India needs targeted public finance as steel expansion plans accelerate: report

IEEFA concluded that strategically deployed public capital will be essential to de-risk hydrogen-aligned green steel.

India will need targeted public finance to steer its steel-sector expansion onto a low-carbon pathway, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

The country plans to raise steelmaking capacity from 180 million tonnes to 300 million tonnes, and about 92% of that future capacity has yet to be built.

IEEFA said technology choices made now could lock in emissions for 30 to 40 years, while continued reliance on the blast furnace–basic oxygen furnace route would increase dependence on imported metallurgical coal, with India’s import needs projected to nearly double by 2035.

The report noted that industrial energy use globally remains 80–85% fossil-based, despite US$9t invested in renewables since 2010, and that steel has lagged other sectors in decarbonisation.

Nearly US$24b has flowed into green-steel projects worldwide, but IEEFA found that almost all have required public finance to proceed.

Market signals to date have been uneven. Gas-based “transitional” direct-reduced iron projects failed to secure offtake agreements even when supported by grants.

By contrast, hydrogen-based integrated green-steel projects were able to sign long-term contracts at 20–30% premiums, IEEFA said, reflecting buyers’ willingness to pay only for end-to-end verified green production, from renewable power through hydrogen to final steel output.

IEEFA recommended a set of focused interventions: a government-backed credit-guarantee facility to unlock bank lending at limited fiscal cost; product-based contracts for difference awarded via reverse auctions to establish real green-steel premiums; and project-preparation facilities to help MSMEs access existing funding channels.

The group argued that India should prioritise instrument design over large, open-ended subsidies.

IEEFA concluded that strategically deployed public capital will be essential to de-risk hydrogen-aligned green steel, avoid long-term carbon lock-in, and ensure efficient use of taxpayer funds while drawing in private investment.