India needs to deploy public capital more strategically to bridge the financing gap for green steel projects that remain commercially risky for private investors, according to the Institute for Energy Economics and Financial Analysis (IEEFA). The analysis warns that India’s upcoming steel capacity decisions will lock in emissions for decades unless low-carbon technologies receive timely policy and financial support.
Nearly 92 percent of India’s planned capacity expansion from 180 million tonnes to 300 million tonnes has not yet been built. Since steel plants operate for 30 to 40 years, technology choices made today will determine the sector’s emissions trajectory well past 2060. IEEFA stresses that failing to act now could undermine India’s long-term climate and energy security goals.
Conventional blast furnace routes rely heavily on metallurgical coal imports, primarily from Australia. With rising BF-BOF capacity, India’s met coal imports could nearly double by 2035, increasing exposure to global price volatility and energy risks.
IEEFA’s evaluation of global green steel projects shows that public finance remains essential, though the efficiency of spending varies widely. Public support ranges from $110 to $1,168 per tonne of CO2 abated depending on technology choices such as scrap-based Electric Arc Furnaces or Direct Reduced Iron paired with Electric Arc Furnaces. Credit guarantees mobilise private capital at a ratio of 2.4 to 1, outperforming direct grants, which typically attract 0.5 to 1.5 dollars of private investment for every public dollar spent.
According to BNEF data, nearly US$24 billion has been injected into steel decarbonisation projects that are at various stages of design, construction, and commissioning.
While venture capital and private equity normally support emerging technologies, these funding channels are ill-suited for green steel due to the sector’s low technology readiness, high capital intensity, and long payback periods. Globally, nearly $24 billion has already been channelled into steel decarbonisation, with almost all major initiatives relying on significant public finance.
In India, the government is developing a National Mission for Sustainable Steel with an outlay of Rs 5,000 crore aimed at facilitating decarbonisation. Expected incentives include concessional loans, risk guarantees, and production-linked benefits, with a major share of funding targeted at secondary steel producers.
A complementary Green Public Procurement policy proposes that 25 to 37 percent of steel used in public projects should be low-carbon, helping create demand for green steel. However, efforts to centralise bulk procurement were rejected by the Ministry of Finance in 2024, underscoring implementation hurdles.
India’s Carbon Credit Trading Scheme, set to begin in October 2026, will introduce emissions intensity targets for nine industries including steel. The impact of this mechanism will depend on the stringency of targets and resulting carbon pricing levels.
Steelmakers are also raising funds through Sustainability-Linked Bonds and green bonds, though these instruments generally support incremental emissions reductions rather than transformative technology shifts. Market behaviour shows that buyers are willing to pay premiums only for steel with truly end-to-end green characteristics, such as hydrogen-based production with renewable energy. Hydrogen-centred projects like Sweden’s Stegra have secured long-term contracts with premiums of 20 to 30 percent, while gas-based DRI projects have struggled to attract buyers despite government grants.
IEEFA proposes three key financial instruments for India: a robust credit guarantee facility backed by public institutions, product-based Contracts for Difference discovered through reverse auctions, and dedicated project preparation facilities to assist MSME steel units. These tools can mobilise private investment while minimising direct fiscal expenditure.
India’s strategy will differ from Western models by emphasising instrument design and capital efficiency over large subsidies. A carefully targeted public finance architecture will be vital to spur innovation, attract global capital, and steer India’s steel sector toward a low-carbon future without placing undue burden on taxpayers.
Baburajan Kizhakedath