Key Takeaways

• India’s steel sector is rapidly growing with a target to increase crude steel capacity from 205 MT (FY25) to 300 MT by 2030–31, driven by infrastructure and industrial demand.
• Decarbonization is urgent, as India's steel industry emits 2.65 tCO₂ per tonne, over 20% higher than the global average, mainly due to coal-based BF-BOF and DRI methods.
• Hydrogen-based DRI and EAF are central to India's green steel strategy, offering up to 90% emission reduction when powered by green hydrogen and renewable electricity.
• The Green Steel Public Procurement Policy (from FY28) and the National Green Steel Mission are creating early demand and institutional support for low-carbon steel production.
  

Introduction:

India exhibits a rapidly developing steel sector due to rapid urbanization, infrastructure development, and advanced industrialization. In FY25, India produced approximately 151 million tonnes (MT) of crude steel based on about 205 MT of installed capacity. India anticipates the development of capacity to 300 MT by 2030 - 31, to satisfy demand in domestic markets, as well as guidelines provided by the Government of India as a future global manufacturing hub. The growth in steel production is vital for vital support of India's overall development, and has downstream impacts in the infrastructure and transport sectors, as the country's socio-economic development requires further growth in the steel sector. 

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India produced 151.1 MT of crude steel in FY 2024-25, which was a 10% increase from the previous fiscal year. Finished steel consumption recorded an increase from 100.17 MT in 2019-20 to 136.29 MT consumption in 2023-24, and is also projected to continue growth through FY 2025 as a result of ongoing infrastructure and urban growth. Between April and July 2025, production and consumption showed steady gains, alongside India’s leading Direct Reduced Iron (DRI) output. Despite import challenges and global uncertainties, finished steel demand is expected to grow 7-8% in FY 2026, with capacity utilization around 78-80%. 

While domestic steel production in India increased, it is still a net importer of finished steel due to its comparatively higher costs to markets with lower steel prices. However, India's steel exports picked up. Thus, India’s trade landscape is emerging, and with imminent and emerging global trade policies is remaining competitive in the international market. The EU's carbon border adjustment mechanism (CBAM), which levies tariffs based on imported carbon-intensive products, is likely to limit India's cost competitiveness if the sector doesn't start adopting cleaner technologies quickly.

Emissions Profile of India’s Steel Industry

India's steel production is one of the most carbon-intensive on the planet, with mean emissions at 2.65 tonnes of CO₂ per tonne of finished steel, representing 20-25% higher than normative global averages. The leading cause is the share of coal-based blast furnace -basic oxygen furnace (BF-BOF) technology, accounting for 61% of capacity. There is also a large amount of coal-based direct reduced iron (DRI), of which 60% is produced using coal. Other factors leading to large emissions include the use of mostly low-grade iron ore inputs, the overall age of steel plants, and the burning of high-ash coal. Some BF-BOF plants emit as high as 3.83 tonnes CO₂ per tonne of crude steel.

India’s Green Steel Strategy and Net-Zero Vision

In light of climate imperatives and the undirected commitment to reach net-zero emissions by 2070, India announced the National Mission on Green Steel. The target of this mission aims is to reduce emissions intensity from 2.65 to 2.20 tonnes CO₂ per tonne of finished steel by 2029–30. Key strategies include the adoption of hydrogen-based DRI, increasing usage of electric arc furnace (EAF) capacity, utilising carbon capture and storage (CCS), and facilitating recycling opportunities for steel. Supporting policies include the Green Steel Public Procurement Policy, which will require the use of minimum amounts of green steel on any government project from FY28, and the Green Steel Taxonomy, which aims to develop markets to create a demand for green steel and establish clarity on standards of low-carbon steel for industries. Programs such as the SCALES, under which accessible financial initiatives are provided to induce developers to establish investments in their green steel technologies, are providing a canvas of future prospects.

Hydrogen-Based DRI: The Game Changer

Moving from a coal-based BF-BOF to Hydrogen-based direct-reduced iron (H₂-DRI) with Electric Arc Furnace (EAF) is a paradigmatic shift for steel decarbonization in India. This pathway could improve carbon emissions by 85-90%, reducing carbon footprint from approximately 3.8 tonnes CO₂/tonne steel to 0.3 to 0.5 tonnes CO₂/tonne steel, assuming the use of green hydrogen from renewable energy. The hurdle for this capacity is the high current costs of green hydrogen (USD 4-6/kg), the relatively small electrolyzer capacity, and the undeveloped infrastructure. Nevertheless, H₂-DRI is thought to be the most promising scaled solution for green steelmaking in India.

