Indonesia’s rapid expansion in nickel processing highlights the limits of the European Union’s Carbon Border Adjustment Mechanism (CBAM) in balancing industrial decarbonisation with critical-mineral security. Export restrictions and industrial policies have attracted major investment in ferronickel, nickel pig iron, nickel matte and battery intermediates, with much of the processing capacity relying on coal-intensive electricity.
CBAM covers only selected parts of the nickel value chain. Ferronickel falls within the covered iron-and-steel product framework, while refined nickel and several battery intermediates remain outside its current scope. Consequently, the carbon-border treatment of Indonesian exports depends partly on product classification and processing route.
These differences can influence trade and procurement decisions, creating potential opportunities for regulatory arbitrage if products are restructured primarily to avoid applicable carbon costs. However, changes in product form can also reflect genuine industrial demand. EU anti-circumvention measures may become relevant where authorities identify attempts to bypass the mechanism.
Battery Supply Chains Face Carbon Challenges
European battery manufacturers need reliable nickel supplies while facing increasing pressure to reduce supply-chain emissions. Without comprehensive CBAM coverage across nickel products, buyers must rely on procurement standards, battery regulation, sustainability reporting and customer requirements to encourage lower-carbon production.
For Indonesia, investment in renewable electricity, grid upgrades and cleaner processing could strengthen export competitiveness as international customers place greater emphasis on emissions performance. These improvements could matter even where CBAM does not directly apply, because buyers may impose their own environmental standards.
Europe Needs a Broader Critical Minerals Strategy
Indonesia’s nickel industry demonstrates that carbon-border measures alone cannot reshape complex global mineral supply chains. Expanding CBAM coverage could address some differences between products, but it would not automatically create alternative supplies or reduce Europe’s dependence on established producers.
Europe therefore needs to combine carbon pricing with battery regulation, raw-material partnerships and supply diversification. Aligning these policies will be essential to securing nickel for industrial and energy-transition needs while reducing the emissions associated with its production.
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