Defining green steel, key to India’s sustainable steel industry

Defining green steel for India’s sustainable transformation

A recent joint report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research and Analytics underscores the importance of a clear definition for “green steel” in the steel industry. The report also offers policy recommendations to facilitate the decarbonisation of India’s steel sector.

The report emphasises that policymakers must establish a precise definition of green steel to guide industry investments. According to Vibhuti Garg, Director, South Asia, IEEFA, this definition should entail the elimination of fossil fuels from the steel production process.

Green steel production technologies are currently more expensive than traditional methods, posing a challenge for market adoption. To address this issue, the report suggests that the government should encourage the demand for green steel through various means, such as mandatory green steel procurement in government and public sector purchases. Additionally, the report proposes the introduction of Green Steel Certificates, tradable in the national carbon market, to incentivise the use of green steel.

To bridge the financial gap associated with adopting low-carbon steelmaking technology, the report recommends viability gap funding (VGF) as a government intervention. VGF would encourage steelmakers to allocate a portion of their capacity to green steel manufacturing.

The report highlights green hydrogen as a clean option for steel production but notes its high cost. To make green steel more competitive, the government’s National Green Hydrogen Mission aims to reduce hydrogen prices. The report suggests that a target price of US$1-2/kg for hydrogen and a carbon penalty of at least US$50 per tonne of emissions for traditional steel production could promote the adoption of green steel.

The report forecasts that green hydrogen will become the primary steelmaking method by 2050, with substantial growth expected from 2030 onwards. By 2050, it is estimated that up to 80 percent of the steel industry’s hydrogen requirements will be met by green hydrogen.

Lastly, the report emphasises the role of sustainable finance markets in supporting decarbonisation efforts. It suggests using sustainability-linked bonds and loans to finance industrial decarbonisation, along with innovative financing mechanisms and technical assistance grants at different stages of technology development in the steel sector.

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