Green Industrial Policy for India’s Iron and Steel Sector Transition

This policy brief by the Climate Policy Initiative (CPI) evaluates the financial and technical requirements for transitioning India's iron and steel (I&S) sector to low-carbon production. It proposes a Green Industrial Policy (GIP) combining targeted subsidies, carbon pricing, and green public procurement to shift the industry from carbon-intensive blast furnace-basic oxygen furnace (BF-BOF) pathways toward hydrogen-based direct reduced iron-electric arc furnace (DRI-EAF) systems by 2050.

• India's iron and steel sector is a major emitter, accounting for approximately 12% of the country's total greenhouse gas emissions, and faces a significant challenge in balancing rapid capacity growth with a 2070 net-zero target.
• The transition to low-carbon steel is hindered by a high cost premium; capital expenditure for hydrogen-based DRI-EAF is roughly 1.5 times higher than traditional pathways, and early project returns (4–6%) fall well below the 10–12% internal rate of return (IRR) required by investors.
• An optimized subsidy package is proposed to bridge the viability gap, with a cumulative outlay of INR 8,340 crore between 2026 and 2032. This includes a capex subsidy of 1% for DRI and 4% for EAF, and a green hydrogen opex subsidy starting at INR 50/kg in year 1, tapering to INR 30/kg by year 3.
• Carbon pricing is identified as a critical long-term signal to erode the profitability of high-emission assets. The analysis assumes a trajectory starting at USD 10 per tCO2 in 2025 and rising to USD 50 per tCO2 by 2050.
• Hydrogen-based DRI-EAF is projected to become the most competitive and lowest-risk pathway by 2050, achieving a 13.3% IRR and the lowest levelized cost of steel (LCOS) at INR 1,69,375/t, while BF-BOF and BF-BOF+CCS become financially unviable.
• Carbon capture (CCS) is viewed as a limited transitional solution; the analysis suggests it may only be profitable for plants commissioned by 2033/34, with a projected capacity of only 4 million tonnes per annum (MTPA) by 2030.
• Increasing scrap utilization significantly improves financial and emission outcomes. For BF-BOF, increasing scrap from 0% to 40% reduces LCOS from INR 98,610 to INR 93,471 per tonne and lowers emissions from 2.82 to 1.85 tCO2 per tonne.
• The implementation of a GIP and the shift to low-carbon pathways could result in the creation of approximately 540,000 additional jobs by 2050, comprising 70,000 direct and 470,000 indirect positions.
• The report recommends that India establish a dedicated GIP for Steel that prioritizes DRI-EAF for expansion after 2030 to avoid high-carbon lock-ins and safeguard export competitiveness against measures like the Carbon Border Adjustment Mechanism (CBAM).

APA

Sarkar, A., Thampi, M., Farhan, Z., & Mehra, D. (2025). Green Industrial Policy for India’s Iron and Steel Sector Transition. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2025/12/Green-Industrial-Policy-for-Iron-and-Steel.pdf

Chicago

Sarkar, Arnab, Malavika Thampi, Zeya Farhan, and Deepalika Mehra. Green Industrial Policy for India’s Iron and Steel Sector Transition. Climate Policy Initiative, 2025. https://www.climatepolicyinitiative.org/wp-content/uploads/2025/12/Green-Industrial-Policy-for-Iron-and-Steel.pdf.

Wikipedia

{{cite report |last1=Sarkar |first1=Arnab |last2=Thampi |first2=Malavika |last3=Farhan |first3=Zeya |last4=Mehra |first4=Deepalika |title=Green Industrial Policy for India’s Iron and Steel Sector Transition |publisher=Climate Policy Initiative |date=December 2025 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2025/12/Green-Industrial-Policy-for-Iron-and-Steel.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sarkar2025green, author = {Sarkar, Arnab and Thampi, Malavika and Farhan, Zeya and Mehra, Deepalika}, title = {{Green Industrial Policy for India’s Iron and Steel Sector Transition}}, institution = {Climate Policy Initiative}, year = {2025}, month = dec, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2025/12/Green-Industrial-Policy-for-Iron-and-Steel.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }