Aluminum: The Hidden Carbon Cost No One Is Talking About

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Aluminum is a pillar of sustainable infrastructure and green technologies, appearing in everything from the batteries in our phones to the electric cars we drive. However, its production cannot be truly called “green” until its full climate impact is acknowledged and accounted for. Maria Guillamont, a Juris Doctor candidate at Lewis & Clark Law School and Legal Intern at SDSG, has been researching the overlooked environmental impact of aluminum – and why it matters now more than ever.

By Maria Guillamont

Mining equipment at the Comalco bauxite mine, Weipa, Australia (credit: Urbain J. Kinet / Berkeley Geography); certified pisolitic bauxite from Arkansas, USA (credit: James St. John via Flickr, CC BY 2.0); aluminum foil (credit: James St. John via Flickr, CC BY 2.0) (Montage: SDSG)

Why aluminum is everywhere 

Chances are, you’ve interacted with aluminum countless times today. Whether you checked your smartphone, drove to work, opened a can of soda, or even flipped a light switch, aluminum played a silent but vital role. 

This malleable and ductile metal is indispensable across various industries, making it one of the most-used components of our modern world. It sits at the core of ​​battery enclosures, motor housings, heat exchangers, and electrical systems. Because of its many uses, this metal is central to the energy transition. As the world scales up electric vehicle production and renewable energy infrastructure, aluminum demand is set to grow substantially – with projections suggesting an increase of 40 to 50% by 2050.

Aluminum market growth projection until 2035 (source: https://www.rootsanalysis.com/)

The scale of this industry is already massive today, dwarfing the production of other ‘transition metals’: 

Source: Maria Guillamont

Aluminum production is more than ten times the volume of all these other materials combined. Because the industry is so vast, it is imperative that its environmental footprint is known and accurately reported.

 

Where the damage begins: bauxite and rainforests

Aluminum does not exist in nature in its pure form; it is refined from bauxite, a reddish ore found mostly in tropical rainforests. Around two thirds of global bauxite reserves are located in Guinea, Australia, Vietnam, Indonesia and Brazil, specifically in regions that house some of the world’s most biodiverse ecosystems and large tropical forests. This overlap means that bauxite mining often has serious environmental consequences. 

Unlike many minerals that are found deep underground, bauxite primarily occurs in shallow, widespread deposits. Extracting it requires open-pit mining, which involves clearing large tracts of land or forest, stripping away topsoil, and disturbing underlying rock layers. This results in large-scale deforestation, habitat loss, and the disturbance of carbon-sequestering soils. Some of the environmental and social issues around aluminum production have previously been explored by SDSG. 

The scale of projected land disturbance in regions of high conservation value is staggering: 

 

The carbon cost and the accounting gap

Here is the crux of the issue: rainforests are our most powerful terrestrial carbon sinks. The Amazon alone used to absorb about 5% of global CO₂ emissions each year, but its ability to sequester carbon is degrading due to climate change and deforestation. When these forests are cleared for bauxite extraction, we don’t just lose trees: we release the carbon stored both above- and below-ground into the atmosphere, contributing significantly to climate change. Not only that, but we also diminish nature’s ability to absorb future emissions. 

As part of my research at SDSG,  I reviewed 20 academic and aluminum industry articles related to Greenhouse Gas emissions in the bauxite/aluminum sector. The review reveals a troubling trend: this loss of carbon sequestration capacity is almost entirely absent from major industry reports, life cycle assessments, and emissions accounting frameworks.

Despite the mounting evidence, deforestation-related carbon loss is not meaningfully included in emissions calculations by industry bodies like the Aluminum Stewardship Initiative (ASI) or the International Aluminum Institute (IAI).

For instance, ASI’s 1.5°C roadmap focuses on decarbonizing electricity inputs and improving smelting efficiency. However, it provides only vague assurances that emissions from land-use change will be integrated into the roadmap in the future, and fails to quantify the actual climate cost of forest destruction.

