Nickel’s Climate Cost and Indonesia’s Push for Cleaner Production

Nickel is widely used across many areas, including electronics, aerospace manufacturing, stainless steel and batteries for electric vehicles and energy storage. Despite its growing importance to the clean energy transition, current nickel production is emissions-heavy and associated with significant environmental and social impacts.

Nickel production remains heavily reliant on coal-fired power. In Indonesia, the world’s largest nickel producer, annual production reached 2.2 million tons and accounted for 22% of national emissions from the energy and industrial sectors in 2023. For every ton of nickel produced in Indonesia, an average of 93 tons of carbon dioxide equivalent is released. 

At the same time, demand for nickel is expected to grow significantly. Under the International Energy Agency's net-zero scenario, global nickel supply would need to roughly double by 2050, driven mainly by low-carbon technologies such as electric vehicle (EV) batteries.

To address rising emissions, the Indonesian government has released a policy roadmap targeting an 81% reduction in emissions from the nickel industry by 2045, aligned with national climate commitments and development goals. The government’s commitment to decarbonizing nickel production stems from Indonesia’s aspiration to become a green leader by supplying the minerals needed for the clean energy transition. Decarbonizing nickel production would help attract investment in domestic processing and manufacturing, position Indonesia for long-term competitiveness in the fast-growing battery and EV markets, and reduce the local environmental and health impacts associated with coal-based production.

Home to the world's largest nickel reserves, Indonesia produced nearly two-thirds of global raw nickel (mine production) in 2024, exceeding the combined output of all other producers. The Philippines, the second-largest producer, contributed about 9% of global output.  

Many of Indonesia's nickel processing facilities are located in remote areas with limited energy infrastructure and rely on coal-based power to supply the massive amounts of energy required to process laterite nickel ore. Indonesia has 55 nickel processing facilities in operation. The vast majority, 90%, use smelting, a process that melts ore into metal at extremely high temperatures. The remaining 10% use a chemical process known as leaching.  The smelting process is the largest source of carbon emissions in Indonesia’s nickel industry, accounting for 97.9% of the sector’s total emissions, or 170.2 million tons of carbon dioxide equivalent. 

In nickel smelting, the final production stage uses electric furnaces to convert ore into metal. The electricity used to power these furnaces accounts for more than 60% of total energy use in the production process, and nearly all of it, 97%, comes from coal-fired power plants built and operated by the nickel industry outside the national grid. The scale of electricity demand in the nickel industry is huge: In 2023, it consumed about 100 billion kilowatt-hours of electricity — enough to power 10 million U.S. homes for a year, or roughly 80% of all household electricity use in Indonesia.

These numbers underscore the need to prioritize decarbonizing Indonesia’s nickel sector. Since these emissions come from a relatively small and identifiable number of industrial sites, they present a major climate opportunity. Targeting action at just a handful of facilities could achieve substantial emissions reductions.

A Tale of Two Smelters 

Only one smelter in Indonesia operates primarily on renewable energy: a facility in Sorowako, South Sulawesi, powered by three hydropower plants with a combined capacity of 365 megawatts. Like many nickel smelters, the facility initially relied on coal power but gradually transitioned to hydropower, seeking a cheaper and more reliable long-term option, as hydropower offers greater supply certainty than coal. Following the transition, the facility reduced production costs by 40% per ton of nickel while eliminating 2.3 million tons of carbon dioxide equivalent emissions each year. In addition to powering the smelter, the hydropower plants generate an extra 8 megawatts of electricity used by the local community.

In Morowali, Central Sulawesi, the situation is markedly different. The region produces about one-third of Indonesia's nickel, and over the past decade the number of smelters has increased tenfold. But renewable energy adoption has stalled. Facilities have installed only small-scale solutions, such as rooftop solar panels for offices and lighting. Larger projects have been proposed, including a 255-megawatt solar facility, but timelines for construction and operation remain uncertain.  

What explains the contrast between Sorowako's success and Morowali's struggles? Two factors stand out: proximity and regulation.

Sorowako's smelter was developed with renewable energy in mind and is located near hydropower sources. In contrast, most smelters in Morowali were built far from substantial renewable energy potential and national grid infrastructure. This distance creates immediate logistical challenges. Building transmission lines requires large upfront capital investments with slow returns, reducing the financial attractiveness of renewable energy projects.  

However, the barriers extend beyond economics. Distance also introduces significant regulatory challenges. Companies would need to build transmission lines through natural forests, navigating lengthy forest-use permits and land acquisition processes. Even when firms are willing to absorb these costs, they still face constraints related to Indonesia’s state-run electricity monopoly, PLN.  

Morowali isn't an isolated case. Much of Indonesia's nickel industry faces similar constraints. In North Maluku, another major production hub, facilities are located even farther from reliable renewable energy resources and lack access to national energy infrastructure, particularly transmission lines.

Replicating Sorowako’s transition will not be straightforward. However, these barriers can be overcome. Infrastructure and policies can evolve. The key question is how to enable that transition at scale.  

 Decarbonization Pathways for Indonesia’s Nickel Industry

In response to these challenges, the Indonesian government’s decarbonization roadmap for the nickel industry focuses on two core areas: transitioning to clean energy and improving production efficiency. 

Powering with Clean Energy 

To enable the energy transition in nickel smelters, the roadmap proposes three key elements: clear development plans, an attractive investment ecosystem and government financing support.

The development plans vary by region and are tailored to local conditions. In Sulawesi, an on-grid model is the most viable option. The region already has grid infrastructure and significant renewable energy potential, including hydroelectric resources in Central Sulawesi, wind resources in the south and widely distributed solar potential. The priority is to extend the grid to connect smelters and convert this resource potential into operational renewable energy projects capable of supplying clean power to the industry. By 2045, the roadmap targets an electricity mix for the nickel industry of 61% hydropower, 30% solar power and 9% wind power to achieve the overarching goal of an 81% emissions reduction.

The roadmap’s other regional focus is North Maluku, which hosts a nickel industry comparable in scale to Sulawesi. Decarbonization faces distinct challenges there. The industrial parks are spread across the smaller islands of Halmahera and Obi, which lack existing grid infrastructure and large rivers for hydropower generation. The only viable clean energy sources are solar and wind, but both face land constraints. As a result, an off-grid model is more practical: Industrial parks will need to develop their own clean energy systems, potentially including green hydrogen power plants, to stay on track with decarbonization targets.

Developing these projects will require making them financially viable. At present, PLN, Indonesia’s state-owned electricity utility, caps renewable electricity prices at levels too low to attract sufficient investment. However, simply raising prices could discourage smelters from purchasing PLN-supplied power. To address this, the roadmap proposes an optimized pricing structure: increase solar and wind tariffs by 30% to 50% to improve investment incentives, while reducing hydropower prices by 40% to reflect existing cost competitiveness. Together, these adjustments would result in an estimated 10% increase in PLN’s industrial electricity tariffs — enough to enable renewable projects without imposing significant additional costs on smelters.

Pricing alone won't resolve the infrastructure challenge. Grid expansion faces a fundamental financing constraint: Transmission infrastructure offers low returns on investment, making it unattractive to private investors. Government support is therefore critical. The roadmap calls for financing guarantees and co-investment to reduce risk. It also recommends regulatory reforms to enhance business certainty through a more transparent and efficient permitting process, better integration with regional spatial planning and greater flexibility for private developer participation. Together, these measures would create a more attractive environment for clean energy investment.

Cleaning the Process

Fuel combustion is used at different stages of the smelting process. While the final smelting stage relies on electricity to heat furnaces and melt ore into metal, earlier stages — ore drying and calcination — rely on fuel combustion, typically by burning coal to heat the material before it enters the electric furnace. 

These fuel-based stages represent another critical piece of the decarbonization puzzle. They account for one-third of total emissions and, as a result, offer more feasible near-term decarbonization options than the power transition alone. The quickest gains come from efficiency improvements.

This starts with controlling ore quality, since lower-quality ore requires more energy to process. Facilities can also capture and recycle waste heat into earlier production stages. Some facilities have already adopted these practices with clear benefits for both their bottom line and carbon footprint. For example, smelters in Balikpapan, East Kalimantan, and Kolaka, South Sulawesi, incorporated waste heat recovery systems at the design stage, reducing energy use in the heating process by 10% and 25%, respectively. The roadmap calls for clearer policies and targets to accelerate adoption of these technologies across the industry. 

But efficiency improvements alone won't be enough. The roadmap also identifies fuel and material substitution as key decarbonization measures. Coal used directly in smelters can be replaced by natural gas as a transition fuel, before cleaner options like hydrogen become viable. On the materials side, auxiliary inputs, including reducing agents such as semicoke and anthracite, can be replaced with biochar produced from agricultural waste.

Cost remains a barrier. The government already caps and subsidizes natural gas prices for several industrial sectors, including heavy industries such as steel. Extending this policy to nickel would enable a shift away from coal at manageable cost to the industry. For biochar, price is not the only challenge. Supply remains volatile, and quality is often inconsistent. Addressing these constraints will require national supply chain development, particularly large-scale processing facilities run by state-owned enterprises. Creating this scale would help stabilize supply and ensure consistent quality across the industry.

The Road Ahead for Responsible Nickel

Indonesia has demonstrated that critical mineral producers can build domestic processing industries rather than simply exporting raw materials. The next challenge is to show that industrial development and climate goals can advance together. The decarbonization roadmap offers a blueprint for this transition, setting targets and outlining policies and collective actions needed to overcome financial, technical and regulatory barriers.

Given Indonesia's concentrated nickel supply and growing global demand, how the country manages this transition has implications beyond its borders. Progress on decarbonization is likely to influence standards for responsible nickel production worldwide, particularly in China, which faces similar challenges in its nickel industry. The real test now is implementation: turning the roadmap's vision into tangible change across the sector.

Ultimately, decarbonizing nickel is not just about supporting the energy transition. It's about ensuring that everyday goods, from electronics to household products, are produced responsibly without further fueling climate change.