India’s ambitious steel production expansion plans could risk creating up to $187 billion in stranded assets, according to a new report from the US-based Global Energy Monitor.
The report warns that India’s dependency on coal-based steelmaking could impede its commitment to achieving net-zero emissions by 2070, locking in carbon emissions for decades.
The crude steel capacity in the country reached 161 million tonnes per annum in the financial year of 2023 and is set to touch 300 mtpa by 2030, overtaking China as the world’s leader in new steel capacity development.
However, 87 percent of this capacity relies on emissions-intensive blast furnace-basic oxygen furnace, or BF-BOF, production, which currently generates over 240 million tonnes of carbon dioxide annually, around 12 percent of India’s total carbon emissions.
The GEM report highlights that India’s reliance on coal-based production could jeopardize the country’s future competitiveness in the emerging global green steel market.
“With India’s commitment to net zero by 2070, its reliance on coal-based steel production puts the country at the greatest global risk for stranded assets from new steel capacity,” the report states.
Coal Dependency and the Risk of Carbon Lock-In
The long-term risk of elevated emissions from the steel industry stems from India’s young fleet of blast furnaces, which are costly to retrofit or phase out.
The report revealed that over 75 mtpa or 72 percent of operating BF capacity was developed in the last two decades, and more than 43 mtpa is estimated to be due for relining before 2030, locking in emission for an extended period.
Additionally, India could face an additional 680 million tonnes of carbon dioxide released by 2030 if it continues to expand BF-BOF capacity as planned, further entrenching higher-emission technology and prolonging the shift to greener alternatives.
A Missed Opportunity for Green Steel Leadership
The GEM report compares India’s strategy with the global shift toward “green steel,” produced using hydrogen or electric arc furnaces powered by renewable electricity. Countries like Japan and the European Union are positioning themselves as leaders in transitioning to green steel production.
“India’s ‘build now, decarbonize later’ strategy misses the opportunity to develop steel capacity using low-emissions technologies,” the report argues.
By failing to adopt low-carbon steel production from the outset, India faces greater costs, as retrofitting steel plants is complex and expensive. The report calls for a shift in strategy, advocating for a “build green from the start” approach.
Pathways to Decarbonization
India’s Ministry of Steel has taken steps to address the issue, releasing a roadmap in September 2024 to support the transition to green steel. The plan includes procurement targets for green steel, tax incentives, emissions disclosures, and energy efficiency measures.
However, the GEM report criticizes the roadmap for lacking a concrete strategy to phase out coal-based BF-BOF production.
Moreover, hydrogen-based direct reduced iron production is seen as a potential pathway for decarbonizing India’s steel sector.
However, the report points out that India’s reliance on coal-based DRI production, which accounts for 80 percent of the country’s DRI capacity, poses a significant challenge.
Indian steelmakers like JSW Steel and Jindal Steel & Power have launched pilot projects for hydrogen-based steelmaking. Still, large-scale adoption is unlikely before 2050 due to high production costs and a lack of hydrogen infrastructure.
Economic and Environmental Costs
India’s steel expansion strategy poses serious financial risks. According to GEM, the estimated cost of stranded steel assets — infrastructure that becomes obsolete before its economic value is realized — ranges from $124 billion to $187 billion.
This figure reflects the anticipated cost of prematurely decommissioning new BF-BOF capacity as global pressure to decarbonize intensifies.
The report warns that India’s steelmakers and financiers should reconsider future investments in BF-BOF infrastructure, as these assets could be rendered obsolete by evolving climate policies, technological advances, and shifting market demands.
Recommendations for India’s Steel Sector
To mitigate risks and capture opportunities in the growing green steel market, GEM recommends several actions:
- Shift to Green Steel Technologies: Prioritize the development of electric arc furnaces and hydrogen-based DRI production instead of coal-based BF-BOF capacity.
- Use Renewable Energy: Increase reliance on renewable energy to power steel plants, reducing emissions associated with electricity generation.
- Enhance Circular Economy Practices: Increase the use of steel scrap in production, as scrap-based steel production has significantly lower emissions.
- Adopt Early Decarbonization Strategies: Avoid delayed decarbonization, as retrofitting existing capacity is more costly than building green capacity.
Looking Ahead
India faces a critical choice of expanding its coal-based steelmaking capacity and risking stranded assets or seizing the opportunity to lead the global transition to green steel. The GEM report calls on policymakers, steelmakers, and investors to embrace a forward-looking strategy prioritizing decarbonization.
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