The government is restricting nickel production to push up prices but producing more sustainable nickel for a premium requires addressing the industry’s coal issue
Bhima Yudhistira Adhinegara is the Executive Director of the Center of Economic and Law Studies (CELIOS), an Indonesia-based economic think tank. Muhammad Zulfikar Rakhmat is the Director of the China-Indonesia desk at CELIOS.
Indonesia produces around 60% of the world’s nickel, a metal used to manufacture batteries for electric vehicles (EVs) – more than any other country in the world. But in 2026, the government sharply reduced how much of its nickel can be extracted from the ground.
Production quotas were reduced by around 40% this year compared to 2025. Weda Bay, the largest nickel mine on Earth, had its allowance cut by more than 70% and exhausted its full-year quota by the end of May, halting mining entirely; it cannot resume large-scale extraction until next year unless regulators grant an extension.
The policy has sparked a vivid debate in Indonesian policy circles: how can the country shift its strategy from a decade of mining vast quantities of cheap nickel to producing a high-value and low-carbon material that the rest of the world wants for EV batteries.
The cuts aren’t a silver bullet to clean up Indonesia’s nickel industry, whose smelters are powered by coal – the most polluting fossil fuels. But alongside stricter enforcement of environmental rules, it is one side of efforts to produce more sustainable nickel for a premium.
Bhima Yudhistira Adhinegara is the Executive Director of the Center of Economic and Law Studies (CELIOS), an Indonesia-based economic think tank. Muhammad Zulfikar Rakhmat is the Director of the China-Indonesia desk at CELIOS.
Indonesia produces around 60% of the world’s nickel, a metal used to manufacture batteries for electric vehicles (EVs) – more than any other country in the world. But in 2026, the government sharply reduced how much of its nickel can be extracted from the ground.
Production quotas were reduced by around 40% this year compared to 2025. Weda Bay, the largest nickel mine on Earth, had its allowance cut by more than 70% and exhausted its full-year quota by the end of May, halting mining entirely; it cannot resume large-scale extraction until next year unless regulators grant an extension.
The policy has sparked a vivid debate in Indonesian policy circles: how can the country shift its strategy from a decade of mining vast quantities of cheap nickel to producing a high-value and low-carbon material that the rest of the world wants for EV batteries.
The cuts aren’t a silver bullet to clean up Indonesia’s nickel industry, whose smelters are powered by coal – the most polluting fossil fuels. But alongside stricter enforcement of environmental rules, it is one side of efforts to produce more sustainable nickel for a premium.
Restricting Indonesia's nickel output
Production quotas were introduced to stop the collapse of nickel prices because of oversupply in the market. Prices had fallen more than 40% in 2023 alone and kept sliding as Indonesian supply kept growing, hitting a four-year low of around $13,900 a ton in late 2025.
Critics called the recent tightening of production quotas proof that Indonesia’s nickel strategy has failed, arguing that the industry shouldn’t need to throttle its own output to survive. But when assessed against what the policy was supposed to do – push up nickel prices – it has worked. Prices jumped to $20,000 a ton in May, the highest since 2024.
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Chinese industry groups representing companies that have invested billions to mine and refine the country’s nickel were furious, warning Indonesia's president Prabowo Subianto that the cuts put $50 billion worth of investment at risk. But much of that Chinese capital is sunk into smelters and processing plants built specifically to run on Indonesian ore, and cannot simply be moved elsewhere. That gives Jakarta more room to hold its ground than the warning suggests.
This included 148 hectares seized from Weda Bay for lacking a forestry permit. The share of nickel produced from illegal small-scale mining also fell from about a quarter in 2022 to roughly 10% by 2024.
The crackdown responds to serious environmental damages in the nickel industry. On Obi Island, a waste pond collapsed after heavy rain in June 2025, flooding three villages and killing a resident. Internal company tests found chromium-6 – a carcinogen – in the water, in quantities far above the legal limit. The footprint of another mine near Raja Ampat, which is home to some of the world's richest coral reefs, grew 60-fold in just eight years.
The market is responding to early cleanup efforts. Low-carbon nickel now sells for a real premium, roughly $18,800 to $19,300 a ton compared with $17,900 to $18,300 otherwise, as carmakers seek to source cleaner materials to comply with the European Union’s new emissions rules for imports.
In turn, this is incentivising the industry to do more to green its operations. Vale Indonesia's smelter in South Sulawesi now runs almost entirely on hydropower, for example.
None of this addresses coal use, however. Major Indonesian nickel producers still emitted an estimated 15 million metric tons of greenhouse gases in 2023. Indonesia may be cracking down on illegal mining and rewarding cleaner producers but it is still running its mines on the dirtiest fuel available.
Unequal benefits
For Indonesia to truly benefit from producing cleaner and high-value nickel, it needs to reap the economic benefits too. Although the industry has boosted the country’s economic growth, the reality on the ground tells a different story.
