehicle to be eligible for IRA tax incentives, its battery minerals must be sourced from the US or one of its free trade partners. To circumvent the challenges of passing conventional FTAs through Congress, the US has begun establishing CMAs - the first of which was signed with Japan in March. A similar agreement with Indonesia would be critical, given that the country holds 22 percent of the world’s reserves of nickel – a vital component in lithium-ion batteries.

The US’ lack of FTAs is a growing issue for the IRA’s ability to balance ambitious industrial policy and climate objectives. Washington has FTAs with just a few of the key players in the critical minerals sector, omitting countries like Chile, Argentina and Brazil that have large lithium deposits. It is even having difficulties striking a CMA with the EU. A separate but related issue is China’s deep-seated dominance of critical minerals. China produces around 60 percent of the world’s critical minerals and has 85 percent of processing capacity. By 2025, EV manufacturers must also ensure their critical minerals are not sourced from a ‘foreign entity of concern’ to be eligible for IRA tax credits. How the Biden administration defines ‘foreign entity of concern’ in relation to Chinese involvement will indicate how Washington intends to balance decreasing dependency on China with achieving its decarbonisation objectives.

Central Asia courts global powers as Russian grip loosens

China, Turkey, the US and EU all emerge as interested parties

A number of countries have recently intensified their engagement with Central Asia, seeking to capitalise on diminishing Russian influence in the region. Kazakhstan last week held the 10th summit of the Turkish-led Organization of Turkic States, which includes Kazakhstan, Türkiye, Uzbekistan, Kyrgyzstan and Azerbaijan. In early November, Emmanuel Macron became the first French President in nine years to visit Central Asia. China convened a summit with Central Asian countries in May, followed by the US in September and the EU last month. This week’s G7 meeting also saw attendance from foreign ministers of several Central Asian countries. These countries, historically cautious of Russian dominance, are now seeking to broaden the horizons of their foreign policy, an objective which was given extra impetus by the context of the invasion of Ukraine last year. Kazakhstan in particular has taken a bold stance, last month prohibiting the export of 106 items with potential military use to Russia, after it also refused to recognise the independence of Russian-occupied parts of Ukraine.

Central Asia is aiming to yield unique benefits from a multiplicity of partners. China is perhaps the most natural for Central Asian countries being geographically close by and possessing huge demand for the region’s oil and gas resources. China is also far less concerned of the deterioration of human rights and democracy in Myanmar than Western countries. China has recently become Central Asia’s largest trading partner, with bilateral trade reaching US$70 billion in 2022. Cooperation in oil and gas is a cornerstone of this trade relationship, with 75 percent of Turkmenistan’s gas being exported to China. This is also a critical factor in its dealing with Western countries. The EU has long been seeking to establish the Trans-Caspian Gas Pipeline, which would connect Europe directly to Turkmenistan’s gas supplies. Still, it would be grossly premature to dismiss Russia’s influence. The remittances from Russian labour migrants remain a significant economic factor for Central Asian countries, whose trade with Moscow has actually risen as the Kremlin seeks to use its neighbours as a conduit to avoid Western sanctions. Russia is still the dominant security actor in a region which continues to be ruled by Russophone elites.

US sanctions Myanmar’s national energy company

Latest restrictions a step up from previously limited sanctions campaign

The US last week announced sanctions on Myanmar’s national energy company, targeting a key source of the military government’s funding. The sanctions, coordinated with the UK and Canada, prevent individuals from having a direct or indirect financial relationship with Myanma Oil and Gas Enterprise (MOGE) from December 15. MOGE has joint ventures with foreign companies in oil and gas projects, some of which (notably TotalEnergies and Chevron) pulled out following the removal of Myanmar’s democratically elected government in 2021. The company currently has projects with Thailand’s PTTEP and Gulf Petroleum Myanmar, as well as South Korea’s POSCO.

The recently imposed restrictions represent a significant escalation in the US’ sanction regime against Myanmar, which, post-coup, had previously focused on specific individuals within the government. The strategy expanded in June with the sanctioning of two of Myanmar’s four state-owned banks which the military uses to access foreign currency to purchase arms and fuel. The sanctions on MOGE are likely to tighten the screws further. Between October 2021 and March 2022, the company generated US$1.72 billion in revenues from exports of natural gas.

However, the sanctions may also deepen Myanmar’s ties with Russia and China. Although deals with China, such as the China-Myanmar Economic Corridor, are far from reaching full fruition, the junta has few other economic and diplomatic options. Meanwhile, Russia is advancing its interests in Myanmar, notably with plans to spearhead the development of nuclear power in the country.

Offshore wind producers scrap raft of US projects

Even the IRA’s US$369 billion of incentives not enough to mobilise stalled projects

Swathes of offshore wind projects in the US are facing delays or cancellations, despite the large incentives provided by the Inflation Reduction Act (IRA). The IRA aims to incentivise the installation of clean energy projects through the provision of US$369 billion of subsidies and tax credits. Through the IRA, the Biden administration aims to install 30 GW of offshore wind capacity by 2030. However, according to Bloomberg NEF, more than half of all US offshore wind contracts have been terminated this year or are at risk of being ended. Last week, Denmark’s Ørsted – the largest offshore wind developer in the world – cancelled two projects off the coast of New Jersey worth a total 2.2 GW capacity. Other companies such as Avangrid and Shell have also cancelled offshore wind projects in the past few weeks.

Contracts initially struck years ago are becoming increasingly less favourable amid steep increases in project costs. High interest rates are making financing more expensive, while ongoing supply chains issues are delaying the delivery of essential wind turbine components. Moreover, the infrastructure needed to support these projects, including connections to the grid, is not keeping pace with the demand for renewable energy projects. At the end of 2022, there were over 10,000 renewable energy projects waiting to be connected to the grid, representing around 1,350 GW of generation capacity and 680 GW of storage. While the IRA has unlocked an unprecedented US$7.7 billion of investment in offshore wind, it is increasingly unlikely that it will be enough to help the US reach its 2005 to 2030 emissions reduction target of 50 to 52 percent. Research group Rhodium recently brought down its projections for the US’ 2030 emissions reductions from 32 to 29 percent due to slowing renewables installment.