Indonesia’s rapid expansion of nickel processing highlights the limits of the European Union’s Carbon Border Adjustment Mechanism (CBAM) as the bloc seeks to balance 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. Much of the resulting processing capacity relies on coal-intensive electricity.
CBAM covers only selected parts of the nickel value chain. Ferronickel is covered under the iron-and-steel product framework, while refined nickel and several battery intermediates remain outside the mechanism’s current scope. As a result, the carbon-border treatment of Indonesian exports depends partly on product classification and processing route.
These differences may shape trade and procurement decisions, and could create opportunities for regulatory arbitrage if products are restructured primarily to avoid applicable carbon costs. However, changes in product form may also reflect genuine industrial demand. EU anti-circumvention measures could become relevant if authorities identify attempts to bypass the mechanism.
Battery supply chains face emissions pressures
European battery manufacturers need reliable nickel supplies while facing growing 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’s nickel industry, investment in renewable electricity, grid upgrades and cleaner processing could strengthen export competitiveness as international customers place greater emphasis on emissions performance. Such improvements could matter even where CBAM does not apply directly, because buyers may set their own environmental standards.
Europe’s critical minerals policy extends beyond CBAM
Indonesia’s nickel industry illustrates that carbon-border measures alone cannot reshape complex global mineral supply chains. Broader CBAM coverage could address some differences between products, but 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 emissions associated with its production.