Is Green Steel Within Reach in India?

10月 1日, 2026

Is Green Steel Within Reach in India?

2026, グリーンスチール, India, Steel

Research

Report · Transition Asia and TERI · October 2026

Green steel at India’s next primary steel plant costs 6–13% more than coal-based steel. What closes the gap sits outside the plant fence.

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One real decision inside India’s steel expansion

Accounting for 42% of global steelmaking capacity currently under development, India holds a major share of upcoming capacity, most of which remains to be constructed. This report evaluates a real upcoming decision: selecting the production route for Phase 2 of ArcelorMittal Nippon Steel’s greenfield complex located in Rajayyapeta, Andhra Pradesh. The investment decision for this roughly 9.6 Mtpa capacity is expected around 2030, with commissioning targeted for 2033.

Using a plant-level model tailored to local power, ore, and policy conditions, this analysis compares three direct reduced iron (DRI) production pathways, a shaft furnace using pellet and a fluidised bed and a rotary kiln using low-grade fines, against the traditional coal-based BF-BOF route, from natural gas to 100% green hydrogen.

6–13%green premium at 100% hydrogen

$10–45/tvalue of India’s carbon market by 2035

$129–148/tvalue of the power contract

$28–30/tsaved by buying hub hydrogen at $2/kg

The cost gap is no longer the main barrier

Run on 100% green hydrogen, the three DRI routes make steel for $571–606 per tonne against $536 for the BF-BOF, while emissions fall from 2.6 tonnes of CO₂ per tonne of steel to 0.3–0.6. The routes sit within $35 of one another, so the reactor is chosen on iron feed, maturity and emissions rather than headline cost. Securing hub hydrogen at $2/kg narrows the rotary kiln’s cost gap to within $5 of traditional coal-based steel, with India’s carbon market bridging the remaining difference.

Making steel: the cost of each configuration

Closing the premium: hub hydrogen, then the carbon market

Levelised cost of steel in 2025 US dollars per tonne of crude steel, 2030 decision year. The BF-BOF comparator is $536 per tonne. On tonnes exported to the EU, the border charge adds a further $179–209 per tonne advantage at the 2033 commissioning.

Key findings

Click a finding to open it.

The green premium is modest and the routes have converged

At 100% hydrogen, green steel costs $571–606 per tonne against $536 for the BF-BOF, a premium of 6–13% with India’s notified hydrogen support. The three routes sit within $35 of one another: the shaft furnace is the cleanest and the only reactor proven at this scale; the fines routes avoid the pellet premium by using low-grade ore.

The domestic carbon market works through the pace of its targets

A greenfield plant earns no CCTS credit in its first years; its gain is the certificate cost placed on the BF-BOF fleet as targets tighten. At an indicative $24 per tonne of CO₂ with targets tightening 2% a year, that is worth about $10 per tonne of steel by 2035; at $50 with 5% a year, $45, enough to close the rotary kiln’s premium as Phase 2 commissions. If the scheme evolves towards a common emission-intensity threshold with credits for plants below it, a carbon price of $25–50 per tonne of CO₂ would cover the whole premium.

What the scheme is worth to a green plant, $ per tonne of steel

Certificate cost placed on a BF-BOF held at its baseline intensity, on targets tightening 2% and 5% a year from 2025 at $24 and $50 per tonne of CO₂. Values are upper bounds.

The EU border helps on exported tonnes only

The EU’s carbon border adjustment (CBAM) lands hydrogen-based steel $179–209 per tonne below Indian BF-BOF steel in 2033. India exports only 3–5% of its steel, so the carbon border supports the case but cannot serve as its primary foundation. One risk stands out: if Phase 2 is reported to the EU as one installation with Phase 1, its 2034 border charge rises from about $27 to $155 per tonne. Reporting it as a separate installation avoids this at no cost.

Hydrogen is the plan; natural gas is only a fallback

Hydrogen beats natural gas in the same reactor once delivered at $1.70–2.11 per kg, within reach of the official cost trajectory. A gas start costs $531–553 per tonne but emits 0.8–1.2 tCO₂ per tonne and rests entirely on imported LNG. Hydrogen belongs in the design from day one; gas is the insurance.

The supply risk of natural gas outweighs its cost advantage.

Procurement matters more than technology

The power contract is worth up to $129–148 per tonne, several times the effect of the fuel choice. It rests on two regulatory concessions, the group-captive surcharge exemption ($81–94) and energy banking with the state utility ($50–57), whose continuation for a load of this size is not assured. Of the structures tested, only the base case with both clears the 1.3 times debt-service covenant lenders require.

Hub hydrogen: the largest single lever, conditional on delivery

Buying hydrogen from the planned hub at $2 per kg is $28–30 per tonne cheaper than making it on site, takes $1.2 billion of electrolyser capital off the balance sheet and lifts debt cover from 1.65 to 1.93 times. Phase 2 would need about four-fifths of the hub’s planned output, so the case depends on a dedicated supply agreement.

Three conditions outside the plant fence decide the outcome

None is a technology question, and none is in the steelmaker’s hands alone.

CCTS targets and carbon price

Worth $10–45 per tonne by 2035, depending on the price, on how fast targets tighten, and on whether the scheme comes to reward new low-emission capacity directly.

Energy-banking envelope

The plant needs 470–1,555 MW of banked load against a state-wide envelope of about 700 MW. Unless it grows, or storage is supported, the bankable power structure is not available at this scale.

Hydrogen hub delivery

Pudimadaka delivering hydrogen near $2 per kg by 2032, with Phase 2’s offtake secured. With it, the rotary kiln lands within $5 of the BF-BOF route, while the plant’s debt coverage rises to 1.93 times.

What to do

AM/NS India

Commit Phase 2 to fuel-flexible DRI designed for hydrogen from the start. Report Phase 2 as a separate CBAM installation. Lock in group-captive power and utility banking before the final investment decision. Buy hub hydrogen if it delivers.

Policymakers

Publish a long-dated path for CCTS reduction targets and signal how the scheme will treat new low-emission capacity. Turn the Green Steel Taxonomy into demand. Expand the banking envelope or support storage. Deliver the hub near $2 per kg.

Financiers

Underwrite on debt coverage rather than headline cost. The steel price that holds 1.3 times cover is $590 per tonne with hub hydrogen, $611 making it on site, $662 for the self-build and $692 on third-party open access.

The decisions fall due in order

Before 2030Policymakers publish the CCTS target path and signal the treatment of new low-emission capacity, so that it is investable at the Phase 2 decision.

Before the final investment decision, 2028–30The reactor; the power structure and its 26% equity stake in the generation vehicle; the hub offtake agreement; and CBAM registration of Phase 2 as a separate installation.

2032–33Hub commissioning and Phase 2 start-up. The fuel share follows the delivered hydrogen price against the $1.70–2.11 per kg threshold.

Costs are the levelised cost of steel in 2025 US dollars per tonne of crude steel, 2030 decision year.

Green steel at Rajayyapeta is not blocked by technology or cost. The pace of the carbon market’s targets, the state’s banking envelope and the hydrogen hub each move the cost of steel more than the choice of reactor.

Full report One-page summary Model and data Slides

Authors

Lead author
Dr. Liying Qiu (Lilly)

Senior Research Associate, Transition Asia

Author
Alastair Jackson

Head of Research, Transition Asia

AuthorMeenu Saini

Associate Fellow, TERI

AuthorJiya Chhabra

Research Associate, TERI

AuthorSobhanbabu PRK

Senior Fellow, TERI