Govt may harness public sector undertakings to drive green steel consumption

According to two people aware of the matter, the steel ministry has written to various infrastructure- and industry-focused ministries, asking them to nudge the PSUs under their administrative control to be the first procurers of green steel being rolled out by the domestic industry after the government finalised the green steel taxonomy in December 2024.

Green steel, produced using sustainable manufacturing practices, will be 10-15% more expensive than existing varieties. The plan to involve PSUs in driving its consumption is aimed at encouraging other steel consumers to start buying less-polluting steel.

Captive audience

Under the proposed plan, the government aims to provide an assured market for steel producers, with PSUs buying upto 25 million tonnes (mt) of green steel as and when its production becomes widespread, said the first person cited above. This would require a large part of the current crude steel production capacity of just over 150 mt to turn green.

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The second person cited above said that PSUs in the defence, shipping, power, oil and gas, railways, and MSME sectors were big consumers of steel. If they started procuring steel produced environmentally friendly steel, a ready market would be created that would drive its use in other sectors, too.

As part of its plan to making the steel sector future-ready, the government may also require steel companies to make a certain percentage of their output green and reserve some of it for government procurement, the second person added.

Queries sent to the ministry of steel remained unanswered.

What constitutes green steel?

The push for green steel production comes after steel ministry published the Green Steel Taxonomy for India in December 2024 to provide a common language and framework on what constitutes lower-carbon steel. The goal to advance decarbonisation of India’s steel industry and catalyse demand for less-polluting steel.

Steel is categorised as green based on the emissions intensity of the steel plant where it is produced. To qualify, the CO2 equivalent (CO2e) emissions intensity must be less than 2.2 tonnes of CO2e per tonne of finished steel (tfs). Steel with an emissions intensity above this threshold won't be eligible for a green rating, while steel below it will be rated on a three-tier system: three-star, four-star, or five-star green steel.

'Early-mover advantage'

Abhijit Kulkarni, Senior Partner, Metals & Mining, EY-Parthenon India, “With the green steel taxonomy in place, the assured domestic demand plan of the government to consume 25 mt of green steel is crucial for the sector's decarbonisation. The current definition of green steel is de-risking early investments in the technological shift. The goal is to attain emissions intensity of less than 1.6 tonne of CO2e per tonne of finished steel for it be rated five star. The proposed emissions intensity is likely to be achievable without green hydrogen-based DRI (direct reduced iron) steel making or RE (renewable energy)-powered electric arc furnaces."

He added, “The initiative will help the Indian steel sector achieve compliance with regulations such as CBAM and India's upcoming Carbon Credit Trading Scheme (CCTS). It will also compel Indian steelmakers to meet their customers' demand for low-carbon-footprint steel."

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Rajib Maitra, partner at Deloitte India, said, “India has an average emissions intensity of 2.54 tCO2/tcs (tonne of Co2 per tonne of carbon steel) while those of major economies are: US 0.79 tCO2/tcs, Europe 1.06 tCO2/tcs, South Korea 1.35 tCO2/tcs; Japan 1.61 tCO2/tcs; and Russia 1.65 tCO2/tcs. 

"Hence, country-specific policies may formulate their green-steel taxonomy below their average emissions intensity. However, the current framework of green steel taxonomy gives India an early-mover advantage. Indian producers will be able to adapt faster to tighter global regulations, leading to industrial competitiveness and technology adoption."

Green shoots

Indian industry has already started embracing the green steel taxonomy. Private steel major Arcelor-Mittal Nippon Steel (AMNS) is taking various initiatives to produce low-carbon green steel and plans to have 70% green steel in its portfolio by early FY27. The company is also in the midst of investing more than ₹60,000 crore to ramp up capacity at its Hazira plant from around 10 million tonne to 15 million tonnes. Public-sector steel major SAIL is also modernising its plants to reduce emissions and qualify for star ratings under the green steel taxonomy.

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Maitra pointed to a similar initiative in 2017 that bore fruit. He said, “Under the Domestically Manufactured Iron and Steel Products (DMI&SP) policy introduced in 2017, the government gave preference to domestic manufacturers in  procurement of 49 products. The policy led to an increased avoidance of steel imports while raising government procurement to ₹52,500 crore (equivalent to 7.5-10.5 mt in FY25). Similarly, it is expected that mandatory procurement of green steel in government tenders will boost domestic demand and act as a critical lever in capacity augmentation across the segment."