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Archives of Business Research – Vol. 11, No. 8

Publication Date: August 25, 2023

DOI:10.14738/abr.118.15339.

Kusuma, J. P., Ananda, C. F., Khusaini, M., & Manzilati, A. (2023). The Economic and Social Implications of Negative Externalities in

Nickel Mining. Archives of Business Research, 11(8). 174-188.

Services for Science and Education – United Kingdom

The Economic and Social Implications of Negative Externalities in

Nickel Mining

Jony Puspa Kusuma

Faculty of Economics and Business,

Brawijaya University, Malang, Indonesia

Candra Fajri Ananda

Faculty of Economics and Business,

Brawijaya University, Malang, Indonesia

Moh. Khusaini

Faculty of Economics and Business,

Brawijaya University, Malang, Indonesia

Asfi Manzilati

Faculty of Economics and Business,

Brawijaya University, Malang, Indonesia

ABSTRACT

This research provides an in-depth understanding of the externalities caused by

nickel mining and the importance of communities taking collective action against

mining activities in Kolaka Regency. This research focused on sea cucumber

fishing households in Tambea Village, Pomalaa Sub-district. In some cases,

companies with an IUP can carry out practices that can cause harm to the

community and the surrounding environment. Environmental contamination,

restricted access to land, and economic limitations are the main issues affected

communities face. In the face of adverse economic and social implications due to

the negative externalities of nickel mining, sea cucumber fishermen have taken

collective action and realized the importance of advocating for their rights and

protecting the environment and natural resources that support their livelihoods.

To address these negative externalities, we need a comprehensive policy design.

Qualitative approach This research uses data collection techniques. The data

collected in the case study came from participant narratives, direct observation,

and analysis of relevant documents that can provide an in-depth understanding of

the unique context, with qualitative analysis revealing a wealth of information and

detailed details. The location of the case study research is in a village called

Tambea Village, Pomalaa District, Kolaka Regency. The results illustrate the

economic and social negative externalities caused by this mining activity to sea

cucumber fishermen. The results of this study are expected to be the basis for

designing comprehensive policies to reduce the negative impacts of nickel mining

and protect fishing communities and the surrounding environment.

Keywords: Nickel mining externalities, Collective action, Economic and social

implications

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Kusuma, J. P., Ananda, C. F., Khusaini, M., & Manzilati, A. (2023). The Economic and Social Implications of Negative Externalities in Nickel Mining.

Archives of Business Research, 11(8). 174-188.

URL: http://dx.doi.org/10.14738/abr.118.15339

INTRODUCTION

With the granting of a Mining Business License (IUP) to a nickel mining company as an official

license to conduct mining activities in an area, there are inherent responsibilities that the

company must carry out. It is a license that grants the company the exclusive right to conduct

mining activities in a designated area but also requires the company to comply with

established requirements and regulations. In some cases, granting IUP to nickel mining

companies is not always followed by the fulfilment of adequate social and environmental

responsibilities. The resulting negative impacts, such as environmental pollution, land use and

utilization restrictions, and the risk of construction of substandard check dams, are serious

concerns for local communities.

Environmental pollution caused by nickel mining activities can threaten local ecosystems,

water quality, and the sustainability of natural resources. Toxic waste generated by nickel

mining processes must be appropriately managed to prevent environmental contamination

detrimental to communities and ecosystems (Marrugo_Negrete, J. et al., 2020).

Land use restrictions are also an important issue faced by local communities. With IUPs,

nickel mining companies control mining areas, often restricting community access and land

use. This harms communities' traditional livelihoods, disrupting agriculture, fisheries, and

other cultivation activities from which they derive their income (Hilson, 2002).

The existence of PT ABC Sultra, which conducts mining activities in Tambea Village, directly

affects the community's economic and social life and the environmental quality of Tambea

Village. With the status of the IUP in this village, villagers feel limited in their space to carry

out economic and social activities (Lawrence, R., & Larsen, R. K, 2017; Kaisa Raitio, Christina

Allard, Rebecca Lawrence, 2020).

In addition, the risk of building a check dam near a residential seriously threatens the

community and the environment. If the check dams are not properly designed, constructed, or

managed, a potential collapse hazard could contaminate the community's sea cucumber farms

with hazardous mining waste (Asiah A & Prajanti A, 2014).

In the face of these conditions, communities often respond with collective action. They seek to

fight for their rights, demand policy changes, and address injustices arising from nickel mining

activities. Community collective action is a form of concern and effort to protect the

environment, community rights, and socio-economic sustainability (Becker & Tausch, 2015).

To address the negative impacts caused by nickel mining activities, governments and mining

companies must pay attention to policy design that incorporates the internalization of

externalities as a critical principle.

This policy design can regulate the company's responsibility in managing negative impacts

and ensure that the company acts responsibly towards the surrounding community and

environment (Beeks & Ziko, 2018).

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Archives of Business Research (ABR) Vol. 11, Issue 8, August-2023

Services for Science and Education – United Kingdom

LITERATURE REVIEW

Externalities arise when some activities of producers and consumers have an unexpected

(indirect) influence on other producers and or consumers. Externalities can be said to be the

impact of the actions of a person or party on the welfare or conditions of other people/parties

(Khusaini, 2006). Externalities, in terms of their impact, can be positive or negative. Positive

externalities occur when activities carried outby an individual or group benefit other

individuals or groups (Sankar, 2008). In cross-social science research on the environment, it

is important to consider externalities as a unifying and useful concept. Although challenges

exist, an objective assessment of environmental issues supports the need for significant policy

changes, even in economic systems based on capitalism and sustainable economic growth

(Sankar, 2008).

Externalities related to the efficiency of natural resource allocation or environmental

externalities require the role of government to control these externalities. Environmental

externalities are defined as the benefits and costs represented by changes in the physical and

biological environment (Owen, 2004). The Environment (Protection) Act, 1986's definition of

environment, covers water pollution and other environmental changes. According to this

definition, the environment includes "water, air and land, and the reciprocal relationships

between water, air and land and humans, other living things, plants, microorganisms, and

property" (Shankar, 2008).

Externalities can be defined as economic consequences or benefits that arise as a by-product

of economic activity but are not accounted for in the market system. This means that the actor

causing the externality has no incentive to consider the resulting external costs or benefits.

External costs are directly linked to producing goods or services but are not borne directly by

the producer. When external costs arise due to unpaid environmental damage, this can lead to

market failure and economic inefficiency (Mukhlis, 2009).

Externalities occur when an activity generates benefits or costs for activities or parties

outside the implementer. This externality in costs is also referred to as social costs. The

problem of social costs is related to the problem of environmental pollution, which, as a result,

is environmental damage which can be considered a cost of economic development

(Suparmoko, 2006: 237). in this world, nothing is free. If someone wants to get something

without paying, other people may have to pay the costs necessary to obtain something that is

considered profitable (Soemarwoto, 1989).

Settlement of Externalities

Coase's Theorem:

Coase developed his theorem when considering radio frequency regulation. Competing radio

stations may use the same frequencies and will interfere with each other's broadcasts.

Regulators faced the problem of eliminating interference and efficiently allocating frequencies

to radio stations. In 1959, Coase proposed that as long as the ownership rights of frequencies

are well-defined, it does not matter if neighboring radio stations interfere using the same

frequencies. Moreover, it does not matter to whom the ownership rights are assigned. The

argument is that radio stations that can get higher economic benefits from broadcasting will

be incentivized to pay other stations not to interfere.