Discussion Paper: Financing Industrial Decarbonization

The paper analyzes the financing gap in India's iron and steel sector, which is the country's largest industrial GHG emitter. It highlights a risk of carbon lock-in as 196 MTPA of fossil-based capacity is planned for 2021-2038. The authors propose a five-pillar framework—sectoral policies, enabling ecosystems, bankable business models, financing/derisking mechanisms, and financial sector regulations—to transition from fossil-intensive production to low-carbon technologies like green hydrogen-DRI. It details specific instruments such as Carbon Contracts for Difference (CCfD), blended debt funds, and Article 6 of the Paris Agreement to bridge the investment gap.

• The iron and steel sector is India's largest carbon-emitting industrial sector, accounting for approximately 10-11% of the nation's total CO2 emissions.
• India faces a significant risk of carbon lock-in, with 196 MTPA of fossil-based production capacity planned to come online between 2021 and 2038, which could double sectoral emissions to 560 MtCO2 per annum by 2030.
• Globally, hydrogen-direct reduced iron (H-DRI) is the dominant technology for green steel investment, representing about 87% of planned investments as of November 2023.
• The majority of global green steel investments are concentrated in the EU (88%), where strong climate policies and carbon pricing (80–100 EUR/tCO2 under the EU-ETS) drive adoption.
• India's current efforts in green steel are limited to pilot projects, including a USD 55 million allocation under the National Green Hydrogen Mission to substitute fossil fuels with green hydrogen in steelmaking until 2029-30.
• The EU's Carbon Border Adjustment Mechanism (CBAM) may have a marginal effect on India because only about 23.5% of India's steel exports go to the EU, and domestic demand will likely absorb more production capacity.
• The authors propose a financing framework based on five pillars: Sectoral Policy Framework, Enabling Ecosystem, Bankable Business Models, Financing and De-risking Mechanisms, and Financial Sector Policies and Regulations.
• Article 6 of the Paris Agreement offers a mechanism for developed countries to provide low-cost finance to developing countries in exchange for internationally transferred mitigation outcomes (ITMOs).
• Transition finance is necessary for 'hard-to-abate' sectors to fund activities that reduce emissions intensity even if they are not yet fully aligned with net-zero targets, as green alternatives are often unavailable.

APA

Kashyap, Y., & Purkayastha, D. (2024). Discussion Paper: Financing Industrial Decarbonization. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2024/04/Financing-Industrial-Decarbonization.pdf

Chicago

Kashyap, Yash, and Dhruba Purkayastha. Discussion Paper: Financing Industrial Decarbonization. Climate Policy Initiative, 2024. https://www.climatepolicyinitiative.org/wp-content/uploads/2024/04/Financing-Industrial-Decarbonization.pdf.

Wikipedia

{{cite report |last1=Kashyap |first1=Yash |last2=Purkayastha |first2=Dhruba |title=Discussion Paper: Financing Industrial Decarbonization |publisher=Climate Policy Initiative |date=April 2024 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2024/04/Financing-Industrial-Decarbonization.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kashyap2024discussion, author = {Kashyap, Yash and Purkayastha, Dhruba}, title = {{Discussion Paper: Financing Industrial Decarbonization}}, institution = {Climate Policy Initiative}, year = {2024}, month = apr, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2024/04/Financing-Industrial-Decarbonization.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }