Decarbonising Steel Industry — Green Steel & EU CBAM Impact

CURRENT AFFAIRS | MARCH 2026

Introduction: Steel and the Climate Challenge

The steel industry stands at the nexus of two defining challenges of the 21st century — industrialisation imperatives of developing nations and the urgent necessity of deep decarbonisation to limit global warming to 1.5°C. India, as the world’s second-largest crude steel producer (after China) with an output of approximately 140 million tonnes per annum (MTPA), faces this tension with particular acuteness. The steel sector accounts for approximately 10-12% of India’s total CO2 emissions and is among the most difficult-to-abate industrial sectors globally.

The convergence of the European Union’s Carbon Border Adjustment Mechanism (CBAM), India’s own Green Steel Taxonomy (December 2024), and the growing commercial viability of low-carbon steelmaking technologies creates a transformative moment for the Indian steel industry — one that carries profound implications for industrial policy, trade competitiveness, climate commitments, and employment.

India’s Steel Sector: Scale, Structure, and Emission Profile

India’s steel industry is characterised by a dual structure: large integrated steel plants (ISPs) operated by companies like Tata Steel, JSW Steel, SAIL, and JSPL coexist with thousands of small and medium enterprises operating secondary steelmaking through electric arc furnaces (EAFs) and induction furnaces. This structural duality has significant implications for decarbonisation.

India’s emission intensity per tonne of steel is significantly higher than the global average, primarily because of heavy reliance on the blast furnace-basic oxygen furnace (BF-BOF) route using coal/coke as both fuel and reductant. This contrasts with the EU, where the EAF route (using recycled steel scrap and electricity) accounts for approximately 40% of production, and with the US where EAF share exceeds 70%.

EU CBAM: The Trade Policy Catalyst

The European Union’s Carbon Border Adjustment Mechanism (CBAM), which entered its transitional reporting phase in October 2023 and becomes fully operational with financial obligations from January 2026, represents the most consequential intersection of climate policy and trade policy in global economic governance.

CBAM imposes a carbon price on imports of carbon-intensive goods into the EU, calculated based on the embedded emissions of the product and the difference between the carbon price paid in the country of origin and the EU Emissions Trading System (ETS) price. The mechanism covers six product categories: iron and steel, cement, aluminium, fertilisers, electricity, and hydrogen.

The trade implications are stark. Indian steel exporters to the EU will face a competitive disadvantage proportional to their emission intensity relative to EU producers operating under the ETS. Since India lacks a domestic carbon pricing system equivalent to the EU ETS, Indian producers cannot claim carbon price credits, meaning the full CBAM levy applies. This creates a powerful economic incentive for Indian steel companies to decarbonise — not primarily for environmental reasons, but to maintain market access and price competitiveness.

Decarbonisation Pathways: Technology Options

Three principal technological pathways exist for decarbonising steel production, each at different stages of maturity and applicability to Indian conditions:

1. Electric Arc Furnace (EAF) with Clean Electricity

The EAF route, which melts recycled steel scrap or Direct Reduced Iron (DRI) using electric power, produces approximately 0.4-0.6 t-CO2e per tonne of steel when powered by clean electricity — compared to 2.0-2.5 t-CO2e for the BF-BOF route. India already has a significant EAF/IF sector, but it is overwhelmingly powered by coal-based grid electricity, negating much of the emission advantage.

Scaling the EAF pathway requires two prerequisites: abundant clean electricity (India’s renewable energy capacity is growing rapidly at 180+ GW but remains intermittent) and sufficient scrap availability. India’s current scrap recycling rate is approximately 22% compared to the global average of 33%. The government’s target is to increase scrap share to 50% by 2047, necessitating a robust scrap collection, processing, and trading ecosystem.

2. Hydrogen-Based Direct Reduction of Iron (H2-DRI)

The most transformative — and technically most challenging — pathway involves replacing coal/coke with green hydrogen as the reductant in the Direct Reduced Iron (DRI) process. This approach can potentially achieve near-zero emissions steelmaking. The chemical reaction (Fe2O3 + 3H2 → 2Fe + 3H2O) produces water instead of CO2 as the byproduct.

Sweden’s HYBRIT project (a collaboration between SSAB, LKAB, and Vattenfall) demonstrated the technical feasibility of hydrogen-based steelmaking in 2021 and is progressing towards commercial-scale production. In India, several pilot projects are underway under the National Green Hydrogen Mission (Rs 19,744 crore allocation), with Tata Steel, JSW Steel, and ArcelorMittal Nippon Steel India exploring hydrogen-DRI at pilot scale.

3. Carbon Capture, Utilisation and Storage (CCUS)

CCUS technology captures CO2 emissions from steel plants and either stores them permanently underground or converts them into useful products. While CCUS allows continued use of existing BF-BOF infrastructure (avoiding massive capital write-offs), it faces challenges of high cost (USD 60-120 per tonne of CO2 captured), energy penalties, limited geological storage mapping in India, and questions about long-term storage permanence.

The Budget 2026-27 allocates Rs 20,000 crore for CCUS development, signalling the government’s recognition that CCUS will be a necessary complement to hydrogen and EAF pathways, particularly for existing integrated steel plants where retrofitting to hydrogen-DRI is technically and economically challenging.

India’s Strategic Response: Balancing Growth and Climate

India faces a fundamental dilemma. The National Steel Policy 2017 targets 300 MTPA capacity by 2030 — more than doubling current output — to meet infrastructure and urbanisation needs. Per capita steel consumption (86 kg) is far below the global average (230 kg) and the developed world average (350-400 kg), suggesting enormous unmet demand. Yet doubling steel production through conventional BF-BOF technology would proportionally increase emissions, undermining India’s climate commitments under the Paris Agreement (NDC targets include 45% reduction in emission intensity of GDP by 2030 relative to 2005 levels).

The resolution lies in ensuring that the incremental steel capacity (the additional 140-160 MTPA) is built using low-carbon technologies from the outset, while existing capacity is progressively retrofitted. This “green by design” approach for new capacity, combined with gradual transition of brownfield plants, represents the most pragmatic path — but it requires massive upfront investment, technology development, and policy support.

Conclusion: The Green Steel Imperative

The decarbonisation of India’s steel industry is not optional — it is driven by the convergence of trade pressure (CBAM), climate commitments (Paris Agreement), technology evolution (hydrogen-DRI maturation), and economic opportunity (premium pricing for green steel in global markets). India’s response — encompassing the Green Steel Taxonomy, National Green Hydrogen Mission, CCUS investment, and scrap recycling infrastructure — constitutes a comprehensive if still nascent strategy. The challenge lies in execution pace: the CBAM clock is ticking, and India’s ability to maintain its steel export competitiveness depends on demonstrable emission reductions within the next 3-5 years.

Source: UPSC Essentials, The Indian Express — March 2026

Practice Quiz

Test your understanding with these 10 MCQs: