The Indian steel sector, the world’s second-largest producer, is bracing for a pivotal challenge as the European Union’s stringent carbon regulations take effect in 2025.
With Europe accounting for 25 per cent of India’s steel exports, the industry faces steep financial penalties and potential market displacement unless it rapidly adopts cleaner technologies to comply with the EU’s Carbon Border Adjustment Mechanism (CBAM).
Research by Rystad Energy projects that India and Russia could face carbon levies of up to US$397 per tonne by 2034 if current emission levels persist.
By 2030, Indian steel exports to the EU may incur surcharges of US$80 per tonne due to their high carbon intensity — nearly double that of competitors like South Korea and Turkey.
The EU’s CBAM, which assigns carbon costs based on embedded emissions, will penalise India’s coal-dependent steelmaking processes, risking a loss of market share to greener producers.
Alistair Ramsay, Vice President of Supply Chain at Rystad Energy, warns that “reducing emissions is becoming a competitive necessity.
“Companies that fail to adapt risk falling behind as buyer preferences shift toward low-carbon steel.”
In December 2024, India introduced a green steel classification system under its Production Linked Incentive (PLI) scheme, defining ‘green steel’ as emitting less than 2.2 tonnes of CO₂ per tonne of product. A five-star rating is reserved for steel with emissions below 1.6 tonnes.
The government is also considering mandates for green steel in public projects to boost domestic demand.
Major producers like Tata Steel and JSW Steel are accelerating decarbonisation efforts:
- Tata Steel is commissioning a 0.75 Mtpa electric arc furnace plant in Ludhiana and deploying carbon capture technology in Jamshedpur.
- JSW Steel has secured US$500 million via sustainability-linked bonds and plans to invest US$1 billion in hydrogen and biomass-based production.
- Jindal Steel & Power (JSPL) and AM/NS India are integrating renewable energy and circular economy initiatives.
While India aims to expand steel production capacity to 300 Mtpa by 2035, current decarbonisation trajectories fall short.
The sector is projected to cut emissions by only 43 per cent over the next decade — insufficient to meet EU standards.
Without faster progress, carbon costs could reach US$116 per tonne by 2034, eroding profitability in critical markets.
The EU’s CBAM, set to fully phase in by 2034, leaves Indian steelmakers with limited time to transition from coal-based methods to alternatives like natural gas and green hydrogen.
Early adopters of cleaner technologies may secure a competitive edge, but the sector requires urgent policy support and capital investment to avoid being sidelined in the global shift toward sustainable steel.
As the 2026 enforcement deadline looms, India’s steel industry stands at a crossroads: innovate swiftly or risk losing its hard-won position in the European market.
