Decarbonizing India’s Steel Sector: Domestic Barriers and International Pressures

Introduction

India’s steel industry has rapidly emerged as the world’s second largest producer (world steel association 2026), and now the government aims to double production capacity by 2030 (Ministry of Steel 2017). However, this rapid expansion has had negative social impacts. The steel plants have resulted in pollution which negatively affects the local population, especially for those that depend on the land for their work. Therefore, this presents the dilemma: while the steel industry has helped India’s economy flourish, it also destroys the very land the factories stand on.

The Effect of Growth in the Steel Industry and its Impacts

India’s steel industry is forecast to rise by an approximate 6% a year up until 2035. Despite their already rapid expansion, India aims to expand production and capture the growing demand. While the industry generates large amounts of steel, they also generate that much more carbon dioxide. This results from the poorly regulated factories that rely on burning coal for energy. These factories employ coal-dependent technology that is not as effective as other, more modern equipment (IEA 2020). Moreover 2.5 million Indians work in the steel industry (Mishra et al. 2021), making reformation hard to implement since the sector has large labour forces. Therefore political decisions will be challenging to implement because the consequences for new laws or requirements will affect millions that are a part of the labour force.

While the obvious solution to combat the high carbon emission is to use more renewable power sources like gas for the production of steel, businesses aim to maximise profit and in order to achieve this they must keep costs low.  By using less polluting energy sources, it increases their costs as it tends to be more expensive. As a result, businesses are reluctant to make this switch that could significantly impact profit margins. Due to the low cost of production for steel in India, it gives the industry a competitive advantage in the global market; the ability to undercut competition's prices.

The Effect of Dirty Steel in the International Market

Approximately 3-4 million tonnes of steel are exported to Europe annually (Economic Times 2026). However, India’s exports are going to be affected by the carbon border adjustment mechanism (CBAM) that was implemented in the EU (European Commission 2025). This tax is placed on carbon heavy products that are imported into the bloc. These new regulations are used to avoid the purchase of cheaper and considerably ‘dirtier’ imports, in an attempt to protect EU companies from being undercut by international competition. These laws are hard for India to abide by as most of their steel is considered carbon heavy and therefore, will have a tariff placed on them when bought by European firms. This causes an increase in their cost of production, and Indian steelmakers lose their previous competitive edge. This shows that in order for India to maintain market share in the EU, they need to approach methods of decarbonising and tweak their production process to be more eco friendly.

However, some groups have raised issues regarding the moral justification of these regulations arguing that developed countries have more recyclable steel, cleaner gas and availability of cleaner energy grids. In contrast, India faces a scrap deficit because the country’s infrastructure is considerably nascent, and is still in the ‘steel accumulation’ phase (Economic Times 2026). Most of the steel consumed in India has been over the last 10-20 years, and therefore it will not turn into scrap for the next 30-50 years as the steel still lies in buildings and other infrastructure around the country. Moreover, India lacks domestic natural gas reserves; the country imports most of their gas, making this considerably more expensive than the abundantly available, local coal. As a result, due to such factors, Indian steel manufacturers resort to using coal for production, simply because it's cheaper and they don't have the infrastructure to support them otherwise. With such obstacles to overcome in order to produce more carbon neutral steel, there is little incentive to take this initiative. Indian officials have expressed their discontent with these new regulations calling them a ‘trade barrier’ at a time when the country is trying to industrialise (Economic Times 2026).

There are a few plants in India that specialise in green steel, for example, Tata has set up their first green steel plant in the state of Punjab (Economic Times 2026). Their factories run on natural gas and they aim to keep the farms around them unharmed. However, unlike in Europe where the demand for green steel grows, India's domestic market shows little interest in green steel; consumers do not want to pay more for environmentally friendly alternatives. 

While 45% of India's total exports go to the EU alone (Metalbook 2025), the country’s exports account for a mere 3.31% of their total steel production (The Economic Times 2025). Since domestic markets drive the majority of consumption, producers lack the incentive to decarbonize (Bhattacharjee 2026), given the local indifference toward premium green alternatives. However, the largest consumer of steel in the Indian market is the government. Consequently, there could be a market for green steel if the government procures it in extensive infrastructure projects (Hasanbeigi and Bhadbhade 2024). This depends on if the government is willing to absorb the higher cost for greener steel as in the past, the government has focused on minimising cost. If they change their steel specifications for future projects, and mandate the use of green steel, it creates a demand base that could catalyze the entire industry's transition toward low-carbon technologies.

Conclusion 

India’s steel industry poses questions on whether the trade off is worth the negative social impact it has; is it worth polluting towns and cities in the name of economic growth? The Indian steel industry has been growing at an incredible rate, and has been producing carbon heavy steel over the years. While International pressures act as a driving force towards decarbonization, they oppose India’s structural realities.

However, these trade barriers alone will not impact the country as exports contribute to a very small percentage of their overall production. Since most of the steel is consumed domestically, in a highly price sensitive market, there is little incentive for firms to pay a premium for green steel. The Indian government is known to be the sectors’ largest consumer, using steel for large infrastructure projects. With this leverage, the government could establish a legitimate market for green steel within the country. Therefore, the government could help ensure that economic growth does not come at the cost of the environment.

References

1. Bhattacharjee, Govind. 2026. “Green Steel: India’s Procurement Pathway to Decarbonisation.” Hindustan Times, January 27, 2026. https://www.hindustantimes.com/ht-insight/climate-change/green-steel-indias-procurement-pathway-to-decarbonisation-101769513963758.html.

2. The Economic Times. 2025. “India Net Importer of Finished Steel in 2024/25, Data Shows.” The Economic Times, April 8, 2025. https://economictimes.indiatimes.com/news/economy/foreign-trade/india-net-importer-of-finished-steel-in-2024/25-data-shows/articleshow/120090669.cms.

3. The Economic Times. 2026. “India-EU FTA to Boost Steel Trade, Low-Carbon Cooperation: Indian Steel Association.” The Economic Times, January 27, 2026. https://economictimes.indiatimes.com/industry/indl-goods/svs/steel/india-eu-fta-to-boost-steel-trade-low-carbon-cooperation-indian-steel-association/articleshow/127641441.cms.

4. European Commission. 2025. “Carbon Border Adjustment Mechanism.” Taxation and Customs Union. https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en.

5. Hasanbeigi, Ali, and Navdeep Bhadbhade. 2024. “Green Public Procurement of Steel in India, Japan, and South Korea.” Global Efficiency Intelligence, November 12, 2024. https://www.globalefficiencyintel.com/green-public-procurement-of-steel-in-india-japan-south-korea.

6. IEA (International Energy Agency). 2020. Iron and Steel Technology Roadmap. Paris: IEA. https://www.iea.org/reports/iron-and-steel-technology-roadmap.

7. Kay, Chris, and Krishn Kaushik. 2025. “The Costs of India’s Hunger for Cheap Steel.” Financial Times, November 25, 2025. https://www.ft.com/content/c9f4b3af-b72e-4402-a678-77df4b7fa0a7.

8. Metalbook. 2025. “Impact of India-EU FTA on Indian Steel Export Growth.” Metalbook (blog), November 14, 2025. https://www.metalbook.com/blogs/impact-of-india-eu-fta-on-indian-steel-export-growth/.

9. Ministry of Steel. 2017. National Steel Policy (NSP), 2017. New Delhi: Ministry of Steel, Government of India. https://steel.gov.in/national-steel-policy-nsp-2017.

10. Mishra, Rahul, Nishant Nishchal, Manish Mathur, and Mahak Gupta. 2021. “Rewriting the Growth Story for India’s Steel Industry.” Kearney, June 2021. https://www.kearney.com/industry/energy/metals-mining/article/-/insights/rewriting-the-growth-story-for-india-s-steel-industry.

11. Sharma, Prabhav, and Rajat Gupta. 2025. “Indian Steel Industry Trends and Market Insights.” McKinsey & Company, January 2025. https://www.mckinsey.com/industries/metals-and-mining/our-insights/strengthening-the-future-steel-for-growth-and-resilience.

World Steel Association. 2026. “Total Production of Crude Steel.” World Steel Association

https://worldsteel.org/data/annual-production-steel-data/?ind=P1_crude_steel_total_pub/CHN/IND.