SynopsisThe nascent decarbonization of India's steel industry demands well-defined green steel standards and policies. A new report by the Institute for Energy Economics and Financial Analysis (and JMK Research & Analytics calls for a legal definition of green steel, paving the way for technology adoption and investment. With green steel production being costlier, the report suggests policies like mandatory green steel usage in public infrastructure, tradable green steel certificates, and viability gap funding (VGF) to bridge the cost gap. Green hydrogen is seen as a pivotal solution, but its high cost necessitates government support.ArticleIn the quest for a greener future, the decarbonization of the steel industry stands as an imperative task. India, with its ambitious net-zero emissions target by 2070, faces a significant challenge in transforming its steel sector. The journey towards carbon neutrality requires well-thought-out strategies, and a recent joint report by the Institute for Energy Economics and Financial Analysis and JMK Research & Analytics sheds light on the critical role of green steel taxonomy in this endeavor.At the heart of the issue lies the need for a clear and legally defined concept of green steel. Without a precise definition, the path forward for the industry remains obscured. According to Vibhuti Garg, Director, South Asia, IEEFA, "Decarbonizing steel production in India requires a vision by policymakers whereby they can encourage the production of green steel." This vision hinges on the elimination of fossil fuels in the steel production process.However, transitioning to green steel comes at a cost. The report highlights that green steel production is nearly twice as expensive as traditional methods. Given the highly competitive nature of the steel market, merely introducing green steel without creating a demand would be insufficient. To bridge the cost gap, the government should implement policies to stimulate demand and penalize carbon emissions from traditional steel production.One effective strategy is mandating the use of green steel in public infrastructure projects. This initial step can gradually extend to private sector procurement. Furthermore, the report suggests the creation of tradable green steel certificates, which can provide financial incentives for using green steel, thereby nurturing a green steel market.To address the high initial capital cost associated with low-carbon steelmaking technology, the report recommends viability gap funding. VGF can encourage steelmakers to allocate a portion of their capacity to green steel manufacturing.While several technology options are available to reduce emissions in steelmaking, the report identifies green hydrogen as the cleanest alternative. Nevertheless, its high cost poses a challenge. To make green steel competitive, the report suggests a target price for green hydrogen and a carbon penalty on traditionally manufactured steel.The transition to green hydrogen is expected to accelerate between 2030 and 2050. By 2050, green hydrogen is anticipated to replace a significant portion of grey hydrogen in steel production.The report underscores the role of sustainable finance markets in providing capital for decarbonization efforts. Innovative financing mechanisms, such as sustainability-linked bonds and loans, can play a crucial role in financing industrial decarbonization. Technical assistance grants, guarantees, risk insurance, and concessional capital support will also be necessary at various stages of technological development.ConclusionDefining green steel standards and implementing policy measures is pivotal for India's steel industry to align with decarbonization goals. The journey may be challenging, but with precise definitions, demand-stimulating policies, and financial support, India can pave the way for a greener, more sustainable steel sector.