Hydrogen for steelmaking can be classified into three types: 

• Grey Hydrogen: Hydrogen produced from natural gas or coal with no emissions capture. It is the most common hydrogen in India, but it does not help with decarbonization. 
• Blue Hydrogen: Hydrogen produced with CCS (carbon capture and storage) from fossil fuels - it lowers emissions, but also still in infancy in India. 
• Green Hydrogen: Hydrogen derived from the electrolysis of water with renewable energy that has almost zero emissions and is suitable for producing green steel.

India's hydrogen use is mainly grey hydrogen, but under the National Green Hydrogen Mission, 5 million tonnes of green hydrogen a year by 2030 is the target. Steel producers such as Tata Steel, JSW, and ArcelorMittal Nippon Steel are also testing H₂-DRI projects, coupled with new domestic electrolyzer manufacturing plants and hydrogen infrastructure corridors. Addressing the cost and infrastructure barriers to green hydrogen adoption through subsidies, innovation, and international collaborations will be necessary for scaling green hydrogen. 

Role of Carbon Capture and Storage (CCS) in Steel Decarbonization

Carbon Capture, Utilization, and Storage (CCUS) technologies provide another approach to hydrogen and electric arc furnace (EAF) solutions by reducing emissions from existing coal-based BF - BOF plants. India has geological formations with the capacity to store billions of tonnes of CO₂, and it is also assessing the technology, including post-combustion, pre-combustion capture, and oxy-fuel combustion. CCUS technologies face challenges to adoption that may be resolved after pilot projects are developed, including high capital and operating costs, energy requirements, and infrastructure (pipelines, storage), though there will be increasing scale acceptability through pilot projects and collaboration between public and private sectors. CCUS will provide a hybrid decarbonization strategy and will provide a mechanism for retrofitting plants where total replacement isn't feasible at this time.

Short-Term Policy Levers for EAF Adoption

The acceleration of green steel production will necessitate imminent and credible policy support to scale up EAF capacity and scrap steel recycling. Policy measures that provide financial incentives include interventions based on either one-off capital subsidies, offering expenditure supply-side incentives through schemes like production-linked incentives (PLI) schemes, providing preferential access to renewable power, requiring public procurement of green steel, and other meaningfully reduced carbon emissions cost-price incentives. Further enabling measures could include expedited and expedited regulatory approvals and mobilizing various green finance undertakings (e.g., green bonds, sustainability-linked loans) to reduce working capital constraints. Finally, investment in R&D and freight logistics to develop scrap supply chains is necessary to ensure unit costs and available raw materials for EAF producers.

Green Steel Demand Outlook and Hydrogen Cost Risks

Green steel demand in India is still nascent but is expected to grow to 4.49 MT by FY30, with demand split between the infrastructure and automotive sectors. However, the value-added cost of green hydrogen currently means that there is a price premium of about USD 210 per tonne of green steel compared to conventional steel, thereby constraining immediate large-scale adoption. On the positive side, our analysis shows that advancing technology and economies of scale could reduce that premium to USD 7 per tonne of green steel by FY30, creating competitive pricing which could sustain demand and potential growth of green steel.

Trade Impacts of CBAM and Export Risks

Environmental trade measures such as the EU’s CBAM threaten to impact India’s steel export revenue and market share because they potentially penalize high-carbon steel imports. The Indian steel industry will need to essentially decarbonize in order to maintain export revenues and market share. If the steel industry fails to adapt, there is a risk of stranded assets or losing (further) ground to competitors in key markets. On the other hand, one of the significant benefits of environmental trade is the strong driver to focus on the transition, as it aligns India with the developing global low-carbon standards for trade and other even greater incentives to accelerate green steel as a high-value product.

Conclusion: Green Steel as a Strategic Imperative

India’s steel sector is at a significant juncture; pursuing growth at the same time as decarbonizing will be essential to its viability. Green steel production is now nationally important rather than optional, propelled by climate change commitments, shifts in global market focus, and technological developments. The proposed transition to hydrogen-based DRI, increased EAF capacity, carbon capture, and supporting policies like green steel procurement and financial incentives in the Indian steel sector present an attractive path for steel production in the country. With its enormous potential for renewable energy, ample policy frameworks for government support, and industrial capacity, India can truly become a global leader in green steel production and a catalyst for a low-carbon, sustainable industrial economy with environmental benefits, as well as economic growth, employment, and infrastructure development.