The Business Bytes
TBB BUREAU
BHUBANESWAR, MAR 26, 2024
Domestic primary steelmakers are making significant strides towards achieving their carbon emissions target of less than 2 tonnes of carbon dioxide per tonne of crude steel (tCO2/tcs) by 2030. This target, around the current global average, is expected to be met through measures such as energy transition and increasing production from less carbon-intensive processes.
Reducing emissions not only broadens fund-raising avenues but also improves export competitiveness, a positive sign for credit quality. However, the complete transition to low carbon steel, also known as green steel, remains a formidable challenge.
Currently, the carbon emission rates of Indian steelmakers surpass the global average due to high reliance on traditional high-carbon production routes like blast furnace-basic oxygen furnace (BF-BoF) and dependence on coal in the direct reduced iron (DRI) – electric arc furnace (EAF) process. Globally, gas-based DRI-EAF, which is less carbon-polluting, has a higher share.
Apart from increasing capacity by around 35% from fiscal 2024 to 2027, Indian primary steel makers are also working on improving their environmental, social, and governance (ESG) profile by reducing carbon emissions and enhancing disclosures. They aim to achieve carbon emissions of less than 2 tCO2/tcs by 2030, with reported emissions down to ~2.35 tCO2/tcs from over 3 in fiscal 2005.
Ankit Hakhu, Director at CRISIL Ratings, emphasizes that achieving the 2030 target will require players to increase their annual reduction rate to 2.3%, achievable through the adoption of renewable energy, scrap-based EAF capacity, and carbon capture technologies. Government support and accelerated emission reduction rates in fiscal 2023 indicate progress in this direction.
Narrowing the gap in carbon emissions compared to global players will help Indian steelmakers maintain competitiveness, even with potential carbon taxes under the Carbon Border Adjustment Mechanism (CBAM) in the European Union. Strengthened ESG profiles from reduced emissions will also improve access to sustainable finance avenues.
The reduced emissions will also strengthen ESG profiles, which will improve access to additional funding avenues such as sustainable finance that has a lower cost of capital and long tenure. This is important, given the expected annual capital expenditure of Rs 55,000-60,000 crore between fiscals 2024 and 2027.
However, complete transition to green steel presents challenges, including adoption of new technologies like HYBRIT/electrolysis, sustainable use of alternative clean fuels such as green hydrogen, and large-scale implementation of carbon capture utilisation and storage. These measures entail higher capital and operating costs.
“Complete transition to green steel will remain a challenge as it requires measures like successful adoption of new technologies such as HYBRIT3/electrolysis, sustainable use of alternative clean fuels such as green hydrogen, and large-scale implementation of carbon capture utilisation and storage, among other changes. This means higher capital and operating cost — new technology for green steel is more than 2-3 times costlier than the BF-BOF route, which accounts for 67% of the current installed steel capacity. Also, at the current price of green hydrogen ($4.0-4.5 per kg), operating cost will be 1.25-1.5 times higher,” said Ankush Tyagi, Associate Director, CRISIL Ratings.
Non-economic challenges such as availability of scrap and high-quality iron ore, steady renewable power supply, and market acceptance of green steel at higher prices must also be addressed. Moreover, increased regulatory and investor push necessitates stepped-up disclosures from companies.
Timely progress in achieving carbon emission targets, breakthroughs in technology adoption, and the ability to manage rising costs will be critical factors shaping the future of the steel industry in India.
