ICRA: India’s Steel Sector to Cut Emissions Gradually Through Renewables and Efficiency Gains, With Full Green Steel Adoption a Long-Term Goal

India’s transition to low-carbon green steel is expected to remain a gradual, long-term process as high costs and technological constraints continue to limit rapid decarbonisation, according to a report by rating agency ICRA.

ICRA estimates that Indian steelmakers currently emit an average of around 2.5 tonnes of CO₂ per tonne of steel (Scope 1 and 2), about 12% higher than the global average for the blast furnace–basic oxygen furnace (BF-BOF) route. While the Government of India’s Green Steel Taxonomy, introduced in December 2024 under the National Mission on Green Steel, has set graded emission thresholds to define green steel, most domestic primary producers remain well above even the upper limits of the green category, highlighting a significant decarbonisation gap.

Commenting on industry trends, Girishkumar Kadam, Senior Vice-President and Group Head, Corporate Sector Ratings at ICRA, said that planned steel capacity additions of around 80–85 million tonnes by 2030–31 are largely skewed towards the coal-based BF-BOF route. As a result, the share of BF-BOF production is expected to rise from about 45% at present to nearly 51% by 2030–31, keeping the sector’s carbon intensity elevated in the medium term.

He added that near-term decarbonisation efforts will primarily depend on operational efficiency improvements and higher renewable energy adoption, which are expected to reduce emission intensity by about 19% by 2029–30, bringing the sector average down to roughly 2.0 tonnes of CO₂ per tonne of steel by the end of the decade. A significant portion of these reductions is likely to come from renewable energy integration and process optimisation.

The report noted that domestic steelmakers have already announced plans for around 9 GW of captive renewable power capacity to replace fossil-fuel-based electricity. Switching to green power alone could lower emissions by about 13% for BF-BOF-based mills and up to 22% for direct reduced iron (DRI)-based units. Additional measures, including higher scrap usage, waste-heat recovery, energy efficiency improvements and iron ore beneficiation, are also expected to contribute to emission reductions.

However, ICRA highlighted structural constraints, particularly the limited availability of scrap, which restricts the expansion of scrap-based electric arc furnace (EAF) capacity, a significantly lower-carbon steelmaking route in India.

The report also pointed to the high cost of green hydrogen as a major barrier to scaling up hydrogen-based DRI steelmaking in the medium term. According to ICRA’s estimates, green hydrogen prices would need to decline to around USD 1.5–1.6 per kg for the DRI–EAF route to be commercially viable, compared with current estimates of over USD 3 per kg. This cost gap is expected to constrain large-scale green steel capacity additions in the near to medium term.

Over the longer term beyond 2030, ICRA expects demand for green steel in India to gather momentum, driven by stricter ESG compliance requirements, decarbonisation efforts by major end-user industries such as automotive and infrastructure, and supportive policy measures. However, the agency noted that while India’s green steel ambitions are aligned with global trends, their realisation will depend on improvements in economics, technology readiness and sustained policy support.