Green Steel at a Crossroads: IEEFA Says India Needs Smarter Public Financing to Drive Decarbonisation and Energy Security

India must deploy public capital more strategically to bridge the financing gap for green steel technologies and prevent long-term carbon lock-in from its large upcoming steel capacity additions, according to a new briefing note released by the Institute for Energy Economics and Financial Analysis (IEEFA).

The report notes that 92% of India’s planned steel capacity expansion — from 180 million tonnes (Mt) to 300 Mt — has not yet been built, making current technology choices crucial. Since steel plants typically operate for 30–40 years, the analysis stresses that adopting conventional blast furnace–basic oxygen furnace (BF–BOF) technology now could lock in emissions until 2060–2070, jeopardising India’s net-zero pathway.

“Carbon lock-in occurs when long-lifespan steel plants are built with conventional technology, locking in emissions for decades,” said Saurabh Trivedi, Sustainable Finance Specialist at IEEFA and co-author of the note.

Energy Security Risks and Rising Coal Imports

Beyond climate impacts, IEEFA highlights that India’s heavy dependence on imported metallurgical coal — primarily from Australia — poses an energy security risk. With BF–BOF capacity expected to grow, India’s met coal imports could almost double by 2035, the briefing warns.

Global Green Steel Costs and Public Financing Models

IEEFA’s assessment of international green steel projects shows a wide variation in public finance efficiency — from US$110 to US$1,168 per tonne of CO₂ abated — depending on the technology route and the extent of public support. The report states that credit guarantees mobilise private capital more effectively (2.4:1 leverage) than direct grants (0.5–1.5:1).

“Given the low technology readiness, large capital needs, and long payback periods, venture capital and private equity are poorly suited for early-stage green steel,” said Meenakshi Viswanathan, Energy Finance Intern at IEEFA and co-author.

Nearly US$24 billion has already been invested in steel decarbonisation globally, with almost all major projects relying heavily on public financing.

India’s Policy Push: National Mission, Green Procurement, and Carbon Markets

The Government of India is developing a National Mission for Sustainable Steel with a proposed outlay of Rs 5,000 crore (US$600 million). The programme is expected to include production-linked incentives, concessional loans, and risk guarantees, with up to 80% of funding directed toward secondary steel mills.

A proposed Green Public Procurement (GPP) policy aims to mandate that 25–37% of steel used in public projects be low-carbon. However, the initiative faces hurdles — including the Ministry of Finance’s 2024 rejection of a centralised green steel procurement agency.

Under the Carbon Credit Trading Scheme (CCTS), set to begin by October 2026, emissions intensity targets will apply to nine industrial sectors, including steel. The impact will depend on how stringent the targets are and how carbon prices evolve.

“These steps show intent, but the scale of funding is still modest,” Viswanathan noted.

Market Signals: Premiums Only for Fully Green Steel

The report also notes clear market differentiation in green steel projects globally. Gas-based DRI projects in the US and Germany failed to secure price premiums and were cancelled despite receiving grants. In contrast, fully integrated hydrogen-based projects — such as Sweden’s Stegra — have secured long-term offtake agreements with 20–30% price premiums.

“Buyers are willing to pay premiums only for steel with complete green credentials, from renewable energy to hydrogen production,” Viswanathan said.

IEEFA Recommendations for India

To accelerate commercial viability, the briefing note proposes:

A government-backed credit guarantee facility to reduce direct fiscal exposure

Product-based Contracts for Difference (CfDs) using reverse auctions to discover true green premiums

Project preparation support for MSMEs entering green steel value chains

“India’s approach will differ from Western models — focusing on high-impact instrument design rather than large subsidies,” Trivedi concludes. “Strategic public capital deployment is essential to avoid carbon lock-in while enabling industry innovation, global financing, and long-term competitiveness.”