Indonesian Nickel: Economy vs Environment

Currently the world’s largest nickel producer, Indonesia plans to expand mining further to meet the demand for clean energy technologies. Nickel extraction has negative environmental and social impacts, resulting in deforestation, water pollution, biodiversity loss, illness, and other concerns. This is the first article of a two-part series on Indonesian nickel.

by Emma Finnamore

Indonesia is home to the largest nickel reserves in the world. In 2023, 54% of global mined nickel production came from the country, and the figure is predicted to reach 80% by 2040 [1, 2]. 

Previously used primarily in alloys like stainless steel, the recent growth in demand for nickel has been driven by the energy transition and the need for the metal in clean energy technologies, such as wind turbines, solar panels, and especially electric vehicle (EV) batteries [2]. According to the International Energy Forum, nickel demand is projected to increase significantly, with even conservative estimates suggesting that the need for the mineral will double by 2050 to meet technology needs [12]. 

Unfortunately, mining for these critical minerals causes extensive environmental destruction. The bulk of the industry is located in the east of the archipelago, with over a hundred sites of extraction across the islands of Sulawesi and North Maluku, and plans to expand further into West Papua and Maluku [10]. The lush forests of the islands are razed and the rivers, ponds, and coastal areas become polluted, devastating local communities [4]. 

This article is the first in a two-part series exploring the trade-off posed by nickel production in Indonesia, essential for the low-carbon transition but detrimental to the environment and its inhabitants.

Indonesia’s Growing Industry and Shrinking Forest

Both the former and current Indonesian Presidents, Joko (“Jokowi”) Widodo and the newly elected Prabowo Subianto, have made nickel production a core aspect of their national economic policies [3, 4]. 

Prabowo in particular is calling for nickel downstreaming, which would involve keeping the entire supply chain domestic, from mining to processing. In a May 2025 statement from the Cabinet Secretary of Indonesia, the acceleration of downstreaming has become the government’s priority [11]. This follows a 2014 ban on exporting the raw material, with an end goal of building an EV battery ecosystem based in the country [3]. 

However, this downstreaming strategy has its own environmental and sociopolitical risks, with experts commenting that Indonesia is not yet ready, financially or technologically, for this expansion of the supply chain [4]. A key concern is that these processes require the construction of new coal plants — so-called captive coal plants — to power the smelters. Not only is coal fundamentally incompatible with our global climate commitments, but the construction of these plants demands vast swathes of land. Already, an area larger than Singapore has been felled, and half a million hectares of forest are under threat [4]. 

The impacts of nickel mining on local communities are devastating, as the encroachment of mines onto people’s land has resulted in the upheaval of daily life. According to a Climate Rights International report, Indonesian citizens living in villages near mines, smelters, and processing plants have lost the ability to farm, fish, and hunt the way they have for generations, causing economic and financial stress for families [5]. 

Pollution from smelters has also poisoned the water of surrounding rivers, forcing residents to buy bottled water. Nearby communities are subject to heavy dust from mining activities as well as the intensification of traffic, which also pollutes the air. Respiratory and skin issues have developed in the local population, linked to the construction of smelting and coal plants in the area and the resulting emissions of pollutants. 

Direct exposure to nickel itself is also harmful to human health, putting workers at risk. Ultimately, the contamination of the air, water, and soil has deeply disrupted the communities near nickel extraction sites, forcing many to leave their homes in search of opportunity elsewhere [5].            

Extraction and Exacerbation of Issues

The expansion of the nickel industry has also been accompanied by an increasing police presence and the heightened militarization of the eastern islands. Locals living near the plants experience intimidation, land grabbing, and other threatening behavior from corporations and the armed forces protecting their interests [5]. They report the illegal excavation on their land including the destruction of ponds, forest, and other natural features, and, when eventually forced to sell, only being compensated for a portion of their land [5]. Despite residents filing legal complaints, the government has repeatedly failed to take action.     

These sorts of interactions are especially contentious in provinces like West Papua. Following Dutch rule, the resource-rich region has been fighting for independence from Indonesia in a complicated decolonization effort [6]. Mining activity not only exacerbates these political tensions, but threatens the lives of the native Melanesian population. 

