Opportunities for Australia–ASEAN collaboration on critical minerals

Southeast Asia’s energy transition is coming to life as the development of green technologies accelerates across the region. Securing critical minerals will be crucial to this process, and Australia should work with Southeast Asia to realise their mutual goals in this area.

If Southeast Asian countries pursue policies in accordance with the Paris agreement to limit global temperature rises to 2°C, the market size for green technologies in the region is projected to increase from just under US$5 billion in 2020 to nearly US$20 billion in 2030 and US$50 billion in 2050. Several Southeast Asian states have introduced national agendas and policies to address the impact of climate change and increase their energy security through renewables. Some also see the energy transition as an opportunity to pursue more sustainable economic growth by becoming players in the electric vehicle and battery supply chains.

Critical minerals are essential components of many clean-energy technologies. More critical minerals are used to build solar farms, wind farms and electric vehicles than fossil-fuel-based alternatives, and the growing demand for green technologies in Southeast Asia will amp up the pressure on governments to provide a robust and resilient critical-mineral supply chain.

Mining and processing critical minerals for exports could bring immense revenues to Southeast Asian states and help them establish themselves in regional supply chains for green technologies. A strong mining and refining sector would also attract investment in green energy manufacturing, such as battery production. By building these sectors, Southeast Asian states would not only have a secure supply of critical minerals domestically, but also stand to benefit in the market, helping them reinvest further in their energy transition.

Some Southeast Asian states have already begun to invest in refinement and processing. Indonesia, for instance, has leveraged its position as the world’s biggest nickel producer to set up domestic processing facilities, even going as far as enacting protectionist bans on the export of unprocessed nickel ore.

The region could be a major player in supplying critical minerals and developing key supply chains. ASEAN already accounts for 46% of global nickel production and 34% of tin production. Indonesia and the Philippines are two of the world’s largest producers of nickel, which is used in batteries and electrolysers. Rare-earth minerals, a critical component for producing certain types of electric vehicle motors and wind turbines, are a major export for Myanmar.

But in contrast to their abundant resources, Southeast Asian economies’ capacities to refine and process critical minerals are mixed. The region contributed only 2% of global aluminium output in 2020 and 3% of smelted and refined copper. However, it is picking up the pace when it comes to producing and refining rare earths. Between 2015 and 2020, Southeast Asia’s share of global raw rare-earth production surged from 0.6% to nearly 10%, and the region went from providing 2% of rare-earth refining and smelting to around 14%. Raw nickel, tungsten and manganese production also grew significantly.

Southeast Asia also possesses significant capacity in advanced downstream production using critical minerals. Malaysia and Vietnam are the second- and third-largest manufacturers of solar panels in the world, and Singapore is a research and development hub for these technologies.

Australia is also a significant player in supplying critical minerals. In 2021, half of the world’s lithium came from Australia. It is also the second-largest producer of cobalt and the fourth-largest producer of rare earths. Australia’s new strategy for its critical minerals sector aims to develop a downstream industry for processing and refining minerals onshore to ensure resilient and diversified supply chains. While this will help promote sustainable growth in the country’s domestic manufacturing and industrial sectors, Australia must also comply with the highest environmental, social and governance standards. The recent controversy over Australian rare-earth mining company Lynas’s operations in Malaysia further emphasised the need for Australia to develop its own processing capacity and reduce its reliance on foreign facilities.

Southeast Asia and Australia have areas of shared interest in developing their critical-mineral industries. Both are investing in critical-mineral supply chains by developing onshore processing, aimed at preventing bottlenecks in the supply chain. Like Australia, ASEAN emphasises the importance of environmentally friendly and socially responsible mineral development practices. These shared goals can serve as the foundation for future cooperation.

Yet collaboration on critical minerals hasn’t featured in recent initiatives between Australia and ASEAN, including the ASEAN–Australia comprehensive strategic partnership and the recently concluded free trade agreement between ASEAN, Australia and New Zealand. The Australia–Vietnam Enhanced Economic Engagement Strategy includes some minerals and mining initiatives, but its primary focus is on facilitating Australian coal and mineral exports to Vietnam.

Given Australia’s technological advantages, Canberra should consider providing support to Southeast Asia to help it develop environmentally friendly and socially responsible mining and refining practices. Capacity building is another possible area of cooperation. Southeast Asia is anticipating a rush of investment in extracting critical minerals, but many governments are not well equipped to handle, guide and regulate this level of activity. Australia could assist with investment screening and monitoring to ensure businesses comply with environmental and governance standards.

Since Australia is also looking to develop its downstream industry, it should consider embedding its critical minerals projects, when suitable, into existing supply chains in the region. An example would be establishing joint ventures to produce electric-vehicle batteries, which can leverage the comparative advantages of Australia and Southeast Asian states. Critical-mineral resources in Australia and Southeast Asia are complementary. Southeast Asia has an advantage in nickel, tin and bismuth production, which Australia doesn’t currently consider critical minerals. Australia is a major source of rare-earth elements, manganese and cobalt, which Southeast Asia doesn’t produce at scale. This complementarity can facilitate further cooperation.

Of course, there are challenges to be overcome. ASEAN hasn’t issued an official definition of critical minerals, while Australia has listed 26 minerals as critical. This discrepancy might create bureaucratic hurdles. Both Australia and Southeast Asia hope to attract foreign investment to develop their downstream industries, so a certain degree of competition is unavoidable. The resources development sector in Southeast Asia is rife with corruption and lacks accountability and transparency. This issue is especially prominent in countries with weak rule of law, where it will be a struggle to regulate investment and mining activities. And in areas prone to internal conflict like Myanmar, armed groups could capture mining production and use profits to entrench their power. But if Australia does its due diligence when considering cooperation, it shouldn’t be discouraged. This is a major opportunity for Canberra to strengthen its strategic relationship with the region.