Green public procurement is key to decarbonising India’s steel and cement sectors

Every year, the Indian government invests more than Rs 10 lakh crore in infrastructure such as roads, bridges, railways, ports, subsidised housing and public buildings. Cement and steel are major construction materials used extensively in these structures. The two sectors are among the most carbon-intensive industries and together account for nearly a fifth of total emissions from Indian industry.

Technological advances now exist for producing green steel through technologies such as green hydrogen and electric arc furnaces, and low-carbon cement through blended, longer-lasting mixtures using Supplementary Cementitious Materials (SCM) and other interventions. Low-carbon steel and cement have already reached commercial production in Europe. However, while technological understanding is no barrier to decarbonising these sectors, market demand for steel and cement produced through low-emission technologies and processes remains a major challenge.

India is a price-sensitive market. Any shift in production technology or processes requires fundamental changes to manufacturing facilities, which in turn places financial strain on manufacturers. This inevitably drives up the initial cost of products. Investors, including banks that act as the financial backbone of these industries, need assurance that a market exists for such products. This places India in a classic chicken-and-egg situation.

This is where the role of the country’s largest buyer of steel and cement becomes critical. The government has the opportunity to unlock the potential of these key infrastructure materials.

‘Green premium’ biggest hindrance

We have the technology. So what is holding us back?

The main practical way to make green steel is through the Hydrogen-based Direct Reduced Iron (H-DRI) process combined with the Electric Arc Furnace (EAF) route. In H-DRI, hydrogen is used to reduce iron ore instead of coal to produce sponge iron. This greatly lowers carbon dioxide (CO₂) emissions.

In the EAF process, both sponge iron and scrap steel are melted, refined, and cast into crude steel. If the electricity needed for EAF comes from renewable energy sources, the carbon emissions can be reduced even further.

India already has enough EAF capacity for this method to work. The next step is to increase the use of renewable energy to power these furnaces.

In comparison, the traditional coal-based DRI-EAF route in India emits nearly 3 tonnes of CO₂ equivalent per tonne of crude steel (CO₂e/tcs). Using H-DRI along with renewable-powered EAF could reduce emissions by more than 95 per cent, bringing them to below 1 tonne CO₂e/tcs.

In traditional cement production, about 60-65 per cent of emissions come from a process known as calcination, in which limestone (CaCO₃) is heated to about 900 degrees Celsius. This produces lime (CaO) and CO₂. A further 30-35 per cent of emissions result from burning coal and 5-10 per cent from grid electricity use.

Unlike steel, eliminating these process emissions cannot simply be achieved by changing the fuel mix or introducing renewable energy. It requires altering the composition of cement through the addition of SCM. By reducing the proportion of lime, blended cements can cut the carbon footprint of cement by 20 per cent or more.

The Bureau of Indian Standards has now approved several types of blended cements, including the new calcined clay limestone cement , developed through laboratory testing with multiple Indian research institutions. This innovation significantly reduces emissions without compromising structural integrity.

The primary obstacle is what is known as the “green premium”, which is the difference in cost between environmentally friendly production methods and traditional ones. The green premium for steel is estimated to be around 20-40 per cent above the normal price of steel, while for cement it is much lower, typically around 5-15 per cent.

Although these premiums exist today, they are expected to decline over time as demand rises and production scales up. At present, however, demand for green steel and cement remains extremely small, almost non-existent. This is where the mandate of Green Public Procurement (GPP) becomes crucial.

What is GPP?

Green Public Procurement is a form of public spending in which governments use their purchasing power to preferentially buy goods and services with lower environmental impacts.

GPP is neither a subsidy nor an imposed regulatory burden on industry. It simply reflects a government decision to purchase differently, thereby creating demand for greener products and opening markets for them.

While GPP is well established as an environmental policy instrument, it is less widely understood as a tool for market creation. For example, if a government commits to purchasing even a modest proportion — say 10-20 per cent — of its steel and cement from low-carbon sources, four things happen simultaneously.