This omission is critical. According to Global Forest Watch, forests in Guinea currently remove over 43 MtCO₂e annually.  Studies looking at the average of forests’ carbon storage see that approximately 44% of all carbon stock is stored in soil, up to one meter depth. Mining for Bauxite disturbs not just trees, but also this rich underground carbon reserve.

Forest loss driven by the growing aluminum demand would therefore undermine global climate goals, yet the aluminum industry provides an incomplete picture of its carbon footprint in its emissions reports. Without this information, we have a huge gap in our understanding of the carbon cost of bauxite mining.

 

Redefining transparency

This gap in environmental accounting must be closed urgently; all emissions, especially those from forest and soil carbon loss, must be transparently reported and mitigated. Without this, industry reduction targets are fundamentally incomplete.

Organizations like ASI claim to promote “full life cycle assessments” and transparent reporting. Yet, by failing to account for forest carbon loss, their standards fall short of their own transparency goals. We cannot build a green future on a foundation of ‘hidden’ emissions. 

 

The Path Forward

It is imperative that exhaustive reporting of carbon emissions from land use changes be present across environmental assessments and carbon accounting of the Aluminum industry. As such, SDSG is working to develop a research and action initiative to quantify carbon stocks in soils and vegetation across bauxite-rich regions through a global literature review, spatial analysis of existing and planned mining in forested areas, and targeted soil carbon data collection. In parallel, SDSG intends to work with partners in bauxite-rich countries to assess legal and policy frameworks governing land use, restoration, and public participation in mining decisions. Our objective is to produce evidence-based recommendations to inform regulatory reforms to account for this gap in Aluminum environmental assessments, as well as strengthen standards to minimize carbon loss and provide practical guidance to support carbon soil conservation and landscape restoration.

Pertumbuhan Pesat Hilirisasi Nikel di Indonesia: Pelajaran bagi Negeri Kaya Mineral Lainnya

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Kebijakan di Indonesia telah memberikan dukungan bagi pertumbuhan industri hilirisasi nikel. Pengalaman ini menawarkan petikan yang berharga bagi negara-negara yang ingin mengikuti jejak serupa.

Lorenzo Cotula; Brendan Schwartz

Lorenzo Cotula adalah peneliti utama dan kepala program Hukum, Ekonomi, dan Keadilan di IIED; Brendan Schwartz adalah direktur eksekutif di Sustainable Development Strategies Group (SDSG).

foto oleh adam pantouw

Di negara-negara berpendapatan rendah dan menengah yang ingin memanfaatkan kekayaan mineral mereka untuk pembangunan industri, sektor nikel Indonesia sering digaungkan sebagai kisah sukses. Sebagai produsen nikel yang besar di dunia, Indonesia telah mengembangkan industri pengolahan nikel dalam negeri yang lumayan besar secara cepat, menciptakan lapangan kerja, dan meningkatkan nilai ekspor produk turunan nikel.

Terdorong keinginan untuk keluar dari pola perdagangan yang sejak lama membatasi mereka hanya mengekspor bahan mentah, pemerintah di banyak negara kaya mineral kini ingin meniru contoh Indonesia dan mendorong industrialisasi.

Kunjungan kami baru-baru ini ke pulau Sulawesi – pusat industri nikel Indonesia – memperlihatkan gambaran yang lebih rumit. Kunjungan tersebut merupakan bagian dari proyek Advancing Land-based Investment Governance (ALIGN), yang selama dua tahun terakhir telah mendukung kegiatan memperkuat tata kelola operasi nikel di Sulawesi Tenggara.

Pemahaman yang lebih utuh tentang mengembangnya secara pesat pengolahan nikel di Indonesia dapat memberikan tilikan bagi para pembuat kebijakan yang sedang ingin menegosiasikan ulang bagaimana biaya dan hasil dibagi-bagi sepanjang rantai pasok mineral kritis.

