As the economy grows, India’s crude steel production is expected to increase to about 435 million tonnes (mt) by 2050, from about 118 mt in 2021. India’s steel industry accounts for about 11 per cent of the country’s emissions currently, and to meet demand, coking coal-based steel-making capacity additions of 50-70 mt have been announced. These have a life-cycle of 30-50 years, and will also result in continued rise in emissions.
Coking coal-based steel-making is considered the preferred route to add capacity as hydrogen-based steel-making remains uncompetitive for hydrogen prices above $1/kg, especially in absence of a carbon cost for emissions. However, a carbon price of $50 per tonne of emissions can make green steel competitive by 2030, even at a hydrogen price of $2/kg, and can catalyse a 150 mt shift from coal-based to hydrogen-based steel-making.
Considering much of the India envisioned for 2050 is yet to be built, an ‘accelerated steel industry decarbonisation’ offers a clear opportunity for India to build it right at the outset.
The actions that could be considered for an orderly transition are:
Introducing CO2 pricing and enabling rapid development of hydrogen: Hydrogen-based low carbon steel-making technology is in early stages of commercial development. Introduction and calibration of CO2 pricing in the next few years will encourage investments in low carbon technologies and accelerate adoption of hydrogen-based steel-making. It will also accelerate investment in other green technologies in the steel value chain such as green hydrogen and renewables-based electricity.
Policies for material efficiency: Scrap-based steel-making has the lowest carbon emissions of all current commercial steel-making technologies, but is dependent on price and availability of quality scrap to be economic and to achieve scale. India relies on scrap imports, which will become a challenge in the future as quality scrap demand increases globally for steel-making.
To scale up domestic scrap-based steel-making, policies incentivising scrap collection and recycling would need to be implemented, to set up dismantling, collection and processing centres.
Encourage green steel consumption in end-use: The government could encourage the use of green steel, set up targets for embodied carbon in public and private construction, and in automotive uses. This will support creation of a domestic green steel market for domestic steel-makers, who can initially tap export markets where green steel commands a premium.
Incremental levers to decarbonise existing assets: For existing assets, steel-makers can implement energy-efficiency and process improvement measures to achieve up to 25-30 per cent abatement, depending on plant configuration. These measures could include higher usage of scrap in the BF-BOF process, sourcing of green power, use of biomass and setting up of process control systems.
Investing in carbon capture, utilisation and storage (CCUS): CCUS is currently an expensive but an important lever for reducing emissions. To make it a viable decarbonisation solution for the steel industry, more R&D efforts are required to reduce capture costs, besides creating hubs in steel producing centres like in Odisha and Jharkhand.
Implementing these actions won’t be easy as it will result in increased cost of production, which will flow downstream into higher prices of housing and automobiles. The industry will have to do incremental spending on green power and hydrogen, which will entail an additional capex of about $135 billion — about 40 per cent more than the capex allocated for the steel value chain across technologies.
On the other hand, cumulative emissions would be lower by five billion tonnes by 2050 in the ‘accelerated decarbonisation scenario’ relative to the ‘line-of-sight scenario’; the latter scenario is based on announced policies and expected technology adoption. In addition, in the accelerated transition, forex savings of approximately $500 billion would accrue by 2050 from reduced spending on coking coal alone. A greener steel industry can also enable India to be a global green steel manufacturing hub.
Rajat is Senior Partner, and Kunwar is Partner, McKinsey & Company