Industry
As Europe’s carbon tax hovers closer, India rushes steelmakers to go green
Summary
- With just six months left for the European Union's carbon tax on steel and other imports to kick in, India is asking the country's steel producers to adopt carbon-capture technologies and replace coal with green hydrogen to fire their furnaces
NEW DELHI : India’s steel ministry has asked all major exporters of the alloy to focus on reducing their carbon footprint as the European Union prepares to tax companies that do not meet its environmental standards.
The EU’s carbon border adjustment mechanism, or CBAM, proposes a tax on embedded carbon imports from sectors including steel, aluminium, cement, hydrogen, electricity, and fertiliser from 1 January.
While India is exploring tariff and non-tariff measures to counter CBAM, it wants the country’s steelmakers to develop carbon-capture technologies as well as replace coal with green hydrogen to fire their furnaces, according to government officials aware of the development.
The ministry has in recent meetings with steel producers including Tata Steel Ltd, Jindal Steel and Power Ltd, and JSW Steel asked them to begin pilot projects aimed at reducing emissions from their existing facilities, the officials said, asking not to be identified.
The steel ministry did not immediately reply to emailed queries.
An unparalleled expansion
India’s steel industry is on unparalleled expansion spree to add fresh capacity, and poised to witness an all-time-high capacity addition of 15.6 million tonnes per annual (mtpa) in the ongoing financial year, FY2024-25.
But the Indian steel industry’s carbon emission intensity is much higher than global standards.
Indian steel producers face challenges in reducing their carbon footprint because their average emission intensity from blast furnaces is 2.6 million tonnes of carbon emission per million tonne of crude steel production, which is 12% higher than the global average, according to rating agency Icra.
The steel ministry wants all the fresh capacities created to be fully compliant with new and emerging emission standards, said the people mentioned earlier.
Also read | On carbon tax, not all steelmakers are on the same page
From 2026, Indian steel exports to the EU, among other specified exports, will be subject to an additional tariff of 20-35% under CBAM if not compliant with its requirements.
“With the advent of EU CBAM and similar carbon tariffs expected from other countries, the impact of these taxes will undoubtedly put pressure on the profitability of our mills that are exporting," said Prabodha Aacharya, chief sustainability officer, JSW Group.
Domestic steel producers exported 3.3 million tonnes of steel to Europe in 2023-24, a growth of 65% from the year before. Europe accounts for almost 45% of Indian steel exports.
“Europe has historically remained an important overseas destination for Indian steel mills, accounting for between 15-40% of our annual steel exports," said Sumit Jhunjhunwala, assistant vice president and sector head-corporate ratings, Icra.
“However, the carbon footprint of Indian mills is significantly higher than competing suppliers to the EU," he said. “Unless the carbon footprint of Indian steel mills is brought at par with global standards, it can potentially lead to lower profits and a loss of market share in Europe for domestic producers."
The Tata model
The steel ministry in a circular issued in May said there is potential for using green hydrogen as a replacement for coal in blast furnace, citing Tata Steel Ltd’s trials for using coal-bed methane in one of its facilities in Jamshedpur. CBD is natural gas extracted from coal beds and considered a clean source of energy.
For carbon-capture technology, which involves extracting carbon dioxide from the gas emitted from blast furnaces and reusing it on site, the ministry again suggested adopting Tata Steel’s model.
Tata Steel, which in 2023-24 exported 1.04 million tonnes of steel, was the first to commission a carbon capture plant at its Jamshedpur facility four years ago, with a capacity of 5 tonnes per day.
Also read | After Europe’s carbon tax, Germany props up fresh hurdles for Indian companies
The steel ministry has also suggested collaborations with institutions such as the Indian Institutes of Technology, the Institute of Minerals and Materials Technology, the National Metallurgical Laboratory, and the Central Institute of Mining and Fuel Research, to develop carbon capture and utilisation technologies.
The ministry has also suggested the replacement of coal with hydrogen to charge blast furnaces for producing steel, according to the people familiar with the developments.
These changes would not only prepare the domestic steel industry to be compliant with stricter emission guidelines that several countries are looking to implement but also aid India’s goal of becoming a net zero emitter by 2070, they said.