 

Kembang pesat nikel

Di Indonesia, penambangan nikel telah bertambah sangat luas dalam 15 tahun terakhir. Diperkirakan bahwa, hingga akhir 2023, hampir satu juta hektar lahan dibebani izin penambangan nikel, terutama di Sulawesi dan Maluku Utara.

Saat ini, Indonesia menyumbang sekitar 60% dari produksi nikel global. Sebagian besar nikel ini digunakan untuk baterai dan baja yang digunakan dalam mobil listrik (EV).

Dengan langkah-langkah yang diambil sejak 2014, pemerintah telah membatasi dan pada akhirnya melarang ekspor bijih nikel mentah, dengan tujuan mendorong nilai tambah di dalam negeri. Regulasi juga mewajibkan perusahaan tambang untuk mengolah secara lokal nikel yang mereka ekstraksi – atau menjualnya ke pabrik pengolahan-pemurnian (smelter) lokal yang telah ada sebelumnya.

Dalam hitungan tahun, smelter-smelter nikel baru dibangun di kawasan industri yang besar-besar di Sulawesi dan Maluku Utara, terutama oleh perusahaan-perusahaan China, membangun kapasitas lokal untuk meningkatkan nilai tambah dan memperkokoh posisi dominan Indonesia (dan China) di pasar nikel global.

 

Pendekatan pukul rata untuk semua negara?

Kesuksesan kebijakan Indonesia dalam mendorong nilai tambah di dalam negeri telah mendorong beberapa negara kaya mineral lainnya untuk ikut membatasi ekspor bahan mentah.

Namun, efektivitas dari pembatasan ekspor Indonesia – yang diputus melanggar aturan Organisasi Perdagangan Dunia (WTO) – juga disebabkan oleh beberapa kondisi yang khas, misalnya porsi Indonesia yang besar dalam produksi dan cadangan nikel global, yang belum tentu dimiliki pada negara-negara kaya mineral lainnya.

Jika pemerintah negara lain meniru langkah yang sama tanpa skala dan daya tawar sebesar Indonesia, mereka mungkin tidak akan memperoleh manfaat yang diharapkan. Pembatasan yang tidak tepat sasaran justru dapat mengancam kelangsungan industri pertambangan negara tersebut.

 

Terjebak batu bara captive

Pertumbuhan pesat industri pengolahan nikel Indonesia telah tergantung utamanya pada captive coal (pembangkit listrik tenaga batu bara yang dibangun khusus untuk memenuhi kebutuhan smelter).

Meskipun memastikan akses energi yang stabil, hal ini membuat nikel Indonesia menjadi sangat sarat karbon (carbon-intensive), menciptakan paradoks pada industri yang seharusnya mendukung transisi energi.

Di samping meningkatkan emisi karbon, bersandar pada batu bara mendorong deforestasi. Contohnya di Kalimantan Tengah, di mana pertambangan batu bara meluas demi memenuhi permintaan dari smelter nikel.

Regulasi tahun 2022 membayangkan adanya langkah-langkah transisi bagi sektor listrik Indonesia untuk meninggalkan tenaga batu bara, termasuk adanya larangan pembangunan pembangkit listrik tenaga batu bara yang baru. Namun, larangan ini mengecualikan captive coal untuk nilai tambah domestik, asalkan memenuhi syarat-syarat tertentu.

Kapasitas tenaga batu bara captive yang terkait dengan nikel telah melonjak hampir lima kali lipat pada periode 2014-2023, dan diperkirakan akan terus berkembang dalam beberapa tahun ke depan, kecuali terjadi kemerosotan pasar.

Upaya dekarbonisasi rantai pasok nikel memang sedang berjalan, namun pilihan-pilihan yang tersedia terbatas karena lokasi geografis smelter yang dekat dengan tambang dan pelabuhan, bukan dekat dengan sumber energi terbarukan, dan karena smelter membutuhkan pasokan energi yang dapat diandalkan dan dalam jumlah yang sangat besar.

