Jakarta, 20 February 2024— Global demand for nickel is increasing amid the growing popularity of electric cars. To increase state revenue by exporting only processed nickel, President Joko Widodo banned nickel ore exports in 2020. Nickel downstreaming is now an important issue for Indonesia amid an election year. The ban on nickel ore exports and the expansion of domestic processing have increased the value of nickel exports from USD 4 billion in 2017 to USD 34 billion in 2022, an increase of 750%. However, claims about the positive impacts of nickel downstreaming often overlook its effects on environmental and public health risks.

A new study on the health and economic impacts of nickel processing efforts by the Centre for Research on Energy and Clean Air (CREA) and CELIOS reassesses the expected economic gains. Titled “Debunking the Value-Added Myth: A Closer Look at the Nickel Industry,” the study provides an in-depth assessment of the industry’s impacts on the economy, ecology, and public health, focusing on the three main provinces where nickel smelting operations are located: Central Sulawesi, Southeast Sulawesi, and North Maluku.

The nickel industry’s growth in these regions is projected to contribute USD 4 billion (IDR 62.8 trillion) in the fifth year of its development. After that, however, the industry’s negative impacts on the environment and agricultural and fisheries productivity will begin to affect total economic output, which will decline sharply after the eighth year.

“Although the nickel industry is said to offer a promising future and tremendous opportunities for the country, its impacts on nearby communities—especially on their health and livelihoods—put them at considerable risk,” said CELIOS Executive Director Bhima Yudhistira Adhinegara, summarising the report’s findings.

Environmental degradation is one of the impacts of nickel processing operations. Declining water, soil, and air quality erodes the livelihoods of fishermen and farmers around industrial areas. The report projects that farmers and fishermen will incur losses of up to IDR 3.64 trillion (USD 234.84 million) over the next 15 years.

The study also debunks the myth that nickel industry projects can improve the welfare of local residents through job creation and higher wages. Employment will increase only in the third year, during the factory construction phase, and then tend to decline through the fifteenth year, as the nickel industry’s negative impacts affect employment in other business sectors, particularly agriculture and fisheries.

This is closely linked to the operation of captive coal-fired power plants, which are integrated into industrial areas, particularly those engaged in nickel processing. Processing low-grade nickel ore requires large amounts of energy, and Indonesia relies on coal power. Of the 10.8 GW of operating capacity of all captive coal-fired power plants in Indonesia, more than 75% (8.2 GW) is dedicated to metal processing. Nickel alone accounts for three-quarters of that capacity, or around 6.1 GW.

“The industry’s reliance on coal-fired power plants will cause at least 3,800 deaths each year over the next two years, and nearly 5,000 deaths by the end of this decade, resulting in an economic burden of USD 2.63 billion and USD 3.42 billion per year over the same periods,” said Katherine Hasan, an analyst at CREA.

China is currently the largest investor in captive coal-fired power plants in Indonesia, with more than 70% of ownership held by 14 private and state-owned metal processing and mining companies.

“China’s continued investment in coal-fired power plants has played a significant role in undermining Indonesia’s emissions-reduction targets,” said Lauri Myllyvirta, Lead Analyst at CREA. “Although China pledged in 2021 to stop building coal-fired power plants overseas, investment in coal-fired power plants in Indonesia has continued, and all coal-fired power plants funded by Chinese investment are located in Indonesia’s coal-powered industrial and mining areas,” he added.

A new study on the health and economic impacts of the nickel processing drive from the Centre for Research on Energy and Clean Air (CREA) and the Center of Economic and Law Studies (CELIOS) has debunked the supposed economic gains. The study, titled ‘Debunking the Value-Added Myth in Nickel Downstream Industry’, is a deep dive into the economic, ecological, and public health impacts of the industry, with a focus on the top three locations for nickel smelting operations: the provinces of Central Sulawesi, Southeast Sulawesi and North Maluku.

The nickel industry’s current growth pathway in the focus regions would contribute USD 4 billion (IDR 62.8 trillion) in the fifth year of construction. From then on, the industry’s negative impacts on the local ecology begin to affect the total economic output, becoming more drastic after the eighth year.

“Despite the promised future and opportunities that would be seized through the country’s massive nickel industry, its impacts on the country’s population, especially its health and source of livelihoods, put them at great risk,” said the Executive Director of CELIOS, Bhima Yudhistira Adhinegara, summarising the results of the report.

Environmental degradation is one of the impacts arising from nickel processing operations. The decline in water, soil, and air quality leads to a decrease in the livelihoods of fishermen and farmers in the vicinity of industrial areas. Projected in the report is that over the next 15 years, farmers and fishermen will incur losses of up to IDR 3.64 trillion (USD 234.84 million).

Additionally, the myth regarding how nickel industry projects can enhance the welfare of local residents through employment absorption and wage increases is also refuted in this study. The increase in employment absorption will only occur in the third year during the factory construction phase, then tend to decline until the fifteenth year, as the negative impacts of the presence of the nickel industry affect job absorption in other sectors, particularly agriculture and fisheries.

This is attributed to the presence of operational Captive Coal Power Plants, which are inherent to industrial areas, particularly those involved in the nickel smelter industry. Processing low-grade nickel ores is energy-intensive, and Indonesia relies on coal power. Of the 10.8 GW operating capacity of all captive coal power in Indonesia, over 75% (8.2 GW) is dedicated to metal processing. Of this, nickel alone consumes three-fourths or about 6.1 GW.

“The industry’s reliance on coal power would lead to at least 3,800 annual deaths in the next two years, and nearly 5,000 by the end of the decade, causing an economic burden of USD 2.63 billion and USD 3.42 billion per year in the same period,” said Katherine Hasan, Analyst at CREA.

China is currently the largest investor in captive coal power in Indonesia, with more than 70% ownership held by 14 private and state-owned metals processing and mining companies.

The researchers recommend policies to power nickel smelters with clean energy instead of coal power, strengthened emissions and environmental standards and disclosure, as well as increased royalty payments. These measures would reduce the negative public health and environmental impacts and increase the national economic benefits from Indonesia’s rich nickel deposits.

Contact person:

Katherine Hasan, Analyst at CREA (+62 877-8718-6363 / [email protected])

Atina Rizqiana, Researcher at CELIOS (+62 857-1158-9157 / [email protected])