The Indian Government announced the world's first-of-its-kind Green Steel Taxonomy on December 12, 2024, paving the way for incentivizing the Indian steel industry to put more effort towards moving away from carbon-intensive processes currently used by most players. India is the world’s 2nd largest producer of steel, and with rising domestic demand on the back of rapid infrastructure growth, steel production is expected to reach 255 million tons between 2030 and 2035 from current levels of 140 million tons. This makes the timing of the policy-level intervention and incentives crucial, as they will provide the industry with clear visibility before undertaking production capacity expansion.
However, this positive momentum comes amidst challenges posed by external factors, particularly the European Union's Carbon Border Adjustment Mechanism (CBAM). Europe is a major market for India's hot-rolled product exports, and the implementation of CBAM will subject these exports to additional carbon costs. This will likely make Indian steel less competitive compared to European domestic producers and other exporters with lower carbon footprints, underscoring the urgent need to accelerate the adoption of low-carbon technologies.
Important highlights from India’s Green Steel Taxonomy:
The policy clearly defines what could be considered as a ‘Green Steel’. It has segregated the types of Green Steel in three different categories based on how much the steel plant’s emission intensity is lower compared to the 2.2 t-CO2e/tfs (tonne of finished steel) threshold. As a thumb-rule, the lower the emissions, the better is the star-rating!
Here is segregation:
Five-star green-rated steel: Steel with emission intensity lower than 1.6 t-CO2e/tfs.
Four-star green-rated steel: Steel with emission intensity between 1.6 and 2.0 t-CO2e/tfs.
Three-star green-rated steel: Steel with emission intensity between 2.0 and 2.2 t-CO2e/tfs.
The emissions will cover Scope 1, Scope 2 and limited Scope 3 emissions up to finished steel production. Scope 3 will include agglomeration (sintering, pellet making, coke making), beneficiation and embodied emissions in purchased raw materials and intermediates. It will exclude upstream mining, downstream emissions, and transportation emissions inside or outside the steel plant.
The responsibility of measurement, reporting, verification and issuance of greenness certificates will be given to the National Institute of Secondary Steel Technology.
The current threshold limit of 2.2 t-CO2e/tfs will be revised every three years.
India’s Steel sector readiness
Indian steel production is primarily dominated by BF- BOF (Blast Furnace - Basic Oxygen Furnace) method (42%) followed by Electric Arc Furnace (35%) and Induction Furnace methods (22%). The BF-BOF process involves usage of coking coal in high amounts with carbon emission around 2.2 tCO2e which is the threshold value in Green Steel Taxonomy. While a few steelmakers use steel scrap as the primary raw material in Induction Furnaces (IFs) and Electric Arc Furnaces (EAFs), the majority rely on Direct Reduced Iron (DRI) produced through coal-based rotary kilns as their main input. Similar to the Blast Furnace-Basic Oxygen Furnace (BF-BOF) process, coal-based DRI-EAF and DRI-IF steelmaking are associated with high levels of CO2 emissions.
It seems that cost advantages and established supply chain advantages that come with BF-BOF technology are pushing the Indian steel industry to continue investing in the same technology. It is estimated that more than 80% of upcoming capacity by 2032 will be BF-BOF based while the rest opt for the EAF and IF route. Within the EAF and IF, the usage of scrap iron will be limited, resulting in no major carbon footprint reduction. The long life cycle of BF-BOF plants highlights their dominance in the steel industry will continue for decades.
Possible carbon footprint reduction methods
Although India may see expansion in BF-BOF plant capacity, steel players might face hurdles in export markets which have stringent emission norms. To address these challenges, the major reduction of carbon footprint must come from implementing carbon capture technology and integrating green hydrogen injection into blast furnaces to further reduce emissions. These efforts can be complemented by Waste Heat Recovery, Variable Frequency Drives (VFDs), and Energy Monitoring Systems. Additionally, the installation of captive renewable energy facilities will significantly contribute to lowering the sector's overall carbon footprint.
Steel manufacturers and the government need to work together to address the costs associated with implementing these measures. Introducing a Green Steel Taxonomy might be a significant step in that direction.