The world projects a future of clean energy where coal and oil is replaced by wind, solar, and electric vehicles. However, this future is nothing more than gilded. The transition to sustainable energy heavily depends on minerals such as cobalt and lithium, yet the process in which these minerals are attained remains the same. Developing countries with natural resources mine the minerals and sell them to industrial powers who would then process them and capture most of the profits. In other words, this process is merely a rebrand of colonialism where powerful industrial powers make a fortune by draining resources from developing nations. Indonesia, being the world’s largest nickel producer, controls 62% of the world’s nickel production, a mineral crucial to making batteries in electric vehicles due to its high energy density. For a long time, Indonesia would dig up the nickel ore and sell it to other countries, mainly China, and lose most of the benefits. In order to combat this matter, the Indonesian government adopted the downstreaming policy. The downstreaming policy focuses on keeping the supply chain domestically such that the country can retain the profits from processing the raw materials.
Indonesia’s philosophy behind achieving the downstreaming policy was simple: stop exporting raw nickel ores to foreign nations and force material processing to happen domestically. As a result, Indonesia officially bans the export of raw nickel ore in 2014. However, this policy backfired since the domestic smelting industry was largely underdeveloped, and it severely disrupted Indonesia’s economy that relied on nickel exports. In response, the government relaxed the ban in 2017 and reinforced it again in 2020 after the country had expanded its smelting capacity and attracted foreign investment in manufacturing networks for making batteries and stainless steel. During this time, Indonesia’s foreign direct investment increased by 44% and the global prices for nickel skyrocketed by 40% due to Indonesia’s absence in production. The policy appeared to be a magnificent success. Indonesia’s export value of nickel increased from 17 trillion Rupiah to 510 trillion Rupiah. Indonesia’s production of stainless steel and electric vehicle batteries dominated the market, establishing Indonesia as a leading power in the field of sustainable energy. Downstreaming transformed Indonesia from a country selling dirt rocks into a rising industrial power.
On paper, the policy was a major success, but it only worked because of the foreign investors, especially those from China. In response to the export ban, major Chinese firms such as the Tsingshan Holding Group and Jiangsu Delong did not hesitate to invest heavily, essentially moving their operations into Indonesia. Additionally, the scale in which the Chinese companies invested was enormous. By 2023, 90% of Indonesia’s nickel smelter was made by Chinese companies and 75% of Indonesia’s refining capacity was under the control of Chinese investors. Before the downstreaming policy, Indonesia depended on foreign countries to buy their raw ores. After the ban, while dependency on foreign buyers reduced, a new dependency on foreign technology to process the raw materials arose. The form of dependency changed, but the dependency did not go away. The refining capacity of raw materials increased in Indonesia, but the truly valuable elements such as technology, ownership, and market connections remained in the hands of foreign corporations. Consequently, local workers and companies did not benefit much from the boom of nickel export value. The significant foreign influence also created wage disparities that lead to tensions between Chinese and local workers. In 2023, a riot at a Chinese owned nickel smelter in Morowali led to the killing of one Chinese and one Indonesian worker. Indonesia’s downstreaming policy did not eliminate foreign dependency, it changed the dependency.
Despite the appealing future of clean energy and the growing market of electric vehicles, much of Indonesia’s nickel industry is tied to the production of stainless steel. Till this day, the stainless steel market consumes the largest proportion of the global nickel production, accounting for roughly 65% of all nickel usage. During the nickel ban, Chinese firms originally built smelters to produce nickel for manufacturing instead of electric vehicle batteries. The primary motivation for Chinese investors was the need for stainless steel, and the ambition for batteries was secondary. Indonesia’s nickel power rests upon many different markets rather than solely on the battery industry. This matters because the need for nickel in EV batteries is not absolute. EV batteries can also be made with lithium that are cheaper in price, use little to no nickel, and are the dominant chemistry globally. In 2025, lithium iron phosphate(LFP) batteries passed nickel based EV batteries in sales for the first time for its cheaper price, and the amount of nickel being put into each battery has dropped by a third since 2020. Indonesia’s economy depends on more than just having nickel ores, it relies on technologies continuing to need nickel in EV batteries.
Indonesia’s nickel boom produces the material that the world often discusses as part of the green transition, but it does so with the most carbon intensive methods. Nearly 97% of all energy used in nickel processing is being fueled by burning coal, and for every ton of nickel produced, 93 tons of carbon dioxide is released into the atmosphere. Additionally, nickel mining is becoming a driving cause of deforestation in Sulawesi and Halmahera, while water pollution is destroying livestocks and habitats of the indigenous population. This creates a structure where rich countries are essentially buying in green technologies while exporting the pollution into the producing countries. The so-called green technologies are not actually clean to the environment, it merely hides the pollution to places where we do see. These are not side-effects of an otherwise clean industry; they are the fundamentals of the nickel industry in Indonesia. Fortunately, Western automakers and the European Union are responding with emission based import taxes to penalize nickel imports dependent on coal power. Without industrial policies to protect the environment, the clean energy industry tends to repeat the same extractive methods.
Indonesia’s situation with nickel is important because it sets a precedent for other resource-rich countries under similar circumstances. If the downstreaming strategy is proven to be successful, countries like the Democratic Republic of Congo, Chile and Zambodia can implement a similar strategy to force the processing industry onto its own soil.
