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Since emerging as the world’s No. 2 producer of steel eight years ago, India has ramped up its exports to Europe. By some estimates, upwards of 60% of the country’s steel exports now head to the European Union.
But India’s steelmakers are poised for what one prominent New Delhi–based business magazine recently referred to as a “wake-up call.”
The EU’s world-first carbon tariff — known as the carbon border adjustment mechanism — took effect this month, forcing companies in the bloc to pay levies on certain imports based on how much planet-warming pollution was emitted during their manufacturing. That means metal from Indian steelmakers — which rely heavily on coal — will come in at a much higher price in the EU.
“Europe is the elephant in the room. It’s a pretty big deal,” said Kaushik Deb, executive director of the India team at the University of Chicago’s Energy Policy Institute. “It makes it a lot more urgent for India to start thinking about green steel.”
Coal dominates the steelmaking process in much of the world, and especially in India. The traditional method for producing the metal relies on a coal-fired blast furnace to refine iron ore into iron, which is then forged into steel in a basic oxygen furnace. That two-step process accounts for 43% of India’s steel output, according to a June report from Johns Hopkins University’s Net Zero Industrial Policy Lab.
The rest of the nation’s steel is produced in electric arc furnaces or induction furnaces, alternatives to basic oxygen furnaces that melt iron into steel using electricity. But even that equipment depends on iron refined using coal. The fossil fuel also generates upwards of 75% of the power on India’s grid, meaning that ostensibly cleaner methods that use electricity still generate plenty of emissions.
Some steelmakers in India have begun to build out the infrastructure for direct reduced iron, a cleaner method of making iron than relying on coal-burning blast furnaces. But in contrast to American or European DRI facilities, which typically use natural gas or hydrogen, Indian DRI plants often use coal as the input.
The Indian government has started looking to change the trajectory of its coal use. The fossil fuel is making up less and less of the country’s power mix as India installs record amounts of solar panels and wind turbines and embarks on plans to build new nuclear power stations.
In September 2024, India’s Ministry of Steel — the only cabinet-level agency in any major country dedicated just to steel — issued a 420-page report outlining the potential pathways to greening the industry. The report calls for studies into different approaches to slash emissions from steelmaking, including swapping the coal used in DRI for green hydrogen made with renewables and equipping fossil-fueled facilities with carbon-capture equipment. It also proposes studying ways to retrain workers on greener technologies. But the report acknowledges that financing remains a challenge.
“I don’t see the timeline for this happening optimistically,” said Shreyas Shende, the senior research associate at the Net Zero Industrial Policy Lab who co-authored last summer’s report. “The issue is the pricing. Green hydrogen has no cost competitiveness. The government is running a few pilot projects, but we have to see if it’s scalable.”
Some private companies in India have started their own decarbonization pilot projects. JSW Steel announced plans in 2022 to spend $1 billion on green steel by 2030, and later expanded the vision via a partnership with the South Korean steelmaker Posco to develop a new green-steel mill.
That same year, industrial behemoth Adani inked its own deal with Posco to develop a $5 billion green-steel facility in the western state of Gujarat.
In 2024, Tata Steel entered the green-steel market with plans for a low-carbon mill in the United Kingdom. At the World Economic Forum in Davos, Switzerland, last week, the giant announced another $1.2 billion investment in a green-steel plant in the eastern state of Jharkhand.
Acting on its own, however, the “industry will take a long time to catch up,” Shende said.
“The most important development recently is that the government has talked about putting together a big plan,” he said. “We haven’t seen what that plan looks like. But if and when it does come out, that would have potentially the greatest impact on anything India will do.”
In the meantime, India’s steelmakers — which directly employ 2.5 million workers and generate as much as 2% of the country’s gross domestic product — face increased competition. Last August, a Chinese steelmaker scheduled the first shipment of green steel to Italy, an effort to establish a supply chain between the People’s Republic and the EU ahead of the carbon tariff taking effect. In November, industry groups representing European and Chinese steel producers and buyers came together to work on a uniform set of standards for determining whether steel is, in fact, green.
“The Chinese are much better prepared with green steel than India is, and they will probably gain market share at India’s expense by being more compliant” with the EU’s new carbon tariff, Deb said. “That threat of losing market share is relevant and important for India’s decision-making process. It would be a very hard blow to the Indian steel industry.”
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