Indonesia’s rapid expansion of 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 drawn major investment into ferronickel, nickel pig iron, nickel matte and battery intermediates. Much of this processing capacity relies on coal-intensive electricity.
CBAM coverage varies across nickel products
CBAM applies to only selected parts of the nickel value chain. Ferronickel is covered under the framework for iron and steel products, while refined nickel and several battery intermediates remain outside the mechanism’s current scope. The carbon-border treatment of Indonesian exports therefore depends partly on product classification and processing route.
These differences can affect trade and procurement decisions, with potential for regulatory arbitrage if products are restructured primarily to avoid applicable carbon costs. Changes in product form can also reflect genuine industrial demand. EU anti-circumvention measures may become relevant if authorities identify attempts to bypass the mechanism.
Battery supply chains and Europe’s critical-minerals strategy
European battery manufacturers need reliable nickel supplies while facing growing pressure to reduce supply-chain emissions. CBAM does not comprehensively cover nickel products. Buyers therefore rely on procurement standards, battery regulation, sustainability reporting and customer requirements to encourage lower-carbon production.
For Indonesia’s nickel sector, 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 apply directly, because buyers may set their own environmental standards.
Indonesia’s nickel industry shows that carbon-border measures alone cannot reshape complex global mineral supply chains. Broader 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 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. It will also be essential to reducing emissions associated with nickel production.