India needs green steel definition to kickstart sector decarbonisation

A joint report by IEEFA and JMK Research finds that India lacks a legal definition for green steel, creating uncertainty about which technology pathways qualify for investment support and policy incentives. Green steel currently costs nearly twice the price of traditionally produced steel, requiring coordinated government demand-creation and carbon penalty mechanisms before commercial scale-up can occur.

The IEEFA-JMK Research report recommends defining green steel as steel produced without fossil fuels in the production process, with lower-emission alternatives labelled low-carbon steel. The absence of such a definition leaves steelmakers without a clear investment signal. To address the cost gap, the report recommends a carbon penalty of at least US$50 per tonne on traditionally produced steel and a green hydrogen price target of US$1-2 per kilogram. These two measures combined could catalyse a 150 million tonne shift from coal-based to hydrogen-based steelmaking, primarily via the direct reduced iron-electric arc furnace route.

India's steel sector contributes about 12% of national CO2 emissions and holds a 2% share of GDP, making its decarbonisation both environmentally critical and economically complex. The report recommends mandatory green steel procurement in public sector purchases, extendable to private consumers, alongside Green Steel Certificates tradable in the national carbon market to create a revenue stream for producers. Viability gap funding is recommended to cover the high initial capital costs of low-carbon steelmaking technologies. A government task force is already developing taxonomy, definitions and certification benchmarks for green steel.

The report projects green hydrogen will replace 25-30% of grey hydrogen requirements in the steel sector during the early part of the 2030-2050 period, rising to 80% by 2050, before eventually dethroning coal as the primary steelmaking route. Global sustainable finance mechanisms — including sustainability-linked bonds and loans and blended finance instruments combining technical assistance grants, guarantees and concessional capital — are identified as critical sources of funding for the transition at different stages of the technology lifecycle. The authors expect large-scale green hydrogen deployment across India from 2030 onward, accelerating the phase-out of coal-based steelmaking routes.

Key figure — 150 million tonnes — projected shift from coal-based to hydrogen-based steelmaking with the right carbon penalty and green hydrogen pricing