India’s green steel ambitions face economic and resource hurdles despite policy push

India’s shift towards low‑carbon “green steel” will be gradual and contested by economics and resource constraints, according to a detailed sectoral assessment by rating agency ICRA, with corroborating analysis from government and independent research organisations.

ICRA’s report, “Decarbonising Indian steel sector: Green steel remains a long‑term aspiration”, finds that Indian primary steelmakers currently emit on average around 2.5 tonnes of CO₂ per tonne of steel (Scope 1 and 2), roughly 12% above the global BF‑BOF route average. The agency notes that the Government of India’s Green Steel Taxonomy, introduced under the National Mission on Green Steel in December 2024, sets graded emission thresholds intended to steer production toward lower intensities. However, ICRA says most domestic primary producers remain well above even the upper limits of the green categories, leaving a sizeable decarbonisation gap.

Girishkumar Kadam, Senior Vice‑President and Group Head, Corporate Sector Ratings at ICRA, highlighted the near‑term structural drivers: “planned steel capacity additions of around 80–85 million tonnes by 2030–31 are largely skewed towards the coal‑based BF‑BOF route.” ICRA projects the BF‑BOF share to rise from about 45% today to nearly 51% by 2030–31, a trend that will keep sectoral carbon intensity elevated in the medium term.

Given that trajectory, ICRA anticipates that the earliest and most realistic emission reductions will result from operational improvements and wider adoption of renewable electricity. The report expects energy transition and material‑efficiency measures to reduce average emission intensity by roughly 19% by FY2030, bringing the sector average to about 2.0 tCO₂/t by the end of the decade. A significant component of those savings, ICRA estimates, will come from renewable integration: domestic steelmakers have announced roughly 9 GW of captive renewable power capacity to replace fossil‑fuel electricity, and switching to green power could lower emissions by about 13% for BF‑BOF mills and up to 22% for DRI‑based units.

Government strategy acknowledges the same pathways. According to the Ministry of Steel’s Green Steel Initiative and its Roadmap and Action Plan, decarbonisation levers include energy efficiency, captive renewables, green hydrogen, increased scrap use, and carbon capture. The Ministry’s Green Steel Taxonomy defines emission‑intensity thresholds and rates steel with lower intensities more favourably; for example, steel with emission intensity lower than 1.6 t‑CO₂e/tfs is rated as five‑star green‑rated steel.

But material realities constrain rapid change. ICRA underlines the limited availability of scrap in India, which restricts expansion of scrap‑based electric arc furnace (EAF) capacity, the lower‑carbon route widely used in other markets. Industry data cited by the Ministry of Steel show India’s current scrap usage lags global norms, a point reinforced by interviews with officials: Neha Verma, Director at the Ministry of Steel, told ET EnergyWorld that improving energy efficiency could reduce emissions by more than 12% and increasing renewables could cut a further 10–12%, while noting India uses about 21% scrap in steel production versus a global average nearer 31%.

The cost and commercial readiness of green hydrogen form another decisive constraint. ICRA estimates that green hydrogen prices need to fall to around USD 1.5–1.6/kg for the DRI–EAF route to be commercially viable, compared with prevailing estimates above USD 3/kg. Until electrolysis costs and renewable power economics improve materially, hydrogen‑based DRI steelmaking will remain limited to pilot projects and selective deployments. Industry commentary and reporting in ET EnergyWorld describe pilot hydrogen projects and public‑private collaborations but flag the same price and scale barriers.

Independent studies paint a broadly consistent but slightly more optimistic long‑term picture. The Institute for Energy Economics and Financial Analysis (IEEFA) reports India’s steel sector contributed about 12% of national CO₂ emissions and places current emission intensity at about 2.55 tCO₂/t crude steel, higher than global averages. IEEFA projects a marked decline in coal‑based share, from 92% in 2021 to around 70% by 2030, with substantial green hydrogen deployment expected as demand and policy incentives align. Environmental analysis group Down To Earth projects hydrogen‑ and DRI‑based technologies rising markedly by 2050 and notes early demonstrator projects, including the inauguration of a green stainless steel hydrogen plant in March 2024.

For industrial consumers and decarbonisation professionals, the near‑term implications are clear. Procurement and corporate buyers should expect a phased market for lower‑carbon steel: incremental reductions driven by renewables, efficiency, scrap optimisation and material substitution will precede widespread commercial green‑hydrogen steel. Supply chain requirements and ESG compliance from automotive, construction and infrastructure buyers will increasingly favour lower‑intensity products, but availability and price differentials will persist until green hydrogen and scrap supply improve.

Policy will remain pivotal. According to ICRA and the Ministry of Steel, sustained fiscal support, targeted incentives to scale green hydrogen and recycling systems, and mechanisms to de‑risk long‑duration renewable investments are prerequisites for faster adoption. Absent those measures, ICRA cautions, green steel will remain a long‑term aspiration rather than a near‑term reality.

In sum, the evidence from ICRA, government roadmaps and independent analysts points to meaningful but incremental decarbonisation in India’s steel sector over the 2020s, with deeper transformation dependent on technology cost declines, expanded scrap availability and robust policy support into the 2030s and beyond. For industrial decarbonisation practitioners, that underscores the importance of near‑term efficiency and renewable‑power strategies while preparing procurement, investment and lifecycle plans for an eventual but protracted shift to hydrogen‑ and recycling‑led steelmaking.