Export competitiveness, financial flexibility to grow, and a full transition to green steel remain challenges.
New Delhi: Domestic primary steelmakers are on track to meet their carbon emissions target of less than 2 tonnes of carbon dioxide per tonne of crude steel (tCO2/tcs), which is roughly the current global average, by 2030 through measures such as energy transition and increased production from less carbon-intensive processes.
Reducing emissions will increase fund-raising opportunities and improve export competitiveness, which is beneficial to credit quality. However, a full shift to low-carbon steel, often known as green steel, remains a challenge.
Indian steelmakers’ carbon emission rates are currently higher than the global average, owing to their reliance on traditional high-carbon production routes involving blast furnace-basic oxygen furnace (BF-BoF; accounting for roughly two-thirds of capacity) and coal in the direct reduced iron (DRI)-electric arc furnace (EAF) process. Globally, however, gas-based DRI-EAF, which emits less carbon, has a larger share.
Indian primary steelmakers want to improve their environmental, social, and governance (ESG) profile by lowering carbon emissions and strengthening disclosures, as well as boosting capacity by around 35% during fiscal years 2024-2027.
They have set a target of reducing carbon emissions to less than 2 tCO2/tc by 2030. Steelmakers reported lower carbon emissions (~2.35 tCO2/tcs) compared to FY 2005. This represents about 65% of the targeted emission reduction over 18 years, with a compound annual growth rate of around 1.4%.
To achieve the 2030 target, annual reductions of around 2.3% in emissions are needed, aided by renewable energy, scrap-based EAF capacity, and carbon capture technologies. Government support, such as the Steel Scrap Recycling Policy, has accelerated this rate.
The reducing carbon emissions gap compared to global players will help Indian steelmakers maintain their competitiveness, even with a projected carbon tax of roughly €100 per tonne of emissions under the European Union’s Carbon Border Adjustment Mechanism (CBAM). For reference, around 10% of domestic steel output is exported.
Reduced emissions will help increase ESG profiles, allowing for greater access to other funding sources such as sustainable finance, which has a lower cost of capital and a longer tenure. This is significant, given the estimated annual capital expenditure of Rs 55,000–60,000 crore between fiscal years 2024 and 2027.
CRISIL Ratings Associate Director Ankush Tyagi warns that transitioning to green steel will be challenging due to the high cost of green steel technology, which accounts for 67% of installed steel capacity, and the higher running costs of green hydrogen.
Other non-financial challenges include the availability of high-grade iron ore and scrap, reliable, uninterrupted renewable electricity, and market acceptance of green steel at higher prices. Companies will also need to be more transparent as regulatory and investor pressure intensifies.
In this environment, timely progress toward carbon emission targets, technological advancements and their pace of adoption, and the capacity to pass on cost increases will all be essential.
