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

The report argues that India's iron and steel sector, which accounts for roughly 12% of the country's total greenhouse gas emissions, requires a coordinated Green Industrial Policy (GIP) to avoid high-carbon asset lock-ins and meet its 2070 net-zero target. Through plant-level and sectoral modelling, the analysis identifies hydrogen-based Direct Reduced Iron-Electric Arc Furnace (DRI-EAF) as the most viable long-term pathway. To make this technology investable, the report proposes a combination of time-bound capex and opex subsidies, a predictable carbon price trajectory rising from USD 10 in 2025 to USD 50 by 2050, and green public procurement. The study finds that with these interventions, hydrogen-based steel could achieve cost leadership and a 13.3% IRR by 2050, while conventional blast furnace-basic oxygen furnace (BF-BOF) pathways become financially unviable.

• The iron and steel (I&S) sector is a major emitter in India, contributing approximately 12% of the nation's total greenhouse gas emissions.
• Hydrogen-based DRI-EAF is projected to dominate India's steel production by 2050, as greenfield blast furnace additions are expected to taper off by 2030 due to emerging carbon pricing mechanisms.
• Low-carbon steel projects currently face a viability gap, with modelled project-level returns of 4–6%, which is significantly lower than the 10–12% internal rate of return (IRR) typically required by industrial investors.
• To bridge the viability gap, the report proposes optimized subsidies including a 1% capex subsidy for DRI and 4% for EAF, alongside a green hydrogen opex subsidy starting at INR 50/kg in year 1 and tapering to INR 30/kg by year 3.
• The total cumulative subsidy outlay required between 2026 and 2032 is estimated at INR 8,340 crore, with 67% dedicated to hydrogen operating costs and 33% to capital cost relief.
• A predictable carbon price trajectory, starting at USD 10 per tCO2 in 2025 and reaching USD 50 per tCO2 by 2050, is identified as critical for internalizing emission costs and steering capital toward cleaner pathways.
• By 2030, the combination of subsidies and carbon pricing is expected to make hydrogen-based steel the lowest-cost option, with a levelized cost of steel (LCOS) of INR 1,05,985/t, undercutting conventional BF-BOF.
• By 2050, hydrogen-based DRI-EAF is projected to achieve long-term cost leadership with a 13.3% IRR and the lowest LCOS at INR 1,69,375/t, while BF-BOF and BF-BOF + CCS become financially unviable.
• 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 transition to low-carbon steel is estimated to generate approximately 540,000 additional jobs by 2050, comprising 70,000 direct and 470,000 indirect positions.

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} }