CURRENT AFFAIRS | MARCH 2026
Prelims: EU CBAM mechanism, Green Steel definition, EAF technology, Hydrogen-DRI process, India as 2nd largest crude steel producer
Mains: GS-III Environment — Industrial decarbonisation, carbon border adjustments; GS-III Economy — Trade implications of CBAM, India-EU FTA negotiations
Introduction: Steel at the Climate-Trade Crossroads
The steel industry stands at the intersection of two defining challenges of the 21st century: climate change mitigation and international trade reconfiguration. India, as the world’s second-largest crude steel producer (after China) with an output of approximately 140 million tonnes per annum (MTPA), faces a dual imperative — decarbonise its steel sector to meet Net Zero 2070 commitments while simultaneously protecting its export competitiveness against the European Union’s Carbon Border Adjustment Mechanism (CBAM), which entered its transitional phase in October 2023 and becomes fully operational from January 2026.
The steel sector accounts for 10-12% of India’s total CO2 emissions and approximately 7-9% of global emissions. With India targeting 300 MTPA steel capacity by 2030 under the National Steel Policy 2017, the tension between growth aspirations and decarbonisation commitments represents one of the most complex policy challenges in India’s climate-economy nexus.
Understanding EU CBAM: Mechanism and Implications
The Carbon Border Adjustment Mechanism (CBAM) is the EU’s instrument to prevent ‘carbon leakage’ — the phenomenon where carbon-intensive production shifts from regions with strict climate policies to those with laxer regulations, undermining global emission reduction efforts.
Step 1: Importers of CBAM-covered goods (steel, cement, aluminium, fertilisers, electricity, hydrogen) must purchase CBAM certificates
Step 2: Certificate price mirrors EU Emissions Trading System (EU-ETS) carbon price (~EUR 50-80/tonne CO2)
Step 3: If the exporting country has its own carbon pricing, the CBAM charge is reduced by that amount
Step 4: Transitional phase (Oct 2023 – Dec 2025): reporting only. Full phase (Jan 2026+): financial charges apply
For India, the implications are severe. Iron and steel constitute approximately 90% of India’s CBAM-exposed exports to the EU. Indian steel exporters face an estimated additional cost of EUR 15-25 per tonne depending on the carbon intensity of their production process and prevailing EU-ETS prices. This effectively acts as a trade barrier disguised as environmental policy — a characterisation India has raised at WTO forums.
India’s Steel Sector: The Carbon Challenge
| India’s steel production (2024-25) | ~140 MTPA |
| Global rank | 2nd (after China) |
| Share of India’s total emissions | 10-12% |
| Average emission intensity | 2.55 t-CO2e per tonne of crude steel (tcs) |
| Global average | 1.89 t-CO2e/tcs |
| BF-BOF route share | ~55% of production |
| DRI/EAF route share | ~45% |
India’s higher-than-global-average emission intensity stems from several structural factors:
- Coal dependence: 75% of global steel and an even higher share of Indian steel uses the Blast Furnace-Basic Oxygen Furnace (BF-BOF) route, which relies on metallurgical coal (coking coal). India imports ~85% of its coking coal requirements.
- Low scrap utilisation: India’s scrap-to-steel ratio is only 22% compared to the global average of 33% and the US rate of 70%. Higher scrap usage enables the less carbon-intensive Electric Arc Furnace (EAF) route.
- Energy mix: India’s electricity grid remains 70% coal-powered, meaning even EAF steelmaking carries a significant carbon footprint unless powered by renewables.
- Small and medium producers: India has a large number of small-scale steel producers (sponge iron/DRI plants) that operate with older, less efficient technologies.
Decarbonisation Pathways: EAF, Hydrogen-DRI, and CCUS
Three primary technological pathways exist for decarbonising steel production:
1. Electric Arc Furnace (EAF) with Renewable Energy
EAF steelmaking uses electricity to melt steel scrap or Direct Reduced Iron (DRI), bypassing the need for coking coal entirely. When powered by renewable electricity, EAF can reduce emissions by 60-80% compared to BF-BOF. India’s advantage: it is already the world’s largest DRI producer, providing a foundation for EAF expansion.
2. Hydrogen Direct Reduced Iron (H2-DRI)
The frontier technology for green steel, H2-DRI replaces coal/natural gas with green hydrogen as the reducing agent. SSAB’s HYBRIT project in Sweden demonstrated the first commercial H2-DRI steel in 2021. Challenges: green hydrogen currently costs USD 4-6/kg in India (target: USD 1/kg under National Green Hydrogen Mission). H2-DRI steel is estimated to cost 20-30% more than conventional steel.
3. Carbon Capture, Utilisation, and Storage (CCUS)
CCUS retrofits existing BF-BOF plants with carbon capture equipment, capturing 50-90% of CO2 emissions. Tata Steel’s project at Jamshedpur and JSW’s initiatives at Vijayanagar are among India’s early CCUS adopters. Limitation: CCUS is energy-intensive and adds USD 50-100/tonne to production costs.
India-EU FTA Negotiations: Steel Scrap Access
In the context of India-EU Free Trade Agreement (FTA) negotiations, India has specifically sought improved access to European steel scrap. The EU generates approximately 90 million tonnes of steel scrap annually, of which 20 million tonnes are exported. Increased scrap availability would enable India to expand EAF production — the least carbon-intensive steelmaking route — while simultaneously reducing emission intensity to comply with CBAM requirements.
The CBAM-steel nexus is a high-probability topic for GS-III (both Economy and Environment papers). It exemplifies the tension between climate justice (developing countries’ right to industrialise) and climate action (global emission reduction). India’s position — that CBAM violates the principle of Common But Differentiated Responsibilities (CBDR) under the UNFCCC — represents a key diplomatic stance that aspirants should be able to articulate.
India’s Strategic Response: Green Steel Taxonomy
In December 2024, India became the first country globally to define green steel through a formal taxonomy. This proactive move positions India to set its own standards rather than having European or American definitions imposed. The taxonomy establishes a five-star rating system based on emission intensity — detailed in the companion article on India’s Green Steel Taxonomy.
The strategic logic is clear: by defining green steel domestically, India creates a framework that:
- Provides a basis for negotiating CBAM credit recognition with the EU
- Enables green procurement policies in government infrastructure projects
- Creates market incentives for producers to invest in decarbonisation
- Positions India as a standard-setter rather than a standard-taker in global climate governance
Analytical Framework for Mains
1. Context: India’s position as 2nd largest steel producer + Net Zero 2070 commitment
2. CBAM analysis: Mechanism, impact on Indian exports (90% exposure), WTO compatibility questions
3. Decarbonisation pathways: EAF, H2-DRI, CCUS — with cost-benefit analysis
4. India’s response: Green Steel Taxonomy, India-EU FTA scrap access, National Green Hydrogen Mission
5. CBDR principle: Tension between developed country climate action and developing country industrialisation rights
6. Way forward: Phased transition, international climate finance, technology transfer, domestic carbon market
Conclusion: Navigating the Green Transition
The decarbonisation of India’s steel industry is not optional — it is an economic imperative driven by both climate commitments and trade realities. The EU CBAM transforms what was previously a voluntary environmental aspiration into a market-enforced requirement. India’s response — combining domestic green steel standards, diplomatic engagement on CBDR principles, and investment in frontier technologies — represents a sophisticated multi-track strategy.
However, the transition will require massive capital investment (estimated at USD 50-70 billion through 2050), technology partnerships, and a just transition framework for workers and communities dependent on coal-based steelmaking. For UPSC aspirants, the steel decarbonisation challenge encapsulates the broader tension between India’s development aspirations and its global climate responsibilities.
Source: UPSC Essentials, The Indian Express — March 2026
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