Konawe in Southeast Sulawesi is home to a major smelting complex. Growth in the district jumped from 6% to 22% between 2015 and 2023, driven almost entirely by the nickel industry, according to a study by the Lowy Institute study. At the same time, poverty levels increased slightly and unemployment remained unchanged.
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In Halmahera, another epicentre of the nickel industry, spending by the poorest fifth grew just 5% between 2019 and 2022, compared with 28% for the wealthiest fifth, according to a separate study.
Part of the reason for this inequality is the system for transferring mining royalties to district authorities where the mines are located. In theory, they are entitled to the largest share. But in practice, payments are delayed, companies routinely dispute what they owe and royalties are pooled and distributed across a larger area.
The Natural Resource Governance Institute has found that decentralisation handed local governments power to approve new mines faster than they could build their capacity to manage them. Higher output raises national income on paper, but local governments remain constrained by fiscal rules and infrastructure costs that scale with mining.
None of this makes the 2026 quota cuts a mistake. Indonesia has every right to defend its pricing power over a resource it controls. But limiting extraction isn’t going to fix underlying issues around environmental enforcement and revenue-sharing. That requires rules that are consistently enforced, royalties that reach communities living by the mines, and a plan to wean smelters off coal.
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Facts Only
* Indonesia produces approximately 60% of the world's nickel.
* Production quotas were reduced by roughly 40% in 2026 compared to 2025.
* Weda Bay's nickel extraction allowance was cut by more than 70%.
* Nickel prices reached a four-year low of $13,900 a ton in late 2025.
* Nickel prices rose to $20,000 a ton in May.
* Chinese investors have invested $50 billion in Indonesian nickel mining and refining.
* A waste pond collapsed on Obi Island in June 2025, resulting in one death and chromium-6 contamination.
* The share of nickel from illegal small-scale mining decreased from 25% in 2022 to 10% by 2024.
* Low-carbon nickel sells for $18,800 to $19,300 a ton, while standard nickel sells for $17,900 to $18,300.
* Major Indonesian nickel producers emitted an estimated 15 million metric tons of greenhouse gases in 2023.
* District growth in Konawe increased from 6% to 22% between 2015 and 2023.
Executive Summary
Indonesia produces approximately 60% of the global nickel supply, a critical component for electric vehicle batteries. To combat falling prices caused by oversupply, the government has implemented production quotas, reducing extraction limits by roughly 40% this year compared to 2025. While this strategy successfully raised prices—peaking at $20,000 a ton in May—it has created tension with Chinese investors who have committed $50 billion to the sector.
The industry faces a critical tension between economic growth and environmental sustainability. While there is a growing market premium for low-carbon nickel, most Indonesian smelters still rely on coal, the most polluting fossil fuel. Furthermore, the economic benefits of the nickel boom are unevenly distributed; in regions like Konawe and Halmahera, GDP growth has surged while local poverty and unemployment persist. The current strategy of restricting output addresses market pricing but does not resolve systemic issues regarding carbon emissions, illegal mining, or the equitable distribution of mining royalties to local communities.
Full Take
The strongest version of this narrative is that Indonesia is attempting a precarious pivot from a "volume-based" commodity strategy to a "value-based" sustainable strategy. It acknowledges that while the state can manipulate prices through quotas, it cannot legislate "greenness" without addressing the fundamental energy infrastructure—specifically the reliance on coal.
The narrative operates on a paradigm of "Resource Nationalism," where a state leverages its dominant market position to force higher prices and better terms from foreign capital. However, there is an unstated assumption that the "green premium" demanded by the EU and EV manufacturers will be sufficient to offset the massive capital expenditure required to transition smelters from coal to renewables. This echoes historical patterns of "Dutch Disease," where a boom in a single natural resource drives GDP figures upward while failing to improve the quality of life for the local population or diversify the economy.
The human cost is highlighted through the disparity in Halmahera and Konawe, suggesting that the "green transition" for the Global North may be subsidized by environmental degradation and economic inequality in the Global South. The benefit accrues to the state and foreign investors, while the costs—carcinogens in the water and deforestation—are borne by local residents.
Patterns detected: none
Bridge Questions:
1. If nickel-free battery technology scales rapidly, does Indonesia's current investment in coal-powered smelters become a stranded asset?
2. To what extent can "low-carbon nickel" be truly sustainable if the extraction process continues to displace indigenous communities and destroy biodiversity?
Counterstrike Scan: A coordinated campaign pushing this narrative would likely weaponize "environmental justice" to discourage foreign investment in Indonesia, thereby shifting supply chain dependence toward other regions. The actual content does not match this; it provides a balanced critique of both state policy and industry practice without advocating for a specific geopolitical pivot.