Nickel Downstreaming, Technology Acceleration, and ESG Implications in Indonesia: A Policy Scenario Analysis

Abstract

Purpose: This study examines how Indonesia's nickel ore export ban accelerates the transition from Rotary Kiln Electric Furnace (RKEF) technology to High Pressure Acid Leaching (HPAL) technology and assesses whether full downstreaming or partial liberalization is more effective in maximizing value capture within the global Electric Vehicles (EVs) battery supply chain during the period 2026–2030.

Design/methodology/approach: Using monthly time-series data for 2018–2025 (n = 96), the study estimates a log-linear multiple regression via Ordinary Least Squares (OLS) with Newey-West HAC robust standard errors, isolating the export-ban policy shock with a policy dummy. The fitted model is used to project export value under two policy scenarios, complemented by a game-theory framework to assess geoeconomic conflict resolution.

Findings: Foreign Direct Investment (FDI) in base metals is the dominant driver of export performance, with an elasticity of 1.239, compared to 0.555 for the global nickel price. The export ban dummy is statistically insignificant, suggesting that its impact operates entirely through the FDI channel. Among the policy alternatives, the full downstreaming scenario produces the highest projected export value, while the Nash equilibrium of (Full Downstreaming, Cooperation) delivers the highest payoff of (8, 7). The technological transition also reshapes the sector’s ESG risk profile: accelerating HPAL adoption trades the carbon intensity of RKEF smelting for long-term tailings-management risk.

Practical implications: Long-term regulatory certainty, fiscal incentives targeting HPAL and Research and Development (R&D) investors, and active bilateral supply-chain diplomacy are recommended over temporary export bans, paired with binding tailings-management standards and community benefit-sharing mechanisms so that FDI-driven expansion satisfies the ESG due-diligence requirements of destination markets such as the EU Critical Raw Materials Act.

Originality/value: The study integrates time-series econometrics, scenario projection, and game theory to quantify the FDI transmission channel of downstreaming policy.

Paper type: empirical