India’s ambitious plan to decarbonize its steel sector has hit a roadblock, with the finance ministry delaying financial support for green steel production until green hydrogen prices become more affordable, according to sources familiar with the matter. The development could slow down India’s energy transition goals, especially its target to reach net zero emissions by 2070.
Pushback on Green Steel Incentives
The steel ministry has been actively seeking federal incentives to support a green steel policy, including mandating the use of green steel in government infrastructure projects. However, the finance ministry has raised concerns about the high production costs of green hydrogen, a key component in clean steelmaking.
According to insiders, the finance ministry is wary that incentivizing expensive green steel could be “potentially inflationary” and may disrupt economic stability. “There’s a need to balance economic growth with sustainability goals,” one official said, requesting anonymity.
Green Hydrogen: The Cost Challenge
Green hydrogen, produced using renewable energy, is seen as the cleanest substitute for coal in steel production. But its high cost remains a major deterrent. India’s steel mills, which largely rely on coal-based blast furnaces, are unable to transition economically to hydrogen-based production without subsidies or government support.
In December 2024, the government defined “green steel” as steel produced with less than 2.2 tonnes of CO₂ per tonne of finished product. However, Indian steelmakers currently emit about 2.55 tonnes of CO₂ per tonne, far exceeding the global average of 1.85 tonnes, as per Global Energy Monitor.
Policy in Limbo
The lack of a clear timeline for green steel incentives could hamper India’s industrial decarbonization efforts, despite being the second-largest steel producer globally after China. Insiders say inter-ministerial discussions have slowed, with the finance ministry urging a “non-hasty” approach to avoid fiscal strain and price inflation.
Economic and Environmental Trade-off
While the steel ministry sees green steel as essential to achieving climate targets and boosting clean manufacturing, the finance ministry remains cautious of the macroeconomic impacts of premature subsidies.
Analysts warn that delayed support may hinder India’s global competitiveness in sustainable steel production and could jeopardize climate pledges unless low-cost hydrogen solutions emerge soon.
For now, India’s green steel policy remains in flux, waiting for the right balance between economic viability and environmental responsibility.