According to a new EY-Parthenon analysis released recently, tighter global carbon rules, such as the European Union’s Carbon Border Adjustment Mechanism, could cost India’s steel industry more than $14.5 billion by 2050. According to the paper, unless the industry drastically lowers its carbon intensity, Indian steel exports to the EU, which are expected to increase from 7 million metric tonnes now to 15 MMT by the middle of the century, may become less competitive. In comparison to EU standards, Indian steel currently emits almost twice as much carbon per tonne. “CBAM alone could result in a cost burden of ₹19,277 crore by 2030 if urgent decarbonisation is not implemented,” stated Kapil Bansal, lead author and partner at EY-Parthenon.

Carbon-intensive steelmakers will be penalised more and more by the CBAM, which levies import taxes depending on embedded emissions. India emits 2.5 tonnes of carbon dioxide per tonne of steel on average, which is much more than the EU standard of 1.28 tonnes of CO₂.. As the EU gradually eliminates free allowances and boosts carbon costs from the current $71/tCO₂ to over $400 by 2050, that disparity is predicted to grow.

This is an economic problem as well as a climate one. If Indian steelmakers don’t adjust, they could lose a significant portion of their export market, Bansal said. The paper noted that although CBAM represents a threat, there is also a parallel opportunity: the surge in domestic demand for “green steel”, or low-emission steel. India’s demand for green steel is expected to increase from almost nothing at the moment to 179.17 MMT by FY50, primarily due to the country’s infrastructure, electric car production, and sustainable building practices. By the middle of the century, 102.6 MMT of that demand will come from the building industry alone. However, India will have a supply-demand imbalance for green steel of more than 100% by FY40 and 241% by FY50 under the current policies and technology. According to the analysis, there is a 19 per cent shortage even in an accelerated net-zero 2050 scenario.

The production of green steel in India, which is mostly produced using hydrogen-based Direct Reduced Iron (H₂ DRI), needs to be expanded quickly. To narrow the gap, other techniques, including electric arc furnaces that run on renewable energy, are required. At $210 a tonne, green steel is currently more expensive, increasing infrastructure expenses by 5.2 percent, construction costs by 3.7 percent, and automobile costs by 4.1 percent. However, because of economies of scale and declining hydrogen prices, this premium is predicted to drop to just $7 per tonne by 2030. Green steel will be almost cost-neutral by 2035. As carbon taxes rise, remaining with carbon-heavy BF-BOF steel poses the actual risk, according to Bansal. According to the analysis, growing carbon prices will cause blast furnace-basic oxygen furnace steel prices to increase by 81% to $1,193/tonnene by 2050, while green steel prices may level off at less than $700/tonnene.

The term “BF-BOF” describes a common integrated steelmaking process in which steel is produced by further processing molten iron from a blast furnace in a basic oxygen furnace. EY advises India to enact a carbon pricing system, with a target of $90 to $100/tCO₂ by 2040, in addition to green steel purchase agreements, public procurement requirements, and subsidies.

“It is now a trade imperative to align with global climate regulations,” Bansal stated. In order to increase use by 10% a year, the research urges end users, such as automakers and real estate developers, to start acquiring green steel ten years before their net-zero targets. India’s competitiveness may be determined by its capacity to decarbonise its steel industry, as international investors are increasingly favouring low-carbon supply chains. Bansal stated that India had two options: either embrace the shift and spearhead the green steel revolution or suffer the consequences of inactivity.