Indonesia pledges nickel industry decarbonisation as social and biodiversity concerns linger

Indonesia has hatched a plan to reduce emissions from its coal-powered nickel trade amid growing scrutiny of its downstreaming policy. Environmentalists worry that the plan glosses over the impact of the booming trade on forests, biodiversity and local communities.

The southern coast of Obi Island, North Maluku, Indonesia. The sea has turned red due to pollution from the nickel mines and smelters.
The southern coast of Obi Island, North Maluku, Indonesia. The sea has turned red due to pollution from the nickel mines and smelters. Image: Rabul Sawal/ Mongabay Indonesia.

Indonesia produces nearly half of the world’s nickel, a mineral in hot demand to produce renewable energy technologies. The country’s dominance over nickel production is set to grow further. Newly elected president, Prabowo Subianto is pursuing an aggressive nickel downstreaming policy as he eyes 8 per cent economic growth when he takes office.

However, downstreaming – that is, moving beyond extraction to process raw materials into semi-finished products – faces a plethora of environmental, social, and labour challenges, and Indonesian policymakers are responding to pressure to reduce the impact of the industry’s growth ambitions.

The Indonesian Ministry of National Development Planning and climate think tank World Resources Institute Indonesia plan to launch a nickel decarbonisation roadmap early next year.  

This roadmap is part of the 2025-2029 National Medium-Term Development Plan, which aims to integrate environmental, social and governance (ESG) principles into industry downstreaming. One key target is to reduce emissions from the nickel industry by 90 per cent by 2050. It also aims to expand employment opportunities in renewable energy and provide incentives for green industries. 

Currently, Indonesia’s nickel industry emits 58.6 tonnes of carbon dioxide equivalent (tCO2e) per tonne of nickel, exceeding the global standard of 48 tCO2e per tonne. 

“This industry [nickel] uses coal because it needs consistent and reliable heat, especially for smelters. Replacing it will be difficult and time-consuming. That is why our priority is to create a roadmap for reducing emissions in this sector,” stated Nizhar Marizi, director of energy resources, mineral and mining at the Indonesian Ministry of National Development Planning. 

The first step will be to map out the emissions trajectory of the industry, then plan how to decarbonise the trade and how to finance these efforts, said Almo Pradana, deputy programme director for climate, energy, cities, and the ocean for World Resources Institute Indonesia. “Of course Indonesia cannot do it alone; international support is needed,” he added.

The government has yet to put a cost on decarbonising Indonesia’s fast-growing nickel trade.

The irony of captive coal plants powering the nickel trade

While a roadmap to decarbonise Indonesia’s downstreaming plan is an important first step, regulatory changes are urgently needed too.

In February, Indonesia launched a revised “taxonomy” or green investment rulebook that categorised coal-fired power plants that power nickel facilities – known as captive coal plants – as part of the green economy transition, a move that has alarmed environmentalists.

A 2023 report by Center for Research on Energy and Clean Air (CREA) and the Global Energy Monitor (GEM) revealed that 23.7 per cent of Indonesia’s electricity generated from power plants was captive, with 67 per cent of this capacity used in nickel smelter projects.

The number of captive coal power plants in Indonesia has also skyrocketed in the last 10 years, growing at five times the rate of the global average, in line with the country’s nickel downstreaming ambitions.

Meanwhile, a recent report by WALHI, an Indonesian environmental organisation, estimated that the total capacity of coal-fired power plants would reach 8,345 megawatts in Morowali, Central Sulawesi, a major centre for the nickel trade. The group also predicted that these plants would not reach peak capacity until 2027-2028. Villagers living near the plants have reported respiratory infections and skin diseases. 

The climate pollution trajectories of Indonesia’s captive coal plants contradicts the country’s target of cutting emissions by 29 per cent by 2030, as outlined in its nationally determined contributions to the Paris Agreement. However, the issuance of Presidential Regulation 112 of 2012, a law designed to curtail coal-fired power capacity in Indonesia, does not regulate captive plants in the nickel industry. 

Deforestation and biodiversity loss

The nickel industry also poses severe deforestation and biodiversity risk. In Halmahera, North Maluku, 5,331 hectares of tropical forest have been cleared to make way for nickel mines, releasing 2.04 metric tonnes of greenhouse gases. Half a million hectares of forest are under threat from nickel mining adding to an area larger than Singapore that has already been cut down to feed surging demand for the transition mineral.

“Biodiversity loss and rainforest destruction from nickel mining will clearly increase Indonesia’s emissions,” said Rere Christanto, mining and energy campaign manager at WALHI. Indonesia’s decarbonisation roadmap for the sector must recognise that extractive industries do not guarantee long-term benefits for local communities, and mining permits must adhere to conservation principles that safeguard forests and the people who depend on them, he continued.    

Indonesia’s newly elected president has pledged to provide fiscal incentives for new nickel smelter investments, with similar incentives to be provided for other downstream commodities including crude palm oil, seafood, wood and rubber. During his campaign, Prabowo estimated that the downstream programme for 21 commodities would require  investment of up to US$545 billion. 

This ambition may have stemmed from the economic success that the downstream industry has experienced in recent years. Taxes from downstreaming industries increased from US$13 million in 2017 to US$1 billion in 2022, in line with the increasing production of ferronickel, which is used to make steel, and nickel pig iron. Meanwhile, non-tax revenue from the minerals and coal sector has significantly increased, from US$2 billion in 2020 to US$10 billion in 2023.  

“We estimate that state revenue from the nickel sector will grow by around US$7 billion through to 2045,” said Irwandy Arif, special staff of the Minister of Energy and Mineral Resources for the Acceleration of Mineral and Coal Governance. 

But despite the early economic success of Indonesia’s downstreaming policy, experts suspect that Indonesia is not yet technically, financially, or technologically ready for downstreaming. Economic growth rates in primary nickel downstreaming provinces – 20.49 per cent in Northern Maluku and 11.91 per cent in Central Sulawesi in 2023 – constrasts with declining quality of life for people living in these provinces. Fishermen in Sulawesi have seen their livelihoods dwindles as fish catches decline due to marine pollution caused by the nickel industry.  

A report by the Center of Economic and Law Studies and Centre for Research on Energy and Clean Air projected economic losses of over US$387.10 million over the next 15 years for the agriculture and fisheries sectors as a result of nickel mining in three production provinces, Central Sulawesi, Southeast Sulawesi and North Maluku. In addition, farmers and fishermen are threatened with income losses of US$234.84 million in 15 years under a business-as-usual scenario for the nickel industry.

“We have not yet calculated the cost of restoring our damaged environment, the forests that have been cleared, healthcare costs for affected communities, and the cost of climate disasters if emissions from the nickel sector remain high,” explained Christanto. 

Beyond decarbonisation efforts, Indonesia’s government needs to revise regulations for nickel mining and downstreaming, experts stated. The latest amendment to the law on minerals and coals in 2020 shifted all mining affairs to the central government. However, the central government does not yet have an adequate monitoring system for the mining sector. This has meant that local and regional authorities can avoid responsibility for mining violations, while experts point to Indonesia’s permissive legal culture that has a tendency to let violators off the hook.  

“The energy transition must be seen as a fundamental shift in energy governance. Fossil fuel use has caused significant environmental damage due to massive emissions and poor governance practices. It is not just simply about switching energy sources. It is about fundamentally changing how we manage energy,” said Christanto.  

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