First, it creates predictable initial demand. Second, it reduces investment risk for green production capacity. Third, it provides producers with economies of scale that lower production costs. Finally, it sends a credible signal to financial markets that green infrastructure materials will be financially viable.

GPP does not merely result in the purchase of green products. It helps create the market conditions that allow green production to become viable for all buyers, including private builders, real-estate developers and industrial consumers, as the cost gap narrows.

Does GPP work in the real world?

GPP is already an established policy tool that has helped drive green transitions in hard-to-abate industries.

The European Union has developed and repeatedly updated its GPP framework, incorporating environmental criteria throughout procurement processes across member states. In the United States, the federal Buy Clean Initiative requires construction materials sourced for federal projects  (for example, steel, concrete, flat glass, and asphalt) to meet low embodied-carbon standards.

Several US states, including California, have also adopted Buy Clean policies to create predictable demand for low-carbon construction materials. Crucially, the initiative did not wait for such materials to become cost-competitive; instead, it created demand first, helping accelerate price reductions.

Similarly, Sweden’s Transport Administration mandated the use of fossil-free steel in public road and rail infrastructure procurement. This created a predictable market for green steel projects, leading local industries to produce the first commercial volumes of fossil-free steel, not the government.

A recent study by the Confederation of Indian Industry (CII) and Climate Catalyst suggests that a Green Public Procurement mandate could significantly boost demand for green steel by 2030 while adding only marginally to project costs. The study shows that if the government mandated that 26 per cent of steel used in public infrastructure must be green, it could generate demand for around 16 million tonnes per annum (MTPA) of green steel by 2030.

If the requirement rose to 37 per cent, demand could reach 24 MTPA. Such demand generation would also reduce carbon dioxide emissions by millions of tonnes.

Importantly, the increase in total project costs would remain minimal, only 0.2 per cent and 1.2 per cent, respectively. Public procurement therefore has the potential to become a powerful climate lever by creating predictable demand for low-emission materials.

Missing green criteria in India’s policy

India already has a National Public Procurement Policy and an electronic procurement platform called the Government e-Marketplace (GeM), through which the government processes procurement worth thousands of crores each year.

However, neither system currently includes enforceable green criteria for construction materials such as steel and cement. While GeM is an increasingly sophisticated procurement platform, it does not require suppliers to disclose embodied carbon. Procurement decisions remain based almost entirely on price and technical specifications.

Major construction agencies such as the Central Public Works Department (CPWD) list low-carbon cements like Portland Slag Cement (PSC) and Portland Pozzolana Cement (PPC) in their schedule of rates. However, Ordinary Portland Cement (OPC) is still listed as an alternative, and no additional mandate or incentive exists to prioritise lower-carbon options.

Another policy gap is the absence of a clear green label for cement. While the government has recently published a taxonomy for green steel, there is no equivalent definition for low-carbon or green cement. As Nivit Yadav, director of the industry and renewable energy unit at Delhi-based think tank Centre for Science and Environment, noted: “It is high time that agencies which regularly procure materials like steel and cement give priority and mandates to low-carbon products.”

It is therefore time for the Government of India to establish such a definition and support it with procurement mandates that can stimulate the market.

Why green steel and cement matter now

India is investing massively in infrastructure. Over the next decade, the country will build thousands of kilometres of roads and railways, expand affordable housing, increase port and airport capacity, and develop both urban and rural infrastructure.

The concrete and steel used in these projects will remain in place for 50-100 years. The carbon embedded in them will therefore become a major component of the long-term emissions profile of India’s built environment. If India aims to achieve net-zero buildings and infrastructure, procuring green steel and cement will be essential.

As the country’s largest purchaser, the Government of India must use its purchasing power strategically. By committing to procure green construction materials consistently rather than waiting for them to become cheaper than conventional alternatives, it can support the decarbonisation of both India’s manufacturing sector and its infrastructure development.