Sementara itu, rencana mengkonversi pembangkit listrik untuk mencampurkan batu bara dengan biomassa (‘co-firing’) akan meningkatkan deforestasi secara besar-besaran karena luasnya lahan yang dibutuhkan untuk memproduksi bahan baku biomassa tersebut.

 

Industri yang berkembang pesat dan regulasi yang efektif

Naik tingkat di rantai nilai (value chain) dapat membantu pertumbuhan dan diversifikasi ekonomi negara berpendapatan rendah dan menengah. Banyak dari negara-negara ini bergulat dengan ketergantungan pada ekspor komoditas dan beban utang yang besar. Kesuksesan Indonesia dalam mengembangkan nilai tambah nikel telah menciptakan ribuan lapangan kerja.

Namun, sektor ini tercoreng oleh banyak kecelakaan kerja. Dan, di Sulawesi dan Maluku Utara, penambangan dan pengolahan nikel telah dikaitkan dengan dampak sosial dan lingkungan yang luas, termasuk deforestasi, sengketa lahan, polusi udara, dan pencemaran air. Dampak-dampak ini merongrong penghidupan masyarakat hutan, petani kecil, dan kaum nelayan.

Salah satu masalahnya adalah pertumbuhan industri nikel yang pesat telah melampaui kapasitas untuk mengatur sektor ini secara efektif. Sebagai contoh, banyak proyek nikel beroperasi di pulau-pulau kecil, melanggar undang-undang tahun 2007 yang melarang penambangan di pulau-pulau semacam ini. Pada tahun 2024, Mahkamah Konstitusi menguatkan konstitusionalitas larangan ini.

Pada Juni 2025, kemarahan publik atas pertambangan di pulau-pulau kecil di Raja Ampat – rumah bagi terumbu karang dan kehidupan laut paling ikonik di dunia, serta daya tarik utama bagi wisatawan – memicu pemerintah untuk menangguhkan empat izin pertambangan.

Selain itu, pemerintah menguasai kembali lahan-lahan luas perkebunan kelapa sawit dan tambang nikel serta batu bara yang beroperasi secara ilegal di kawasan hutan.

Meskipun demikian, organisasi masyarakat sipil dan komunitas yang terdampak tambang terus menyoroti pelanggaran yang meluas terhadap peraturan yang berlaku, misalnya mengenai polusi udara, reklamasi tambang, dan pengelolaan limbah tailing.

 

Menggali pelajaran untuk kebijakan

Di Sulawesi Tenggara, beberapa organisasi masyarakat sipil, dengan dukungan dari ALIGN, telah melakukan pekerjaan penting untuk mengatasi masalah ini. Mulai dari mendorong dipatuhinya larangan menambang di pulau-pulau kecil, mendukung pemberdayaan komunitas di sekitar lokasi tambang, hingga memberikan masukan untuk revisi rencana tata ruang provinsi yang akan membatasi penambangan di kawasan hutan rindang dan kawasan yang sensitif keanekaragaman hayati.

Di negara-negara berpendapatan rendah dan menengah yang kaya mineral yang ingin mendorong nilai tambah domestik, pembuat kebijakan harus memikirkan dengan hati-hati strategi yang sesuai dengan konteks mereka sendiri. Mempertimbangkan secara holistik dimensi-dimensi sosial, lingkungan, dan ekonomi dari pengalaman Indonesia dapat menghasilkan wawasan yang berguna.

Pertama, pengalaman Indonesia menggarisbawahi kondisi yang perlu terpenuhi agar kebijakan industri tertentu – seperti keharusan hilirisasi – dapat efektif.

Kedua, hal ini menyoroti pentingnya pemerintah menjawab secara proaktif persoalan yang akan berdampak pada sektor ini secara jangka panjang, seperti urusan reklamasi tambang dan tailing, perencanaan tata ruang yang lebih partisipatif dan inklusif, pelibatan masyarakat yang efektif, pengakuan hak atas tanah, dan solusi energi rendah karbon.

