Economic and environmental impact of electric vehicles production in Indonesia

The use of fossil fuel-based vehicles may gradually be replaced by electric vehicles in the future. The trend indicates that the number of users of electric vehicles, especially electric cars, continues to increase. Indonesia is well-positioned to take advantage of this opportunity as it has the world's largest nickel reserves, an essential raw material for making electric vehicle batteries (EVB). The study examines the economic and environmental implications if Indonesia were to successfully set up electric vehicle (EV) production rather than exporting such raw materials overseas. We use an input-output model to estimate electric vehicle production's economic and environmental impacts in Indonesia. This study assumes that nickel, which is usually exported, is absorbed by domestic economic activities, including being used in manufacturing batteries and electric vehicles in Indonesia. Our estimates include direct and indirect output, value-added, and employment changes. The same model is also used to estimate changes in emissions' environmental costs. It is evident from the results that batteries and EV production are economically beneficial. Additional value-added is Rp. 100.57 trillion, 1.5% of GDP in 2010. At the same time, 538,658 additional jobs were created, which is about a 0.5% increase. Lastly, EV production will have extra external costs of emissions, around Rp. 2.23 trillion, or an increase of about 0.6%. Based on these findings, it is concluded that electric vehicle production increases productivity, gross value-added, and job creation with a relatively small impact on the environment. A limitation of this study is that we assumed EVs were produced for export only, and we did not assume a reduction in economic activities in the supply chain of conventional vehicles.

Automated summary

The use of fossil fuel-based vehicles may be gradually replaced by electric vehicles in the future, and the trend indicates an increase in the number of users, especially of electric cars. Indonesia, with the world's largest nickel reserves, is in a good position to benefit from this trend as nickel is an essential raw material for electric vehicle batteries. This study examines the economic and environmental impacts of establishing electric vehicle production in Indonesia instead of exporting raw materials, finding that it can increase productivity and job creation while having a relatively small impact on the environment.