Why India’s ‘build now, decarbonize later’ Net-Zero steel plan fails

India’s ambition to reach net-zero emissions by 2070 faces a hurdle due to its coal-dependent steel industry, according to a new Global Energy Monitor (GEM) report. It highlights that India’s investments in coal-based steelmaking and emissions-intensive blast furnaces jeopardise climate goals and risk US$187 billion in stranded assets.

India’s steel industry faces Net-Zero hurdle

According to the GEM report, India’s steel industry is one of the most emissions-intensive globally. Over 87% of the country’s ironmaking capacity relies on coal, rising to 90% for steel production capacity under development. The report reveals that reliance on coal-based blast furnaces, responsible for high CO2 emissions, is a major roadblock for India’s long-term decarbonisation strategy.

The Indian steel sector emits over 240 million tonnes of CO2 annually, contributing to about 12% of the country’s total emissions. The report warns emissions are expected to double by 2030 if current methods continue. The average emissions intensity for crude steel production in India is 2.55 tonnes of CO2 per tonne of steel, significantly higher than the global average of 1.85 tonnes.

India has the world’s largest pipeline of steelmaking capacity under development, with projects totalling around 258 million tonnes per annum (mtpa), according to the Global Steel Plant Tracker. Over two-thirds of this new capacity will use emissions-intensive basic oxygen furnaces (BOF), while only 12% will be based on less-emissions-intensive electric arc furnaces (EAF).

In the last two decades, over 75 mTPA of blast furnace capacity has been developed, with over 43 mTPA due for relining before 2030. This young fleet poses a significant challenge to the transition to low-emissions steel production, as many facilities will still be recovering their initial investment costs. The report indicates that the continued operation and extension of these blast furnaces could lock in emissions for decades.

Coal use in direct reduced iron

A key challenge in the GEM report is the widespread use of coal in direct reduced iron (DRI) production. Over half of India’s DRI capacity uses coal as the reducing agent, sourced from domestic high-ash coal. This coal is cheaper but has a higher emissions intensity compared to lower-ash coal or gas. The report notes that coal use in DRI production is a significant barrier to reducing emissions in India’s steel sector.

India’s steel industry relies on outdated technologies. Over 80% of DRI production is from coal-based rotary kilns, which are less efficient and more polluting than gas-based methods. While green hydrogen offers a promising alternative for decarbonising the sector, the report stresses that hydrogen-based steel production is unlikely to be commercially viable before 2050 due to high production costs and limited infrastructure.

The GEM report warns that India risks stranded assets if it continues expanding coal-based steel capacity. It estimates that the country’s commitment to net-zero by 2070 could result in US$187 billion in stranded assets, mainly from coal-fired BF-BOF steel plants in development. These facilities could become obsolete if India’s energy transition accelerates and low-emissions technologies become mainstream.

The report highlights India’s steel sector’s vulnerability to global coking coal price fluctuations, as most coal needs are imported. The rising costs of coking coal, which have significantly increased recently, pressure the economic viability of new steelmaking projects relying on this resource.

Hydrogen-based steel adoption delayed

India’s reliance on coal for steel production is making it hard to meet its climate targets. The government has made strides toward green steel, including a roadmap for decarbonising the sector. However, the report stresses that India’s current strategy—focused on expanding coal-based production and decarbonising it later—is insufficient.

Khadeeja Henna, a heavy industry researcher at GEM and lead author of the report, emphasised that India’s “build now, decarbonize later” approach is risky. She stated that while the government’s 2024 roadmap for greening the steel sector is a positive step, there’s an urgent need to transition away from coal-based production rather than relying on unproven emerging decarbonisation technologies.

The report highlights the potential of green steel, produced using renewable energy and hydrogen. However, despite pilot projects for hydrogen-based steelmaking in India, widespread adoption won’t be feasible until at least 2050 due to high production costs and a lack of infrastructure.

Roadmap needed for emissions transition

India’s steel industry is projected to grow rapidly, with crude steel output capacity from 161 million tonnes in 2022-2023 to 300 million tonnes by 2030. This expansion is driven by India’s growing economy and infrastructure needs, but it depends on coal. According to the report, 86% of the planned steel capacity will use coal-fuelled basic oxygen furnaces, posing a significant challenge to India’s net-zero target.

India is the world’s third-largest emitter, and the steel sector accounts for around 20% of the country’s industrial energy use. With the sector’s electricity demand expected to grow by 8.7% annually, the report suggests transitioning from thermal power plants to renewable energy is critical for decarbonising steel production.

The GEM report urges India to shift its focus from increasing steel production capacity to prioritizing green steel production. India needs to invest in renewable energy, accelerate hydrogen-based steelmaking technologies, and phase out coal-based methods. A comprehensive roadmap is needed for the steel sector’s transition to low-emissions technologies, helping India avoid carbon lock-in and stranded asset risks.

Support us to keep independent environmental journalism alive in India.

Keep Reading

Watch: Kashmir experiences first snowfall of season after dry spell

Amarnath Yatra: Tackling rising death toll from extreme weather events

Tourists arrival in Kashmir break records, a need to regulate it?

From tourist paradise to waste wasteland: Sindh River Cry for help

Follow Ground Report on X, Instagram and Facebook for environmental and underreported stories from the margins. Give us feedback on our email id [email protected]. 

Don't forget to Subscribe to our weekly newsletter, Join our community on WhatsApp, and Follow our YouTube Channel for video stories.