Seturut dengan itu, pemerintah sebaiknya mempertimbangkan pilihan-pilihan energi sejak awal, seperti menempatkan smelter dekat dengan sumber energi terbarukan, untuk menghindari terjebak dalam pola yang tidak lestari yang pada akhirnya dapat memperlemah daya saingnya secara global.

Terakhir, pengalaman Indonesia menggarisbawahi dampak besar dan dilema untung-rugi yang kompleks yang dapat timbul dalam proses industrialisasi – serta perlunya kapasitas, regulasi, dan penegakan hukum negara yang efektif sepanjang rantai pasok mineral.

SDSG Comments on Xcel Energy's Proposed Gas Infrastructure Plan

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On January 20th, SDSG submitted written comments to the Colorado Public Utilities Commission (PUC) in relation to Xcel Energy's proposed Gas Infrastructure Plan (GIP), which is the company's proposal for expanding its methane gas network to deliver more gas to commercial and residential customers in Colorado. SDSG, along with numerous other Colorado based organizations, opposes the GIP as currently designed. Our comments focused on three major issues:

1) Colorado's state legislature passed binding "Clean Heat" targets for large-scale gas utilities, requiring a 41% reduction in Green House Gas Emissions by 2035. The gas network expansion in Xcel's GIP would make it nearly impossible for Xcel to meet those targets. Meaning either i) the State of Colorado would need to abandon its climate targets; or) Xcel would need to abandon its gas network infrastructure to meet the targets, creating expensive stranded assets that ratepayers would be reimbursing for decades to come. That's lose-lose.

2) There are numerous viable energy alternatives (so-called NPAs "Non-Pipeline Alternatives") to methane which Xcel's GIP failed to adequately consider. These technologies, such as heat pumps, are more energy efficient and are becoming cheaper thanks to subsidies. State officials have estimated that implementing NPAs could produce nearly $1 billion in economic benefits while avoiding about $5.1 billion in climate-related costs with greenhouse gas emissions.

3) Xcel's GIP failed to adequately calculate the Green House Gas Emissions that would be emitted due to expanded gas infrastructure. Additionally, Xcel failed to provide "Social Cost of Carbon" analysis in key parts of the GIP as required by Colorado Law. These costs would amount to billions of dollars and be borne by Colorado residents and Xcel ratepayers. Proper integration of the Social Cost of Carbon into Xcel's GIP would change the cost-benefit analysis of investment decisions in favor of renewable energy projects.

SDSG's Sydney Christian appeared before the Public Utilities Commissioners to deliver oral testimony, which summarized our written comments.

The PUC is holding an Evidentiary Hearing on the merits of Xcel's GIP through January 23rd. It is expected to make a final ruling on the GIP proposal by March 25, 2026.

Denver’s “Brown Cloud”: why Colorado keeps failing air quality standards – and what can be done

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Have you ever flown into Denver International Airport, hopped in a rideshare, or rode the train towards the city, gazed off into the distance only to see a hazy skyline, and a brown cloud where the Front Range should be? Welcome to America’s sixth smoggiest city! Alex Inskeep, a University of Denver Law student and SDSG Legal Intern, has been researching air quality issues in Colorado’s Front Range. He explains what is driving Denver’s smog problem, and how you can get involved.

By Alex Inskeep

Downtown Denver on 22 July 2014, with the “brown cloud” obscuring the view of the Front Range (credit: Colorado Department of Public Health and Environment).

That familiar haze – often referred to as Denver’s “brown cloud” – is more than just an eyesore. It reflects the persistent ozone pollution placing Colorado’s Front Range in violation of federal clean air standards.

 

what causes smog?

