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. Much of this processing capacity relies on coal-intensive electricity.
CBAM covers 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 are 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 can affect 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 may also reflect genuine industrial demand. EU anti-circumvention measures could become relevant if authorities identify attempts to bypass the mechanism.
Battery Supply Chains and Emissions Requirements
European battery manufacturers need reliable nickel supplies while facing growing pressure to reduce emissions across their supply chains. With no comprehensive CBAM coverage across nickel products, buyers must use procurement standards, battery regulation, sustainability reporting and customer requirements to encourage lower-carbon production.
In Indonesia, investment in renewable electricity, grid upgrades and cleaner processing could strengthen export competitiveness as international customers give greater weight to emissions performance. These improvements could matter even for products to which CBAM does not directly apply, because buyers may set their own environmental standards.
Europe’s Critical Minerals Policy
Indonesia’s nickel industry shows that carbon-border measures alone cannot reshape complex global mineral supply chains. Extending 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.