By Ginanjar Ariyasuta, Indonesia Energy Finance Campaigner, Market Forces
In his address to the House of Representatives on May 20, President Prabowo Subianto expressed his conviction that Indonesia’s economy can grow 8 per cent by 2029, with the processing of minerals as one of its main pillars.
President Subianto went further, instructing his cabinet to set Indonesia’s own prices for nickel and other mining commodities.
“If they don’t want to buy, that’s fine,” he said. “Let it stay in the ground for our grandchildren, rather than sell it cheap.” A statement radiating full confidence in the path already chosen.
However, the grand ambition of keeping minerals underground or setting their own prices requires extraordinary economic resilience. Downstreaming is no cheap project; it requires massive capital, constantly flowing from the financial industry.
Following the statement in the speech, a crucial question arises: are Indonesian banks — the financial backbone of this ambition — truly prepared for the credit and reputational risks that come with it?
Because, as global markets begin to question the origins of this industry’s energy, the financial health of the domestic banks that finance it is also at stake. This risk is not just a paper concern, but a real threat driven by a shift in the global public and consumer perspective on environmental issues.
61 per cent of Indonesians do not consider nickel produced using coal power to be green, according to a recent YouGov survey commissioned by Market Forces. Among the 4,000 respondents surveyed across three countries, a majority of Malaysians (54 per cent) and Singaporeans (52 per cent) share the same view.
This perception is shared not only by ordinary citizens but also by the global market, which is increasingly shifting toward low-carbon products and renewable energy. The issue of dirty nickel is no longer just an environmental issue; it has become an economic one.
Indonesia’s nickel processing relies on dirty energy: industrial ‘captive’ coal power plants built specifically to supply electricity for smelters to melt the metal. The industry now faces pressure from few directions simultaneously — each with direct implications for the credit risk carried by the banks that finance it.
First, our nickel downstream market is misdirected. The majority of our nickel ends up in stainless steel, not batteries. The latest Centre for Research on Energy and Clean Air (CREA) report shows that 83 per cent of Indonesia’s nickel production in 2025 was absorbed by the stainless steel industry and not for electric vehicle batteries despite claims the mineral is needed for the transition to clean energy.
The global electric vehicle industry has been dynamic. Another noteworthy factor is that Lithium Iron Phosphate (LFP) batteries — a type of battery technology that eliminates nickel altogether — now command more than 80 per cent of the Chinese market. The market segment cited to justify more nickel manufacturing is moving away from using the mineral.
There is a great irony here: the government is boosting mineral downstreaming with sweet promises of a future driven by electric vehicles, while the market reality has changed drastically.
Second, Indonesia’s major nickel buyers have a direct financial incentive to switch suppliers. Producers using low-carbon nickel, from smelters powered by renewable energy, pay a smaller carbon bill. Those using Indonesia’s dirty nickel pay around Rp1.6 million per tonne of COâ‚‚.
That price differential is the incentive to switch to cleaner suppliers. Stainless steel, which uses most of Indonesia’s nickel, has been covered under the European Union’s Carbon Border Adjustment Mechanism (CBAM) since January 1, 2026.
The same CREA report also shows that coal-fired nickel smelters in Indonesia have emission intensities of up to 99 tCOâ‚‚ per tonne of nickel — more than three times hydro-powered smelters like Vale Sorowako. The dirtier Indonesia’s nickel, the less price-competitive it becomes.
Nor is this a static calculation. European carbon prices are projected to nearly double from current levels by 2030, according to Fastmarkets. Europe’s carbon mechanism will expand to more nickel-related products from 2028.
The London Metal Exchange has already moved to establish a clean-versus-dirty nickel distinction, setting a carbon emissions threshold of 20 tCOâ‚‚ per tonne — far below what Indonesia’s coal-powered smelters produce. This is not a sudden shock. It is a growing burden, contract by contract, until buyers permanently shift direction.
Third, production costs are rising. Indonesian regulations require captive coal plants to cut emissions by 35 per cent within 10 years of operation and limit their operational life to 2050. To meet this deadline, smelter operators are forced to make costly additional investments in emission capture technology or fuel blending (co-firing). Due to the accelerated operational period and additional investments, asset depreciation costs have ballooned.
As a result, electricity from captive coal plants already costs nearly 1.5 times more than energy from domestic solar and wind projects, according to EMBER’s analysis. Rising production costs add another layer to the credit risk that banks financing nickel need to scrutinise more carefully.
Indonesia’s nickel is produced in the dirtiest way, for a market that is not the greenest destination, in a world racing toward green products. While this industry is facing market pressure, regulatory constraint, and rising production costs, Indonesian banks are carrying escalating risk.
It is deeply concerning that Indonesian banks are backing industrial coal power plants. Captive coal financing by domestic banks has surged from below 3 per cent of total exposure in 2013 to more than 55 per cent by 2025, according to Earthwise Institute. At the peak of investment activity in 2023, no fewer than 14 Indonesian commercial banks backed captive coal transactions.
Captive coal power capacity has reached 19.3 gigawatts and is projected to grow by 60 per cent if all projects in the pipeline are realised by 2027, with nickel as the primary driver, according to CREA.
On the other hand, there are reputational risks that cannot be ignored. Indonesian banks should be aware that their customers are starting to care about environmental issues.
According to the latest YouGov survey, more than two thirds of Indonesians (68 per cent) have a more favourable view of banks that stop financing new coal projects — and 43 per cent say they would consider switching banks if they knew their bank was still funding this dirty fossil fuel.
The majority of customers have sent a clear signal of opposition. Despite this, not one of Indonesia’s major banks has a clear coal phase-out policy, according to the #BersihkanBankmu coalition report.
Credit risk and reputational risk rarely travel alone. A bank whose portfolio is exposed to an industry of declining competitiveness, while simultaneously facing pressure from its own customers over that exposure, is a bank confronting two forces moving in the same direction.
Ultimately, Indonesia’s grand nickel manufacturing ambition cannot stand on a foundation that is both financially fragile and environmentally dirty. If this path is forced through, the President’s own words in that speech risk becoming a painful reality.
Leaving nickel “in the ground for our grandchildren” may prove far wiser than digging it up with capital that ends up in a non-performing loan.
National banks need to reconsider their financing of captive coal-powered nickel, not only to protect the environment, but also to maintain their own credit health and reputation.