Ozone, the main chemical component of smog, manifests from the reaction between oxides of nitrogen (NOX) and volatile organic compounds (VOCs). Ground-level ozone poses severe health risks, from coughing to breathing difficulties, lung and cardiovascular diseases. These issues disproportionately affect children, pregnant women, older people, outdoor workers and those with pre-existing conditions such as asthma – especially among Disproportionately Impacted Communities. 

To protect public health, the Environmental Protection Agency (EPA) sets National Ambient Air Quality Standards (NAAQS). In 2015, the EPA established the current ozone standard at 70 parts per billion (ppb), measured as a daily maximum 8-hour average. According to the National Parks Services, an “exceedance day” occurs when ozone levels reach or exceed 71 ppb. If a region’s fourth worst ozone day exceeds that limit each year over three years, it is classified as being in “nonattainment”. 

The EPA first designated Denver under “nonattainment” status back in 1978; and since 2019, it has designated nine Colorado counties as “serious” nonattainment areas. 

 

Measuring ozone along the Front Range

Colorado’s Department of Public Health and Environment (CDPHE) measures ozone levels across Colorado and the Front Range and publishes daily ozone readings dating back to 2008. As part of my SDSG internship, I collected data on the number of exceedance days each year since 1995. The graph below shows that the Front Range region made no significant progress in reducing ozone exceedance days. Although, Colorado made strides in reducing ozone exceedance, increasing population and industry presence have thwarted such efforts.

Ozone exceedance days per year in the Denver Metropolitan Area since 1995 (source: Regional Air Quality Council).

Through analysis, during the worst months for ozone, June through August, the data shows no significant increase or decrease in the average daily amount of ozone present in Colorado since 2008. As a result, Colorado continues to struggle with nonattainment despite its efforts to curb emissions. However, progress towards attainment may face challenges under the Second Trump Administration. For example, the Trump Administration requires coal facilities in Colorado to remain open. Colorado, therefore, should look towards state regulation for the foreseeable future instead of federal regulation.

Colorado’s Air Quality Control Commission (AQCC) identifies several major contributors to ground-level ozone in the State, including oil and gas operations, vehicle emissions, industrial facilities, and background ozone. “Background ozone” refers to ozone that originates from natural events, such as wildfires, or from pollution sources outside the United States.

Sources of ground-level ozone in Colorado (adapted from Regional Air Quality Council).

While background levels dominate the amount of ozone in Colorado, sources such as oil and gas, factory emissions, and vehicle emissions also significantly contribute to Colorado’s nonattainment designation.

 

Colorado’s plan to improve air quality 

When a region fails to meet federal air quality standards, the Clean Air Act requires States to develop a State Implementation Plan (SIP) to outline how the area will improve air quality to meet EPA standards. If a State fails to meet its attainment deadline and does not correct its deficiencies, the EPA can impose sanctions, typically by withholding highway funds. 

In case of serious nonattainment, States must show incremental ozone reductions averaging three percent per year over three years until the area reaches attainment. Approved in 2012, Colorado’s SIP incorporates new emissions control measures through consistent updates. Recent provisions include limiting the emissions of NOX from major power plants, such as the Cherokee and Arapahoe facilities (PDF) in the Denver metro area.

Colorado’s SIP includes three essential components: (1) a demonstration that the State ultimately reaches attainment, (2) a demonstration of ongoing progress towards that goal, and (3) a budget allowing enough ozone emissions for vehicle use. 

To meet these requirements, Colorado has passed numerous laws addressing ozone emissions.

 

Recent legislative action 

In 2024, the Colorado General Assembly passed SB24-229, which requires the AQCC to propose rules that will reduce NOX by fifty percent in certain areas by 2030, relative to 2017 levels. The bill also mandates enhanced reporting on enforcement actions, including penalties levied against violators.

Other recent initiatives include incentives to use public transportation, such as free transit days during the summer, and updated coordination requirements between the AQCC and the Colorado Energy and Carbon Management Commission to regulate pollution control measures.

