Green Steel: India’s Decarbonisation Challenge and Opportunity

GS Paper III – Environment | Climate Change | Green Steel | Industrial Decarbonisation | Green Hydrogen | Net Zero

Context

• Government Push: A series of recent government announcements has placed steel-sector decarbonisation high on India’s agenda.
• ₹5,000-crore Scheme: A scheme announced last year to accelerate steel-sector decarbonisation is expected to be launched in the coming months.
• High Emissions: India’s steelmaking emissions are around 32% higher than the global average and account for nearly 12% of India’s total GHG emissions.
• Growing Production: India produced around 160 million tonnes of steel in FY 2025–26, making it the world’s second-largest steel producer after China.

Why Steel is a Hard-to-Abate Sector

• Coal-intensive Production: Conventional BF-BOF (Blast Furnace–Basic Oxygen Furnace) technology uses coking coal to extract iron from iron ore and is highly carbon-intensive.
• Global Dependence: Around 70.4% of global steelmaking still uses BF-BOF technology.
• India’s Structure: India’s steel production is relatively heterogeneous:
  • 43% – BF-BOF
  • 22% – Electric Arc Furnace (EAF)
  • 35% – Electric Induction Furnace
• Future Risk: BF-BOF capacity in India is projected to rise to 56% by 2030 due to growing steel demand and planned plants.

National Mission on Green Steel

• Emission Target: The Mission aims to reduce steelmaking emissions intensity from the current 2.55–2.65 tCO₂e per tonne of crude steel to 2.2 tCO₂e by 2029–30.
• Green Steel Certification: Steel with emissions intensity below 2.2 tCO₂e is classified as “green steel”.
• Lowest Category: Even the greenest category can have emissions intensity up to 1.6 tCO₂e.
• Global Comparison: Global average steel emissions are around 1.85 tCO₂e, indicating that India’s greenest steel remains relatively carbon-intensive.

Greener Pathways for Steel

• Scrap-based Production: Greater use of steel scrap can reduce the need to process iron ore and consequently reduce emissions and costs.
• Electric Arc Furnaces: EAFs can use electricity to produce steel from scrap or DRI and have lower emissions intensity than BF-BOF.
• Direct Reduced Iron: DRI-EAF offers a pathway away from conventional coal-intensive production.
• Green Hydrogen: Hydrogen produced using renewable energy can replace natural gas in reducing iron ore.
• Clean Electricity: Renewable electricity can further reduce emissions from electric-based steelmaking.

The Opportunity: Redirect Investments

• Avoid New BF-BOFs: Research suggests that avoiding new BF-BOF plants and redirecting investment towards EAFs and DRI-EAFs can substantially reduce future emissions.
• India’s Advantage: Many planned BOF plants in India have not yet broken ground, creating an opportunity to redirect existing investments rather than requiring entirely additional investment.
• Relining Challenge: More than 43 million tonnes per annum of blast-furnace capacity is due for relining before 2030.
• Carbon Lock-in: Relining can extend a furnace’s life by 15–20 years, potentially locking India into coal-based steel production for decades.

Hydrogen-based Transition

• Near-term Pathway: DRI-EAF plants could initially operate using natural gas.
• Long-term Transition: The model suggests switching towards green hydrogen around 2040–45, as its costs become more competitive.
• Cost Barrier: Operating DRI-EAF plants with green hydrogen today would be considerably more expensive.
• Key Insight: Steel may be less a sector that is inherently “hard to abate” and more a sector facing a “hard-to-abate barrier” that can be overcome through timely investment.

Challenges in India’s Green Steel Transition

• Limited Scrap Availability: India, as a developing economy, does not have sufficient scrap availability to rely entirely on scrap-based steelmaking.
• Rising BF-BOF Capacity: Planned investments could increase dependence on coal-based steelmaking.
• Green Premium: Cleaner technologies currently involve higher costs.
• Natural Gas Risks: Gas-based EAFs may create fuel shortages, import dependence, geopolitical vulnerabilities and stranded infrastructure.
• Hydrogen Affordability: The availability and affordability of green hydrogen remain crucial.
• Weak Green Steel Demand: India has defined green steel but has not yet created a sufficiently strong market demand for it.

Green Steel Certification and Market

• Certification Progress: ArcelorMittal Nippon Steel India became the first integrated steel producer to receive green steel certification in February 2026.
• Scale: By March 31, 89 steel units had received certification, covering 12.34 million tonnes of production.
• Demand-Side Gap: Certification has created a definition of green steel, but demand for green steel remains inadequate.

CBAM and Global Competitiveness

• EU Carbon Border Adjustment Mechanism: The EU’s CBAM has imposed carbon-related costs on carbon-intensive imports, including Indian steel.
• Export Pressure: Since India exports steel to European countries, high domestic emissions can reduce its competitiveness.
• Investment Signal: Carbon-related trade measures may push Indian steelmakers towards lower-emission technologies.
• Market Diversification: India is also seeking alternative markets and promoting domestic steel consumption.

Recent Green Hydrogen Initiatives

• Pilot Projects: The Ministry of New and Renewable Energy funded three pilot green-hydrogen projects, involving more than ₹400 crore, for low-carbon steel production.
• JSW Energy: Its commercial-scale green hydrogen plant at Vijayanagar, Karnataka, supplies green hydrogen to an adjoining DRI unit of JSW Steel.
• Industrial Application: These projects seek to establish the technical feasibility of using green hydrogen in furnaces and other stages of steel production.

Way Forward

• Redirect Existing Investment: Prioritise DRI-EAF and EAF capacity instead of locking in new BF-BOF capacity.
• Avoid Carbon Lock-in: Carefully assess whether blast furnaces due for relining should receive long-term investment.
• Scale Green Hydrogen: Reduce the cost and improve the availability of green hydrogen.
• Create Green Steel Demand: Develop markets and procurement mechanisms that reward low-carbon steel.
• Improve Scrap Availability: Strengthen scrap collection and recycling to expand low-emission steelmaking.
• Balance Transition and Growth: Ensure that rising steel demand is met without creating long-term dependence on carbon-intensive technologies.

Conclusion

India’s steel sector presents a high-leverage opportunity for climate mitigation. Early investment decisions can prevent decades of carbon lock-in. The key challenge is to balance rapidly growing steel demand, industrial competitiveness and the transition towards net-zero emissions, with green hydrogen availability and affordability remaining critical to the transition.

UPSC Mains Practice Question

Q. India’s steel sector presents both a major decarbonisation challenge and an opportunity for low-carbon industrial growth. Discuss the pathways available to India for transitioning towards green steel. (250 words, 15 marks)