The Indian iron and steel industry is standing at a very critical juncture. The sector, being one of the largest steel producers in the world and forming the backbone of India's infrastructure and manufacturing aspirations, will see an exponential increase in consumption over the next few decades. At the same time, it is one of the most carbon-intensive industries of the country, accounting for about 12% of national CO2 emissions. The policy brief Green Industrial Policy for India's Iron and Steel Sector Transition addresses this tension head-on, outlining ways in which India can expand its steel production while transitioning toward a low-carbon future.
This article describes what the policy brief covers, its evidence for its recommendations, and why its findings are important to industry stakeholders, investors, and policymakers.
Why India's Steel Sector Needs a Green Industrial Policy
The finished steel capacity of India stood at about 139 million tonnes per annum in FY2024, with the long-term demand projected at 450–500 MTPA by 2050, driven by infrastructure expansion, urbanisation, and industrial policy initiatives such as Make in India. However, the current production model in the sector rests on coal-based BF-BOF and coal-DRI routes.
This results in a carbon intensity of about 2.5 tCO₂ per tonne of crude steel, far higher than the global average of 1.9 tCO₂. If India keeps increasing the production of steel with existing technologies, overall sectoral emissions would surge upwards, undermining national climate promises while making its exporters vulnerable to any future carbon-border measures.
The policy brief calls for action, as relying on market forces alone will not achieve the required scale and speed of transition. Instead, it sets out a GIP framework that uses a mix of targeted subsidies, carbon pricing, and strategic planning to channel investment into low-carbon steel technologies competitively.
How the Study Analyses the Transition
The brief applies a plant-level and sector-level techno-economic model for the 2026-2050 period. At the plant level, it assesses various steelmaking pathways:
• Conventional BF-BOF
• BF-BOF with CCS
• Coal-based DRI-EAF
• Hydrogen-based DRI-EAF
For each pathway, the model calculates levelised cost of steel, internal rate of return, and emissions intensity under different policy scenarios. These results are then aggregated at the sector level to estimate impacts on total production, emissions, employment, and fiscal costs.
Crucially, the model does not assume unlimited subsidies. Instead, it identifies the minimum policy support needed to make low-carbon steel financially viable, while allowing policymakers to compare costs and benefits across time.
What the Production and Technology Pathways Reveal
One of the most important messages of this brief emerges from the graphs of the production pathways: total steel output increases steadily toward mid-century, but the composition of production changes dramatically.
Coal-based BF-BOF and DRI routes dominate in the near term but start to flatten out by the late 2020s. The modelling suggests that even BF-BOF with CCS can reduce emissions, but it remains costly and plays only a limited transitional role, reaching just a few million tonnes of capacity before declining.
From the early 2030s onward, hydrogen-based DRI-EAF becomes the dominant technology for new capacity additions. By 2050, most incremental steel production comes from this route, supported by falling renewable electricity prices and declining hydrogen costs.
This is a structural shift, not a gradual one; for instance, the brief shows that deep decarbonization probably cannot be accomplished unless coal-based processes are abandoned altogether.
Costs, Subsidies, and Carbon Pricing
Cost is the central issue of industry. The brief shows that mid-2020s hydrogen-based steel significantly exceeds that compared to conventional routes. Hydrogen accounts for nearly 40% of operating costs in early H₂-DRI plants, pushing IRRs well below acceptable investment thresholds.
In order to address this, the policy brief has suggested time-bound production and hydrogen subsidy. These subsidies cut LCOS by several thousand rupees per tonne in the first few years and permit green steel plants to achieve IRRs comparable to conventional steel.
Importantly, the modelling also finds those subsidies are temporary. By the 2030s-2040s, once electrolyser costs have fallen and renewable power has reached sufficient scale, hydrogen-based steel is competitive all on its own, and the subsidies can be removed.
Carbon pricing plays the supporting role of a gradually rising price, reaching about USD 50 per tonne of CO₂ by 2050, which will steadily undermine coal-based steel's cost advantage. The brief gives reasons that carbon pricing alone is too weak in the early years, but it becomes a very strong long-term signal once low-carbon alternatives have come into place.
Scrap Usage and Efficiency Gains
The study also underlines the role of scrap-based steelmaking. Increasing scrap utilisation significantly lowers both costs and emissions, particularly for BF-BOF routes. Higher scrap shares reduce coal consumption, improve IRRs, and cut emissions intensity by up to 35% in some scenarios.
While scrap availability alone cannot deliver deep decarbonization, this brief places it as a crucial enabling factor that calls for better scrap collection, sorting, and recycling infrastructure in India.
Emissions Results: Growth Without Proportional Pollution
Despite increasing steel production, the policy pathway represented in the brief results in significant emissions intensity reduction: sector-wide intensity decreases from more than 2.4 tCO₂ per tonne in the late 2020s to nearly 1.3 tCO₂ per tonne by 2050.
In absolute terms, there is a rise in the emission as the production expands, which then stabilizes once the low-carbon technologies scale up. One of the strongest arguments against this is the partial decoupling of growth and emissions, and thus one calls for an early policy intervention.
Why This Matters for Industry and Trade
For steel producers, the conclusion means that those who establish themselves as early movers in green steel could thus have their advantages tightened up as the global markets work towards carbon standards. And for exporters, alignment with low-carbon pathways reduces exposure to future carbon-border adjustment mechanisms.
For investors, this brief shows that green steel can become commercially viable-but only with coordinated policy support in the near term. To the policymakers, it presents a clear roadmap on how fiscal support today can prevent higher economic and environmental costs tomorrow.
Conclusion
This policy brief, entitled Green Industrial Policy for India's Iron and Steel Sector Transition, shows that the decarbonization challenge facing India's steel is a matter not of technological feasibility but of policy timing and coordination. The analysis indicates that business-as-usual expansion in steel production will be incompatible with holding warming below 2°C for decades into the future. Yet with appropriately targeted, time-bound support mechanisms and long-term market signals, low-carbon steelmaking can become both technically viable and economically competitive.
Coupled with the hydrogen-based production pathways, strategic scrap use, declining renewable energy cost, and gradually increased carbon pricing, the policy framework laid out in this brief would enable India to pursue industrial growth coupled with substantially reduced emissions intensity by mid-century.
The results indicate that early action is paramount: choices made during the 2020s will determine the structure, competitiveness, and environmental footprint of India's steel sector well into the second half of the 21st century. The brief provides a data-driven pathway toward managing the transition for industry stakeholders, investors, and policymakers through a balance of fiscal responsibility, climate commitment, and industrial competitiveness in the long run.
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BASUNDE, Rohini（Global PR & Reporter ）
Based in India, Rohini works as a Reporter and Global PR professional,
leveraging her strong background in culture, society, and media studies.
Her work primarily involves article writing and managing global public relations campaigns.
Her core areas of interest are multiculturalism, intercultural understanding, and cross-cultural communication,
through which she disseminates information from a truly international perspective.
Hobbies: Drawing, photography, editing, traveling, and cooking.
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