These measures reflect a consistent effort to achieve air quality regulation by improving different sectors that have an impact on ozone levels. 

 

Has Colorado’s air quality improved?

Since 2007, Colorado experienced a significant population increase of over a million people, coupled with a booming increase in oil and gas production. Without any regulatory intervention, these trends would have led to a significant increase in emissions. 

Instead, ozone levels have remained largely flat, which suggests that emission reductions from stricter oil and gas regulation, promotion of electric vehicles and other control measures helping keep the smog under control. 

However, constant ozone levels do not satisfy the increasingly high federal standards. State regulators now face a moving target of reducing total emissions while population and economic activity continue to grow.

 

How you can get involved

Public participation plays a crucial role in public affairs, and air quality regulation is no exception. SDSG has begun tracking air quality regulation. All members of the public are welcome to attend public hearings and submit comments, provided they register beforehand. 

The next meeting will be held from February 18th to 20th, 2026. The agenda includes a request for a hearing on particulate matter maintenance plan revisions for nonattainment and air quality standards. If you feel concerned about Denver’s air quality and the health impacts of smog, engaging in this process provides a direct, impactful way to make a difference. 

As Colorado keeps working to comply with clean air standards, sustained attention and participation will help determine whether the brown cloud will give way to the Front Range again.

Indonesia’s nickel refining boom: lessons for other mineral-rich countries

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Indonesia’s policies have supported the growth of a nickel refining industry. This experience offers valuable insights for countries pursuing a similar path.

By Lorenzo Cotula and Brendan Schwartz

Lorenzo Cotula is head of IIED's law, economies and justice programme; Brendan Schwartz is Executive Director at the Sustainable Development Strategies Group

Nickel smelters in Sulawesi, Indonesia (Photo: copyright Adam Pantouw)

In low- and middle-income countries looking to harness their mineral wealth for industrial development, Indonesia's nickel sector is often touted as a success story. As the world’s dominant nickel producer, Indonesia has rapidly developed a sizeable domestic refining industry, creating jobs and increasing the value of nickel-derived exports.

Eager to break from trading patterns that have long confined them to exporting raw materials, governments in many mineral-rich countries are looking to emulate Indonesia’s model and promote industrialization.

Our recent visit to the island of Sulawesi – a hotspot for Indonesia’s nickel industry – highlighted a more complex picture. The visit was part of the Advancing Land-based Investment Governance (ALIGN) project, which over the past two years has supported activities to strengthen the governance of nickel operations in Southeast Sulawesi.

A more rounded understanding of Indonesia’s nickel refining boom can provide insights for policymakers seeking to renegotiate the way costs and benefits are distributed in critical mineral supply chains.

 

the nickel boom

In Indonesia, nickel mining has expanded substantially over the past 15 years. It is estimated that, as of late 2023, nearly one million hectares of land were under nickel mining permits, primarily on the Sulawesi and North Maluku islands.

Today, Indonesia accounts for about 60% of global nickel production. A good part of this nickel is for batteries and steel used in electric cars.

Through measures adopted since 2014, the government restricted and ultimately banned the export of unprocessed nickel ore, aiming to promote local value addition. Regulations also mandated mining companies to refine locally the nickel they extract – or to otherwise sell it to existing local smelters.

Within a few years, new nickel smelters were built in large industrial parks in Sulawesi and North Maluku, primarily by Chinese firms, establishing extensive local value addition capacity and consolidating Indonesia’s (and China’s) dominant position in global nickel markets.

 

one size fits all?

The success of Indonesia’s policies in promoting local value addition has encouraged several other mineral-rich countries to also restrict exporting raw materials.

Yet, the effectiveness of Indonesia’s export restrictions – which were found to be in breach of World Trade Organization rules (PDF) – is partly due to a unique set of conditions, such as the country’s commanding share of global nickel production and reserves, that are not necessarily present in other mineral-rich countries.

