As India prepares to massively scale its steel production, smart policy decisions on carbon markets, electricity, and green hydrogen hubs can render clean steel cheaper than coal-based steel.
Reaching the Indian government’s National Steel Policy target (draft) of 604 million tonnes of capacity by 2047 representing nearly a trippling of the nation’s current steelmaking capacity. This expansion is not just justified, it is essential. At 108 kg, India’s per-capita finished steel consumption stands at roughly half the global average of 215 kg. To construct the housing, high-speed rail, ports, and renewable energy grids required to lift millions into higher prosperity, India needs steel as the structural skeleton of modern development.
Yet this ambition collides with the environment of the steel sector; globally, the sector accounts for 9% to 11% of human-made green-house-gas emissions; in India, it accounts 10% to 12% of national emissions. As a nation acutely exposed to climate risks, from extreme heat stress and severe water scarcity to threats against coastal infrastructure, expanding steel along traditional lines carries immense domestic consequences.
Beyond climate risks, reliance on conventional steelmaking severely undermines national resource security. With India importing over 85% of its coking coal, primary steelmakers remain dangerously exposed to international price shocks. Relying on imported natural gas as an alternative is even more untenable given supply and price risks due to heightened geopolitical instability. Decarbonising steel is therefore not merely an environmental obligation; it is a strategic priority to achieve full value-chain resource independence.
The technology choices made by Indian steelmakers over the next decade will lock in the country’s industrial backbone for the next forty years. A coal-based blast furnace built today will generate emissions and demand imported coal into the 2060s. Because over 90% of India’s planned primary capacity additions remain on paper, India possesses a rare window to leapfrog directly to clean technology.
The proposed AM/NS India greenfield steel complex at Rajayyapeta, Andhra Pradesh, illustrates both the challenge and the opportunity. Phase 1, with a capacity of 8.2 million tonnes per annum (Mtpa), is based on conventional coal-based steelmaking, while Phase 2 presents an opportunity to adopt a lower-emissions production route. As demonstrated by a techno-economic assessment by TERI and Transition Asia of the proposed AM/NS India greenfield steel complex; green steel is within practical financial reach in India. This case study focusing on Phase 2 of the project, finds that steel produced via 100% green hydrogen can carry a modest “green premium” of just 6% to 13% over traditional coal-based blast furnaces.
While every facility in India will encounter site-specific factors, several key challenges will broadly shape all green steel operations and dictate the pace of decarbonisation across the national steel sector. Crucially, technology is not the bottleneck. What determines whether India bridges this green premium cost gap sits largely outside the plant gates, driven by three key policy and energy considerations.
Carbon Pricing with Clear Horizons
Under India’s Carbon Credit Trading Scheme (CCTS), each facility is measured against a baseline reduction target. As targets tighten, carbon-intensive steelmakers face higher compliance costs, naturally eroding the price advantage of coal. However, the current scheme design offers greenfield clean plants limited direct revenue.
To maximise impact, policymakers must publish a clear, multi-year roadmap for CCTS reduction targets. Evolving the CCTS toward a unified benchmark that directly rewards production under 1.6 tonnes of CO₂ per tonne of steel would enable low-carbon steelmakers to earn carbon credits, turning emission reductions into a direct revenue stream that gives corporate boardrooms the long-term clarity needed to commit capital today.
Modernising Industrial Energy Procurement
Power represents the single largest cost component in green steel production. Today, steelmakers can achieve dramatic cost reductions by taking group-captive equity stakes in renewable energy projects to avoid state cross-subsidy surcharges, while utilising utility energy-banking arrangements to firm up solar and wind generation.
However, regulatory limits threaten this path. Energy banking serves as a zero-cost balancing mechanism, but state policies impose strict caps. Andhra Pradesh, for example, caps statewide energy banking at 700 MW, yet a green steel plant the size of the AM/NS Rajayyapeta Phase 2 project would require roughly 1,500 MW of banking capacity alone. Furthermore, firming such massive loads requires wheeling power hundreds of kilometers from inland wind belts like Anantapur. To unlock industrial electrification, state regulators must create dedicated energy-banking tiers for heavy industrial decarbonisation and accelerate high-voltage transmission corridors.
Prioritising Domestic Steel in Green Hydrogen Hubs
Supported by the National Green Hydrogen Mission and SIGHT incentives, India’s green hydrogen ecosystem is scaling rapidly. Recent competitive tenders managed by SECI have yielded discovered green ammonia prices as low as ₹49.75 per kg, with a weighted average of ₹53.27 per kg. Hydrogen prices have also reached historic lows with ₹279 per kg discovered during a tender in Assam, giving the clear signal that hydrogen and hydrogen derivatives are reaching commercial viability faster than anticipated.
Yet hydrogen dedicated to domestic steelmaking remains scarce. Industrial hubs currently prioritise foreign export contracts for green ammonia and methanol. In Andhra Pradesh, the mega-hub at Pudimadaka, located right next door to the Rajayyapeta steel complex, has signed multiple off-take MOUs with foreign buyers, leaving domestic steelmakers unengaged.
This is a missed strategic opportunity. While export markets offer immediate liquidity, a primary steel plant offers multi-decade, continuous off-take security. Prioritising domestic steelmakers in regional hydrogen hub planning provides developers with stable, long-term demand while anchoring India’s green industrial base.
Securing India’s Steel Sector Transition
India has repeatedly demonstrated its ability to build world-leading public infrastructure and leapfrog legacy systems—from scaling the UPI digital payments network to crashing solar tariffs and executing cost-effective space exploration.
Industrial steelmaking is the next frontier. By aligning carbon market roadmaps, expanding industrial power-banking frameworks, and linking regional hydrogen hubs to domestic manufacturing, policymakers and corporate leaders can build an Indian green steel sector that is strong, resilient and revolutionary.
AUTHORS
Alastair Jackson, Head of Research, Transition Asia and Meenu Saini, Associate Fellow, TERI