To meet the imperative of reducing emissions by 50 percent, the steel sector needs to adopt a range of decarbonisation initiatives, including energy efficiency, renewable energy adoption, increased scrap utilisation, and biofuels
India's steel industry finds itself at a pivotal juncture as it endeavours to align with global climate goals and contribute to the nation's ambitious decarbonisation agenda. In the pursuit of limiting global temperature rise to 1.5 degrees Celsius, India has set its sights on reaching net-zero emissions by 2070 and reducing the emissions intensity of its GDP by 45 percent by 2030.
Central to this transformation is the steel sector, which currently accounts for a substantial 11 per cent of India's greenhouse gas emissions, surpassing all other industrial sectors. It's high time for Indian steel manufacturers to embrace decarbonisation methods to reduce emissions intensity while ensuring robust growth from approximately 120 million metric tons per annum (mtpa) in 2022 to a staggering 300 mtpa by 2030.
Driving Decarbonisation with Policy Support
The Indian government is laying the groundwork for decarbonising the steel sector through sector-specific Nationally Determined Contributions (NDCs), the Performance, Achievement, Trade (PAT) scheme, and a Scrap policy. However, the momentum for achieving meaningful emissions reductions rests squarely on the shoulders of steel manufacturers who must prioritise emissions reduction projects. In the face of the climate crisis, the steel industry's role in India's sustainable future cannot be overstated.
The Green Steel Opportunity
In addition to contributing to global and national climate goals, steel manufacturers have a golden opportunity to reap substantial financial rewards by embracing green steel production. The European Union's Carbon Border Adjustment Mechanism regulations, effective from October 2023, mandate importers of steel to disclose product carbon footprints, with the possibility of carbon taxes for higher-emission products starting in 2026. India, as a significant exporter of steel to the EU, stands to gain or lose market share based on its commitment to green steel production.
Sustainability as the fuel for top line growth
As the Indian steel industry embarks on its ambitious growth trajectory from 120 to 300 mtpa by 2030, investments of $150-200 billion over the next seven years are needed. Investors are increasingly integrating environmental, social and governance (ESG) considerations into their decisions, making sustainability a critical aspect of growth plans. A 10-point increase in ESG scores correlates with approximately 1.2 times higher EV/EBITDA multiples, showcasing the financial benefits of ESG-conscious strategies. The sustainable finance sector, including Sustainability Linked Loans and Bonds, is growing rapidly, allowing companies to fund general corporate purposes, such as capacity expansion, based on the achievement of ESG and carbon emissions Key Performance Indicators (KPIs).
To meet the imperative of reducing emissions by 50 percent, the steel sector must adopt a range of decarbonisation initiatives, including energy efficiency, renewable energy adoption, increased scrap utilisation, and biofuels. In the long term, green hydrogen and carbon capture, utilisation, and storage technologies will play pivotal roles. Many of these initiatives can yield significant cost savings in energy and raw materials, with energy efficiency alone historically reducing energy costs by 20-30 percent. Innovations such as AI/ML process optimisation hold the promise of similar reductions.
Funding Decarbonisation with Carbon Credits
However, some decarbonisation initiatives may not meet the stringent investment criteria of steel companies, often requiring a short payback period. Carbon credits can bridge this gap, allowing steel companies to benefit from long-term resource savings. McKinsey predicts the global carbon credits market to grow to $30-50 billion by 2030, with a quarter of the credits coming from technology-based removals. Steel manufacturers could leverage this market to finance their decarbonisation efforts.
Starting with Emission Tracking with the 3 R’s
To seize the opportunities of decarbonisation, steel companies must begin by meticulously tracking their carbon emissions. This entails adhering to Recognised methodologies, ensuring reliable data collection, and employing robust calculation engines. The World Steel Association offers a well-established methodology for estimating carbon emissions in steel manufacturing, and certifications can be obtained through various standards such as ISO 14064, ISO14067, and ISO 14404. Equally important is the Reliability of data, with a focus on accuracy, especially for factors that contribute most significantly to emissions. Robust calculation engines capable of handling vast amounts of data securely are vital for successful emission tracking.
India's steel industry has a pivotal role to play in the nation's journey towards decarbonisation. By embracing green steel, integrating ESG into growth plans and aggressively pursuing decarbonisation initiatives, Indian steel manufacturers can not only reduce emissions but also secure their position in the global marketplace. As investors, policymakers and consumers increasingly demand sustainability, the steel industry's ability to adapt and thrive in this new era will determine its long-term success.
(Harsh Choudhry and Vikas Upadhyay are Co-Founders of sentra.world.)