On December 12, 2024, the Union Ministry of Steel unveiled the green steel taxonomy, which is being hailed as a big step towards decarbonising India’s steel sector. As one of the most carbon-intensive industries, steel plays a pivotal role in India’s decarbonisation efforts. The introduction of the taxonomy marks a notable step forward, providing clear benchmarks for reducing greenhouse gas emissions and producing low-carbon steel.
The framework aims to align with the country’s climate goals while offering a competitive edge to Indian steel producers globally. The pressing question now is: How effectively will this initiative be implemented and what challenges lie ahead?
The green steel taxonomy categorises steel products based on their carbon emissions per tonne of finished steel, introducing measurable benchmarks to encourage cleaner production practices. Any finished steel product emitting less than 2.2 tonnes of carbon dioxide equivalent per tonne of finished steel (tCO₂e/tfs) will qualify as green steel.
The level of ‘greenness’ will be expressed as a percentage, reflecting how much the steel plant’s emission intensity falls below the 2.2 tCO₂e/tfs threshold.
Based on carbon emissions, green steel is classified into three tiers:
Three-star green steel: The first category, with emissions intensity between 2 and 2.2 tCO₂e/tfs.
Four-Star Green Steel: The mid-level category, with emissions intensity between 1.6 and 2 tCO₂e/tfs.
Five-Star Green Steel: The cleanest category, with emissions intensity below 1.6 tCO₂e/tfs.
Steel with an emissions intensity exceeding 2.2 tCO₂e/tfs will not qualify for a green rating. The benchmarks for the star ratings will be reviewed every three years, allowing for adjustments as technology and industry practices evolve.
The taxonomy covers scope 1, scope 2 and limited scope 3 emissions. To ensure accountability, the National Institute of Secondary Steel Technology (NISST) has been designated as the nodal agency for measurement, reporting, verification (MRV) and issuing certificates and star ratings for green steel.
This taxonomy is the outcome of a year-long collaborative effort involving key stakeholders in the steel sector. In April 2023, the ministry set up 13 task forces to explore specific aspects of decarbonisation, such as green hydrogen, renewable energy, and energy efficiency. Their findings were consolidated into the report Greening the Steel Sector in India: Roadmap and Action Plan, published in September 2024.
The report highlighted five priority areas for decarbonisation: advanced energy efficiency technologies, increased use of steel scrap, renewable energy adoption, a transition to green hydrogen and carbon capture, utilisation and storage.
Driving demand for green steel comes first. India’s definition of green steel is a milestone, but scaling up production will depend on domestic demand, as the majority of steel consumption occurs within the country. With the taxonomy tailored to Indian conditions, its relevance to low-carbon steel demand in developed nations may be limited to certain categories in the current definition. Thus, fostering domestic demand will be crucial.
Public procurement mandates and incentives are already under government’s consideration. Policies such as green public procurement, carbon pricing, and tax benefits are expected to play a key role in fostering demand.
Producing green steel requires adopting green technologies and fuels, which may increase production costs by 20-30 per cent until decarbonisation technologies mature. Questions remain about how the cost premium will be absorbed across the value chain. Are ministries and public departments financially prepared to bear these additional costs? Will the cost ultimately be passed on to consumers?
Next is strengthening capacity for MRV and ensuring transparency and integrity. As demand for green steel grows, NISST, newly tasked with certification and MRV, must expand its capacity. It may need to outsource audits and verification to third parties.
With green steel certification and emerging policies like the Indian carbon market, it becomes essential to strengthen institutions like NISST and the Bureau of Energy Efficiency and to train independent carbon auditors. Transparency in the MRV system is critical to establishing the credibility of green steel certificates both domestically and globally.
Using “tonnes of finished steel” as the baseline for emissions reporting could pose challenges due to varied products and processing routes. However, experts suggest that emissions from finishing steel are minimal compared to the overall manufacturing process, making the impact negligible.
India imported 8.3 million tonnes of finished steel in 2023–24, raising questions about the eligibility of imports for green steel star ratings. If eligible, how will emissions be monitored and verified? If not, should low-carbon steel from other countries also be recognised? Clarity on this matter is essential.
Incentivising “greenness of steel” is another crucial step. The concept of “greenness” needs greater clarity regarding its purpose and benefits. For instance, incentives based on higher percentages of greenness could reward lower emitters within the same star category.
For example, a producer emitting 0.6 tCO₂e/tfs should be rewarded more than one emitting 1.5 tCO₂e/tfs, even if both qualify as five-star green steel. Incentives tied to greenness percentages could encourage industries to adopt greener practices within star rating categories.
It is also necessary to clarify whether the percentage of ‘greenness’ applies to specific batch production and individual units or would only be applicable to entire plants.
Making smaller producers a part of this change is pivotal. Smaller steel producers, which rely heavily on coal-based production methods, account for over a third of India’s crude steel output. While some units can improve energy efficiency, a shift to green steel will require substantial technological upgrades and financial support.
These producers face significant barriers, including high capital costs, limited credit access, knowledge gaps and issues with upgradation of technology, raw materials and fuel. Supporting these players through research, technology, and finance is vital to ensuring their inclusion in India’s green steel initiative.
India must also align with international standards and tap into global markets. The framework aims to drive low-carbon steel production and consumption to meet the country’s climate goals.
In 2023-24, finished steel exports accounted for 5-6 per cent of India’s 139.15 million tonnes of finished steel production. However, aligning the country's taxonomy with global standards and methodologies could enhance recognition and credibility, opening markets in the European Union, Asia-Pacific and North America. It could also help in addressing carbon border taxes and similar international frameworks.
India’s green steel taxonomy represents a transformative step towards decarbonising the steel sector. However, its success will depend on creating demand, strengthening MRV mechanisms, supporting smaller producers, providing incentives for incremental improvements and aligning with global standards. Focusing on these could determine whether the taxonomy becomes a global blueprint or a missed opportunity.