If governments replicate the same measures without Indonesia’s scale and leverage, they may not necessarily secure hoped-for benefits. Ill-suited restrictions could even undermine the viability of the country’s mining industry.

 

the captive coal lock-in

The rapid growth of Indonesia’s nickel refining industry has primarily relied on captive coal (coal-fired plants built to exclusively service a smelter).

While this has ensured steady access to energy, it makes Indonesia’s nickel particularly carbon intensive, creating a paradox for an industry that is supposed to support the energy transition.

Besides increasing carbon emissions, reliance on coal drives deforestation – for example in Central Kalimantan, where coal mining has expanded to meet the nickel smelters’ demand.

A 2022 regulation envisages measures for Indonesia’s electricity sector to transition away from coal-fired power, including a ban on new coal plants. But the ban exempts captive coal for domestic value addition, provided certain conditions are met.

Nickel-linked captive coal capacity has grown nearly fivefold (PDF) in 2014-23 and is projected to expand further over the next few years, barring a market downturn.

Efforts are underway to decarbonize the nickel supply chain but options are limited by the smelters’ geographic location – close to mines and ports, rather than renewable energy sources – and their need for vast amounts of reliable energy.

Meanwhile, plans to convert the power plants to mix coal with biomass (‘co-firing’) would greatly increase deforestation (PDF) due to the large plantations needed to produce biomass feedstock.

 

Rapidly growing industries and effective regulation

Stepping up in the value chain can help grow and diversify economies in low- and middle-income countries, many of which struggle with a dependence on commodity exports and with substantial debt burdens. Indonesia’s success in developing nickel value addition has created thousands of jobs.

But the sector has been marred by workplace accidents. And in Sulawesi and North Maluku, nickel mining and refining have been associated with extensive social and environmental impacts, including deforestation, land disputes, air pollution and water contamination. These impacts undermine the livelihoods of forest communities, small-scale farmers and fisherfolk.

Part of the problem is that the nickel industry’s rapid growth has outpaced capacities to effectively regulate the sector. For example, many nickel projects operate on small islands, in violation of a 2007 law that bans mining on such islands (the Constitutional Court upheld the legality of this ban in 2024).

In June 2025, public outrage about mining on small islands in Raja Ampat – home to some of the world’s most iconic coral reefs and marine life, and a big draw for tourists – prompted the government to suspend four mining permits.

In addition, the government reclaimed large areas of land under oil palm plantations and nickel and coal mines that were operating illegally on forest areas.

But civil society organizations and mine-impacted communities continue to highlight widespread non-compliance with applicable regulations, for example with regards to air pollution, mine reclamation and managing mine tailings.

 

Extracting lessons for policy

In Southeast Sulawesi, civil society organizations, with support from ALIGN, have been doing important work to address these problems – from promoting compliance with the ban to mine on small islands, to supporting community empowerment around mining sites and informing revisions to the provincial spatial plan that would restrict mining in heavily forested and biodiversity-sensitive areas.

In mineral-rich low and middle-income countries looking to promote domestic value addition, policymakers should carefully think through strategies tailored to their contexts. Holistically considering the social, environmental and economic dimensions of Indonesia’s experience provides helpful insights.

First, Indonesia’s experience highlights the conditions that need to be in place for certain industrial policy measures – such as local processing requirements – to be effective.

Second, it highlights the need for governments to proactively address issues that will affect the sector in the longer term, such as the management of mine reclamation and tailings, more participatory and inclusive spatial planning, effective community engagement (PDF), land rights recognition and low-carbon energy solutions.

In this vein, governments should consider energy options from the start, such as locating processing plants close to renewable energy sources, to avoid being locked into unsustainable arrangements that can ultimately hurt their global competitiveness.

Finally, Indonesia’s experience highlights the major impacts and complex trade-offs that can arise in industrialization processes – and the need for effective state capacity, regulation and enforcement throughout mineral supply chains.