Net Zero Transition and Sustainable Finance: ESG BROADCAST shares key takeaways.
India’s iron and steel sector is entering a critical phase of transformation to support the nation’s rapid industrialization. The industry currently accounts for approximately 12% of the nation’s total greenhouse gas emissions, representing a significant challenge for climate policy. As domestic demand for manufacturing and infrastructure expands, steel consumption will rise significantly over the next two decades. Consequently, the government is prioritizing a Green Steel Transition to align with its 2070 net zero commitment. This shift ensures that industrial growth does not compromise national environmental targets.
The Ministry of Steel and NITI Aayog have established a comprehensive roadmap for industrial decarbonization to guide this massive shift. This strategic foundation aims to modernize the sector while ensuring that Indian steel remains competitive in a carbon-conscious global economy. The Green Steel Transition requires moving away from traditional carbon-intensive production methods that have dominated the landscape for decades. Historically, the Indian industry has relied on blast furnace-basic oxygen furnace (BF-BOF) capacity, which depends heavily on coal as a reducing agent.
A newly proposed Green Industrial Policy (GIP) focuses on operationalizing this shift through targeted incentives and technology mandates. It identifies key low-carbon pathways, specifically emphasizing direct reduced iron with electric arc furnaces (DRI-EAF). The policy highlights that hydrogen-based DRI-EAF is essential for achieving the deep decarbonization required by international climate agreements. This transition aims to prevent high-carbon asset lock-ins as the industry expands its capacity to 500 million tonnes by 2047. Strategic planning ensures that new capacity additions utilize the cleanest available technologies.
Regulatory frameworks are already evolving to support these technological changes and provide clear definitions for market participants. India’s Green Steel Taxonomy currently defines green steel at an emission intensity of 1.6-2.2 tonnes of CO2 per tonne of finished steel. These benchmarks will become increasingly stringent over the coming decade, targeting a limit of 0.9 tonnes of CO2 per tonne by 2035. This alignment with international standards ensures that the Green Steel Transition remains credible and attractive to foreign investors. The taxonomy serves as a critical benchmark for sustainable financing.
Financial mechanisms will play a pivotal role in bridging the cost gap for new technologies and encouraging rapid adoption. The Carbon Credit Trading Scheme (CCTS) is scheduled for operationalization in 2026, marking a significant milestone in India’s climate policy. This scheme will introduce carbon pricing as a market-based incentive for cleaner production and efficient energy use. Additionally, the government is considering instruments such as production-linked incentives (PLI) and green public procurement (GPP) to create a stable market. These policies reduce financial risks associated with pioneering new industrial processes.
Implementing bodies like the Ministry of Steel are also exploring interest subvention and viability gap funding for eligible projects. These measures aim to support greenfield projects that utilize green hydrogen and renewable energy in their core operations. Direct subsidies for capital expenditures in DRI and EAF technologies are currently under evaluation by policymakers. Such fiscal support is vital for maintaining market-competitive returns while achieving significant emissions reductions across the value chain. By reducing the levelized cost of steel, the government can accelerate the transition without disrupting domestic supply chains.
Strategic significance lies in the proactive integration of sustainability into India’s industrial backbone to ensure long-term market resilience and compliance with global carbon border adjustments. By establishing a robust Green Steel Transition framework, India can mitigate physical and transition risks associated with the global climate crisis. Businesses must now prioritize low-carbon pathways to maintain access to green capital and high-value international markets. Forging ahead with these policies will safeguard India’s developmental progress and position the nation as a leader in the global green materials market.
Image Credit: White & Case LLP
