The mineral and energy mining industry involves the extraction and depletion of non-renewable resources that have a limited supply. As a result, the operational decisions made by mining companies to exploit these resources today incorporate intergenerational costs that can have significant economic, environmental and social consequences that extend far into future generations.

For instance, as reserves naturally deplete, the prices of finite commodities could surge in the future. Therefore, failing to maintain sustainable exploitation rates in the current generation will prevent future generations from benefiting from the possibility of exploiting finite commodities amid skyrocketing prices in the future.

However, ensuring intertemporal optimization is challenging as it involves making decisions that maximize the long-term economic value of resources over their entire life cycle, spanning several decades.

The key challenge in intertemporal optimization is that the value of a resource can change over time. The decision to extract a mineral or energy resource today may be economically viable due to current market conditions but may not be optimal in the future as commodity prices, operational costs and other factors change.

The complexity of intertemporal optimization in mineral and energy mining increases as several factors, such as ore grade, mineral deposit size, operational costs and commodity prices, must be balanced intergenerationally. Despite this complexity, every decision-making process must involve these factors to optimize the value of resources over time for intergenerational purposes rather than focusing solely on short-term gains.

Going deeper into the case of Indonesia, the Indonesian energy and mineral mining industry has seen significant growth over the years, with the production target of strategic commodities like coal and nickel continuously increasing regardless of the volatility of the price.

However, this growth has come at a cost, as the industry has not yet fully embraced intertemporal optimization. While there has been an increase in the production of coal and nickel, it is unclear whether this growth ensures intertemporal sustainability in the long term, given the finite nature of these resources.

According to data from British oil and gas multinational company BP and the United States Geological Survey (USGS), coal production in Indonesia has grown exponentially, from 77 million tons in 2000 to 687 million tons in 2022. This increase in production has been driven by rising global demand for coal, particularly in Asia, where countries such as China and India rely heavily on coal for their energy needs.

However, this rapid growth has not been accompanied by an increase in the reserves of coal, raising concerns about the long-term sustainability of coal mining in Indonesia.

Similarly, the production of nickel in Indonesia has also seen a significant increase, from a mere 93,000 tons in 2000 to 1.6 million tons in 2022. This growth has been driven by increasing demand for nickel in the production of stainless steel and the recent development of electric vehicle battery technology.

There are, however, concerns that environmental and social impacts of nickel mining, such as deforestation and land conflicts, may not be fully accounted for in the decision-making process to achieve intertemporal sustainability.

The question of intertemporal optimization is further supported by the fact that Indonesia consumes only one-third of the minerals and energy it produces. The rest is exported to fulfill global demand, which raises the question of whether the situation of the oil bonanza could occur with other mining and energy commodities, burdening future generations.

In the 1970s, Indonesia experienced a sudden influx of wealth from the export of oil and gas, which led to a period of rapid economic growth and development. However, this growth did not support the intertemporal optimization, as Indonesia failed to invest in alternative industries and diversify its economy.

This failure to optimize resources intertemporally had significant economic consequences, as Indonesia now became heavily dependent on oil and gas imports, leaving the country vulnerable to fluctuations in global oil prices.

We believe that Indonesia can learn from other countries such as Norway to succeed in achieving intertemporal optimization of mineral and energy mining. The country is rich in natural resources such as oil, gas and minerals, and has been able to harness these resources to build a prosperous economy while ensuring intergenerational equity.

Norway has taken a strategic approach to resource management by implementing strict environmental regulations for mining activities. This regulation includes the requirement for mining companies to fully reclaim the land after mining operations have ceased and to reinvest their profits from energy mining in renewable energy development such as hydropower to reduce their dependence on non-renewable resources in the long-term.

Moreover, Norway also successfully established a sovereign wealth fund, the Government Pension Fund Global (GPFG), to invest the revenues from its oil and gas reserves. The GPFG is one of the largest sovereign wealth funds in the world and invests in a diversified portfolio of assets, including stocks, bonds and real estate, with a focus on long-term returns.

Norway's approach to resource management has allowed the country to build a strong economy while also ensuring that future generations benefit from the country's natural resources.

In conclusion, we believe that although it is rather difficult for Indonesia to achieve intertemporal optimization in energy and mineral mining, efforts can be made to ensure that today's mining does not burden future generations.

First, Indonesia needs to develop a comprehensive mining policy framework that includes long-term planning, environmental regulations and community engagement strategies. Second, Indonesia should strengthen its regulatory and enforcement mechanisms to ensure that mining companies comply with environmental and social standards. This can include conducting regular inspections and audits, imposing fines and penalties for non-compliance, and revoking licenses for repeated violations. Finally, Indonesia should promote responsible investment in the mining sector by encouraging transparency and diversification of re-investment in the renewable energy sector using revenues from non-renewable resource mining.

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The writer is an industry analyst at Bank Mandiri