The West Papuan independence movement envisions a “Green State” where decision-making power over land, forests, and water is restored to Indigenous authorities at the family, clan, and tribal levels [9]. Despite existing legal protections of Indigenous peoples and customary land recognition, enforcement is weak, allowing corporate interests to override Indigenous rights [5].  

The Indonesian government pushes for nickel extraction for economic prosperity, job creation, and to support the global transition towards net-zero emissions. Despite the benefits of mining, such as economic growth and access to clean energy technology, what is missing from the measured gains are the incalculable losses: the livelihoods of farmers and fishermen, abundant ecosystems and biodiversity, and traditional ways of life for Indigenous peoples.

Indonesia faces a critical juncture in development. To fully reap the economic rewards of nickel, the country must keep the processing supply chain domestic, which will inevitably put more pressure on the environment and inflict further harm on local communities [4]. However, the trajectory of Indonesia’s nickel industry will be determined not just by national policy but also by international demand and trade, both of which will be discussed in the second article of this series. 

References:

1. Dela Cruz, E.G. and Dholakia, G, 2024. “Indonesia – Mining by the numbers, 2024,” SP Global. URL: https://www.spglobal.com/market-intelligence/en/news-insights/research/indonesia-mining-by-the-numbers-2024 [Accessed: 24.03.25]
2. Milko, V., Davey, E., and Fassett, C., 2024. “Indonesia’s massive metals build-out is felling the forest for batteries,” AP News. URL: https://apnews.com/article/indonesia-nickel-deforestation-rainforest-mining-tesla-ev-184550cddf1df6aad8e883862ab366df [Accessed: 24.03.25]
3. David Hutt, 2024. “EU faces green dilemma in Indonesian nickel,” Deutsche Welle. URL:  https://www.dw.com/en/eu-faces-green-dilemma-in-sourcing-nickel-from-indonesia/a-69681557 [Accessed: 21.03.25]
4. Dinda Sani, A., 2024. “Indonesia pledges nickel industry decarbonisation as social and biodiversity concerns linger.” URL: https://www.eco-business.com/news/indonesia-pledges-nickel-industry-decarbonisation-as-social-and-biodiversity-concerns-linger/ [Accessed: 21.03.25]
5. Climate Rights International, 2024. “CRI Indonesia Report Nickel Unearthed.” URL: https://cri.org/reports/nickel-unearthed/ [Accessed: 21.03.25]
6. Anindya, M., 2025. “Indonesia, home to the world’s largest nickel reserves, struggles to achieve its EV dreams.” URL: https://restofworld.org/2025/indonesia-ev-nickel-ban-global-investors/ [Accessed 12.04.2025]
7. Observatory of Economic Complexity (OEC), 2025. “Nickel articles in Indonesia.” URL: https://oec.world/en/profile/bilateral-product/nickel-articles/reporter/idn [Accessed 12.04.2025]
8. Elmslie, J., 2020. “Indonesian Diplomatic Maneuvering in Melanesia: Challenges and Opportunities”, Regionalism, Security & Cooperation in Oceania. URL: https://www.freewestpapua.org/wp-content/uploads/2019/10/C7-IndonesianDiplomancyinMelanesia-Elmslie.pdf [Accessed: 23.03.25]
9. United Liberation Movement for West Papua and Provisional Government, 2021. “West Papua Green State Vision.” URL: https://www.freewestpapua.org/wp-content/uploads/2021/12/West-Papua-Green-State-Vision.pdf [Accessed: 23.03.25]  
10. The China Africa Project, 2023. “Interactive Map of Nickel Projects in Indonesia”. URL: https://nickel.chinaglobalsouth.com/ [Accessed: 21.05.25]
11. Office of Assistant to Deputy Cabinet Secretary for State Documents & Translation, 2025. “President Prabowo Discusses Accelerated Downstream, Increased Oil and Gas Lifting with His Ministers.” URL: https://setkab.go.id/en/president-prabowo-discusses-accelerated-downstream-increased-oil-and-gas-lifting-with-his-ministers/ [Accessed: 21.05.25]
12. International Energy Forum and The Payne Institute of Public Policy at the Colorado School of Mines, 2023. “Critical Minerals Outlooks Comparison.” URL: https://www.ief.org/focus/ief-reports/critical-minerals-outlooks-comparison [Accessed: 21.05.25]