The Indian steel industry plays a pivotal role in the nation's economic growth, particularly in sectors like infrastructure, transportation, and manufacturing. The correlation between India's GDP and steel production underscores the sector's importance. While advanced economies have seen stable steel demand, India's market is expanding at a compound annual growth rate (CAGR) of 4.79%. However, this growth comes with environmental challenges, as the iron and steel sector is responsible for approximately 10-12% of the country's carbon emissions.
The steel industry in India is divided into two segments: large integrated steel plants (ISPs) and smaller secondary steel producers (SSPs). Each segment employs distinct production methods—ISPs rely on blast furnace-basic oxygen furnace (BF-BOF) routes, while SSPs predominantly use direct reduced iron-electric arc furnace (DRI-EAF) processes. These differences create unique decarbonization hurdles, necessitating tailored policy support to address their specific needs.
Decarbonizing the steel sector poses significant challenges due to the lack of commercially viable green technologies. This has limited access to green financing markets. Transition finance (TF) emerges as a crucial solution, enabling investments in incremental decarbonization measures that can gradually reduce emission intensity. TF instruments, such as sustainability-linked loans and bonds, provide capital for adopting best available technologies (BATs) and integrating carbon capture and utilization/storage (CCU/S) systems in BF-BOF plants.
The potential for near-term decarbonization is higher in the secondary sector due to its reliance on scrap steel and feasible low-emission feedstock. However, the primary sector remains a prime candidate for transition finance, as it requires substantial investment in technologies that can achieve incremental emission reductions. By leveraging TF, ISPs can integrate BATs like pulverized coal injection and coke dry quenching, which offer economically viable CO2 mitigation solutions.
In summary, transition finance holds the key to facilitating the gradual decarbonization of India's steel sector. It bridges the gap until fully green technologies become commercially viable, ensuring that both current and planned facilities can adopt emission reduction strategies. A credible and ambitious transition plan is essential for companies to secure TF and accelerate their journey toward net-zero emissions. This approach not only supports environmental goals but also promotes sustainable industrial development, fostering a greener future for India's economy.