Why Decarbonising Steel Is an Economic and Environmental Necessity for India
India has actively pursued easier access to steel scrap from the European Union, aiming to boost the scrap share in steelmaking as part of its green steel initiative and to align with emerging global sustainability standards. This move comes amid growing pressures from international carbon regulations, highlighting the urgent need for India to decarbonise its steel sector.
The EU's Carbon Border Adjustment Mechanism and Its Impact
Under the recently concluded India-European Union Free Trade Agreement, Indian negotiators specifically sought improved access to steel scrap produced within the 27-nation EU. This strategy serves as a workaround to mitigate the effects of the Carbon Border Adjustment Mechanism (CBAM), which took effect in January 2026. CBAM imposes carbon tariffs on greenhouse gases emitted during the production of carbon-intensive goods, including iron and steel.
Iron and steel exports from India account for a staggering 90 per cent of all CBAM-exposed Indian goods shipped to the EU. With India being the world's second-largest crude steel producer after China and exporting two-thirds of its steel to Europe, the economic stakes are high. The reliance on carbon-intensive blast furnace technology makes Indian steel vulnerable to these tariffs, underscoring the necessity for a greener transition.
Defining Green Steel and India's Taxonomy
In December 2024, India became the first country to formally define green steel through its Green Steel Taxonomy. According to this framework, "Green Steel shall be defined in terms of the percentage greenness of the steel, which is produced from the steel plant with CO₂ equivalent emission intensity less than 2.2 tonnes of CO₂ per tonne of finished steel (tfs)."
Steel production emissions vary significantly based on the manufacturing route. The blast furnace–basic oxygen furnace (BF–BOF) method, predominantly used in India, has the highest emissions. In contrast, hydrogen-based Direct Reduced Iron (DRI) and scrap-based electric arc furnace (EAF) routes offer lower emissions. Green steel leverages these low-emission processes, such as EAF, which melts recycled scrap using electricity, and DRI, which reduces iron ore with natural gas or hydrogen.
Additionally, integrating renewable energy and technologies like Carbon Capture Usage and Storage (CCUS) is crucial for deep decarbonisation, as CCUS can mitigate up to 56 per cent of emissions from existing steel production methods.
The Global Context and India's Emissions Challenge
Globally, around 75 per cent of steel production relies on coal-fired blast furnaces, releasing approximately 2 tonnes of carbon dioxide per tonne of steel. This makes the steel industry the largest emitter among heavy industries, contributing 7-9 per cent of total global emissions. India's steel sector alone accounts for 10-12 per cent of the country's total emissions, a figure that is rising with increasing steel demand.
In response, India has developed a coordinated policy framework to decarbonise the steel industry. The "Greening the Steel Sector of India" report, released in September 2024, sets a roadmap to reduce emission intensity from 2.65 to 2.20 tonnes of CO₂ per tonne of crude steel by 2029–30. Key levers include energy efficiency, renewable energy, process transition, green hydrogen, CCUS, and biomass.
India's Institutional Framework and Green Steel Ratings
The Green Steel Taxonomy not only defines green steel but also classifies it based on emission intensity:
- Five-star green-rated steel – Emission intensity lower than 1.6 t-CO2e/tfs.
- Four-star green-rated steel – Emission intensity between 1.6 and 2.0 t-CO2e/tfs.
- Three-star green-rated steel – Emission intensity between 2.0 and 2.2 t-CO2e/tfs, with this threshold reviewed every three years.
To ensure credibility, the taxonomy is supported by a Measurement, Reporting and Verification (MRV) system for monitoring emissions and certification. The Ministry of Steel has also sanctioned five pilot projects under the National Green Hydrogen Mission to promote green hydrogen in steelmaking, while exploring CCUS technologies for residual emissions.
Major Constraints in India's Transition to Green Steel
Despite these efforts, transitioning to greener solutions faces significant challenges in India:
- High Costs: Technologies like EAF and hydrogen-based DRI are capital-intensive, making them economically unviable for small and medium-sized producers without government support.
- Nascent Technology: These technologies are still in early stages, requiring more research, development, and industry-academia partnerships.
- Infrastructure Limitations: Green hydrogen production demands vast amounts of renewable energy and land, which are scarce in India.
- Recycling Ecosystem: India's recycling industry is largely informal, with poor segregation and processing facilities, hindering the supply of quality steel scrap. Currently, scrap usage in Indian steelmaking is 22 per cent, below the global average of 33 per cent.
- Market Demand: Limited demand for green steel discourages manufacturers from investing in greener technologies.
Opportunities for Long-Term Resilience
Decarbonising the steel sector should be viewed as an opportunity for industrial upgrading and long-term resilience. Countries like China, Germany, and Japan are already advancing low-carbon steel policies, highlighting the need for state support, R&D focus, and industry coordination.
India aims to increase the scrap share in steelmaking to 50 per cent by 2047. To achieve this, several steps are essential:
- Provide financial incentives such as capital subsidies and tax exemptions for companies adopting greener technologies.
- Implement regulations like emission-intensity targets and renewable energy mandates.
- Overhaul scrap collection and processing policies, strengthen quality certification systems, and formalise informal scrap markets.
- Explore alternative options like Biochar to diversify decarbonisation strategies.
Ultimately, green steel is not just a compliance requirement but a strategic move towards sustainable manufacturing, aligning with India's net-zero emissions target by 2070 and enhancing global trade competitiveness.
