Gurugram: India’s upcoming steel expansion will determine whether the world’s fastest-growing major steel market becomes a climate solution or a decades-long carbon liability. A new briefing by the Institute for Energy Economics and Financial Analysis (IEEFA) says India must strategically deploy public capital — not rely on blunt subsidies — to build a globally competitive green steel industry while avoiding long-term emissions lock-in.
IEEFA highlighted that 92% of India’s planned steel expansion — from 180 million tonnes (Mt) to 300 Mt — is yet to be built. Decisions made today will lock in emissions for the next 30–40 years, as plants constructed now will operate into the 2060s and 2070s. India already ranks as the world’s second-largest steel producer behind only China. It is the fastest-growing major market, shaping global green steel cost curves and supply chains.
Globally, the steel sector remains carbon-intensive. Despite nearly US$9 trillion invested in renewable energy since 2010, heavy industry still relies 80–85% on fossil fuels, and steel has lagged other sectors in decarbonisation. Governments have spent US$110 to US$1,168 per tonne of CO₂ abated on green steel — up to 13 times European carbon prices — showing that carbon markets alone cannot deliver the transition.
“Carbon lock-in occurs when steel plants with 30–40-year lifespans are built with conventional technology, locking in emissions until 2060–70. This could affect India’s net-zero goals,” said Saurabh Trivedi, Sustainable Finance Specialist at IEEFA, and co-author of the report.
Energy security compounds the climate challenge. Expanding blast furnace capacity increases reliance on imported metallurgical coal, mostly from Australia. IEEFA warned that met coal imports could nearly double by 2035, exposing businesses to volatile global prices and balance-of-payments risks.
IEEFA recommended financial instruments mobilise private capital efficiently. Government-backed credit guarantees can attract ₹2.40 of private investment per rupee deployed, compared with ₹0.50–₹1.50 for direct grants. Competitive Contracts for Difference (CfDs) can help discover true green steel price premiums through auctions, while Project Preparation Facilities can convert early-stage hydrogen-based projects into bankable investments.
“While venture capital and private equity typically fund emerging technologies, these sources may not be well-suited for green steel given its low technology readiness level, massive capital requirements, and extended payback periods,” said Meenakshi Viswanathan, a co-author of the report.
Industry leaders say financing remains the biggest hurdle. “Green steel becomes bankable only when risks are mitigated and buyers commit upfront. Without price guarantees or assured offtake, projects struggle to get board or bank approval,” said a senior steel executive. A global infrastructure fund specialist added, “If incentives reward marginal improvements rather than transformational investment, companies will adopt the cheapest compliance path, not climate-first solutions.”
Global experience underscores the stakes. Gas-based “transition” projects in the US and Germany collapsed despite grants, while hydrogen-based plants in Sweden secured long-term contracts at 20–30% premiums. “Buyers pay only for steel with verified green credentials — renewable energy, hydrogen production, and low-emission manufacturing,” Viswanathan said.
India is laying early policy foundations. The government is developing a ₹5,000-crore National Mission for Sustainable Steel, with up to 80% of support earmarked for secondary producers, and a draft Green Public Procurement mandate would require 25–37% of public projects to use low-carbon steel. However, progress slowed after a bulk-procurement agency proposal was rejected in 2024. The Carbon Credit Trading Scheme, launching in October 2026, will set emissions-intensity targets across steel and eight other sectors, but its effectiveness will hinge on carbon pricing and enforcement.
“India’s approach will differ from the West — focusing on maximising impact through instrument design rather than large direct subsidies,” Trivedi said. IEEFA concluded that capital strategy, not technology readiness alone, will decide India’s position in the next steel cycle. Act decisively, and India can anchor global green steel supply chains. Delay, and it risks locking itself into high emissions, import dependence, and rising costs for decades
