In a collaborative effort, the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics have emphasized the vital need for a precise definition of “green steel” in their recent report. Defining green steel is seen as a crucial step for steelmakers to invest in the right technologies necessary for a sustainable future.
The report argues that for India to embark on a successful journey to decarbonize its steel production, policymakers must establish a clear vision that promotes the production of green steel. This vision begins with a concrete definition, which, according to Vibhuti Garg, the Director of South Asia at IEEFA, should unequivocally entail eliminating fossil fuels from the production process.
However, the report acknowledges that green steel production technologies have not yet gained mainstream adoption globally, making green steel approximately twice as costly as conventionally produced steel. To overcome this hurdle, the authors suggest that the government should formulate policies that generate demand for green steel while penalizing carbon emissions from traditional steel production. This could include mandatory green steel quotas in government and public sector purchases, extending to private consumers in the future. Additionally, the report recommends the introduction of Green Steel Certificates, tradable in a national carbon market, to create a green steel market for domestic steelmakers.
Furthermore, the report highlights the importance of viability gap funding (VGF) to bridge the financial gap associated with the high initial capital cost of low-carbon steelmaking technology.
The report examines various technology solutions to reduce emissions from steelmaking, with green hydrogen identified as the cleanest option. However, the challenge lies in its high cost, which the government aims to address through the National Green Hydrogen Mission. The report suggests that a competitive green steel market could emerge with green hydrogen prices at around US$1-2 per kilogram and a carbon penalty on traditional steel production.
Ultimately, the report forecasts that green hydrogen will replace coal as the primary steelmaking route by 2050, with a significant shift occurring between 2030 and 2050. Green hydrogen projects are expected to scale up during this period, gradually phasing out coal-based steelmaking and reducing the industry’s reliance on grey hydrogen. The transition will be facilitated by innovative financing mechanisms such as sustainability-linked bonds and loans, blended finance, and technical assistance grants.
In summary, the report provides critical insights into defining green steel and offers a roadmap for India to transition to sustainable steel production while emphasizing the pivotal role of green hydrogen and innovative financing in this transformation.