Can Indian Steelmakers Bite The Green Steel Bullet?

Increasing stringency of climate policies in Europe is expected to grow the market for green steel substantially over the coming years, as steelmakers seek to avoid carbon costs levied by the EU Emissions Trading System (ETS). At the same time, the Carbon Border Adjustment Mechanism (CBAM) will limit imports of emissions-intensive steel into the EU, including from India.

Broadly speaking, green steel can be produced from a mix of two inputs: scrap steel and green iron (which is iron processed using clean energy sources, such as green hydrogen).

Whilst scrap steel can meet some of Europe’s new demand for green steel, the supply of scrap – even in Europe – is limited. A substantial supply of green iron will also be needed, reaching up to 60 Mt by the 2030s for Europe alone, according to Agora Industry.

It is expected that EU consumers may be willing to pay a premium to avoid these carbon costs, with Stegra – the owner of the world’s leading commercial-scale green steel plant based in Sweden – reporting that its consumers are committed to paying a premium of around 25% for their green steel.

Catalysing India’s green steel transition

This is where Indian steelmakers can press their advantage. The largest steel companies in India, including Tata Steel, JSW Steel and Jindal Steel, are among the most competitive producers of steel in the world. They have a proven track record of trialling and developing new technologies and approaches and expanding into new markets. Tata Steel has operations in the UK and the Netherlands, JSW Steel in Italy and the US and Jindal Steel in Oman.

Alongside this, India has some of the lowest renewable energy and green hydrogen costs in the world, with recent green ammonia tenders (made using green hydrogen) achieving record-low prices. Leveraging this same cost advantage to produce green iron (also using green hydrogen), India could export this product into markets, such as the EU, where there is already demand.

Indian steelmakers can produce green iron at facilities in India before exporting the intermediate product to electric arc furnaces in Europe. This ensures that final steel products are low-emission, therefore avoiding carbon taxes and satisfying the growing demand for green steel. This would allow Indian companies to charge a premium for this product, covering the additional costs required to support investment in a green iron production facility.

Reconfiguring Supply Chains

This would require splitting the iron and steel supply chain in a way that is not yet widespread. However, doing so would allow Indian steel producers to capture more of the value in the supply chain, by leveraging their lower energy and production costs. At the same time, Europe retains important manufacturing capabilities domestically (i.e. downstream steelmaking), whilst taking advantage of lower input costs, supporting its own political and strategic priorities.

Indian steelmakers are uniquely well-placed to forge these new partnerships. Low-cost renewable electricity and green hydrogen underpin competitive production of green iron, which can then be sold into Europe through existing downstream assets, taking advantage of a ready-made consumer base that is increasingly demanding lower-emission products.

We are already seeing the first examples of green iron deals being struck between countries that will be competitive at producing green iron and countries that have a consumer base willing to pay the premium. For example, the HyIron project in Namibia will export 200,000 tonnes of green iron, made using green hydrogen, to German steelmakers. This will result in reduced total costs of steel production for the German steelmakers, as well as alleviating energy supply stresses in Europe, whilst maintaining important downstream jobs.

The Path Forward

This will require action from Indian steelmakers, the Government of India and European governments.

For Indian steelmakers, there is an urgent need to act to capture this market, given growing competition from other international players. In India, this will require a rapid acceleration of R&D projects that are trialling and testing emerging low-emission production routes, such as hydrogen direct reduction, learning from the successful commercial-scale projects that will come online in the next couple of years in Europe.

The Government of India may need to provide initial support for such R&D projects in India, building on existing programmes, to help prove the concept ahead of offtake agreements.

Potential importing countries in Europe – such as the UK or the Netherlands – can support initial commercial-scale projects with lower-cost sources of investment, such as that provided by the Climate Investment Funds, lowering the overall cost of production for green iron. Moreover, the EU-India FTA set out a commitment for a EUR 500 million package to support India's industrial transformation, which could be used to cover additional costs of green iron facilities.

Beyond this, Indian steelmakers will need clarity on compliance with EU regulations for hydrogen-based derivatives, such as green iron. Non-recognition of India's electricity network as a single bidding zone under the current rules set out by the EU's Renewable Fuels of Non-Biological Origin (RFNBO) policy is restricting investment in hydrogen-based exports. Further clarity is expected this autumn, in which recognition of India's electricity network will be vital for advancing green iron partnerships between Europe and India.

Through these partnerships, Indian steelmakers can capitalise on India's globally competitive renewable energy (RE) and green hydrogen production, selling green iron into the European market, kickstarting the transition at home.

(This article is authored by Will Hall, Visiting Fellow at TERI. Views expressed are personal.)