Steel plays a pivotal role in the generation, transmission, and optimization of energy, making it an indispensable sector for any economy. Anticipated to experience substantial demand in both the domestic and global arenas, steel is poised to retain its significance in the foreseeable future. With India strategizing to double its steel output by 2030, the industry might encounter a surge of approximately 2.5-fold in CO2 emissions stemming from the production of raw steel.
In response to the projected rise in steel production’s environmental impact in the upcoming years, it becomes imperative for India to bring change. In fact, data shows that the cost of inaction on decarbonisation is significantly higher for steel players. IBT brings forward some key pathways to this goal based on recent research and industry perspectives.
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Industrialization and infrastructure development stand as foundational pillars for the progress of any nation. Among the key propellers of this advancement is steel. With the passage of time, this sector has experienced remarkable expansion, propelling India to its current position as the world’s second-largest producer of crude steel.
The production of Iron and Steel necessitates substantial quantities of coal. Subsequently, these materials play a crucial role in the construction of structures, infrastructure, automobiles, and machinery. As a result, effectively monitoring and managing emissions across the diverse phases of the steel industry, encompassing both initial processes and subsequent operations, poses a intricate dilemma for this sector. This challenge is particularly intricate when contrasted with other industries that also prove resistant to decarbonization.
The EU, a prominent steel importer, is deeply dedicated to advancing climate sustainability. To fulfill its goal of achieving a climate-neutral EU by 2050 and curbing global carbon emissions by managing carbon leakage, it is set to implement the Carbon Border Adjustment Mechanism (CBAM) from October 1, 2023. However, India, a notable net steel exporter with a varied supply network, might encounter adverse impact on its trade dynamics and local revenue due to the EU’s enforcement of carbon border levies, a point of major concern across government and industry at present.
Source: Centre for Science & Environment, Figures in MTPA
In the initial stage of the planned EU CBAM, the items slated for taxation encompass iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen. In the fiscal year 2022, the collective export value of these CBAM-covered products from India to the EU amounted to US$ 8.73 billion. Within this export portfolio, metal commodities hold the majority share, constituting 70% for iron and steel and 29% for aluminum.
As of April-November 2022, India’s domestic finished steel production stood at 78.1 million tonnes (MT), recording a YoY hike of 6.9%. As for domestic consumption, India recorded an 11.9% jump YoY to 75.34 MT. As demand increases, India is likely to double its steel production by 2030, thereby growing the CO2 emissions from crude steel production by 2.5 times.
Steel manufacturing: The process conundrum
In India, steel is produced through three main methods: Blast Furnace-Basic Oxygen Furnace (BF-BOF), Electric Arc Furnace (EAF), and Induction Furnace (IF). BF-BOF is the most prevalent, making up 45% of the steel output in 2021-22. This method’s heavy use of fossil fuels leads to elevated greenhouse gas emissions in the iron and steel sector.
As per a study by ICRIER and according to the latest estimates from 2020, the Indian steel sector is responsible for emitting an average of 2.6 tonnes per tonne of crude steel (T/tcs) in the form of CO2, making it one of the most polluting industries in the country.
As the sector requires a set of impactful pathways to traverse a low-carbon growth path, the Indian government has recently taken significant policy measures to address the challenge of decarbonizing the “Hard-to-abate” steel sector, aligning with the country’s target of reaching net-zero emissions by 2070.
While a few of the technical and metallurgical interventions listed below are in their initial phases, the government has already incorporated them into its strategies:
Source: Centre for Science & Enviroment
Pankaj Satija, Managing Director, Tata Steel Mining Ltd shared his views with IBT on the importance of decarbonizing in the sector –
“Decarbonization of the metal and mining sector would play a huge role in lowering carbon emissions of India and act as a way forward for the country’s green future. Enabling decarbonization in this sector would require long term strategic initiatives such as replacing on-site fossil fuel power generation with renewable sources of power, adopting green hydrogen technology to power machinery and haulage and re-fleeting heavy earth moving machinery inside mines and supply chain with electric vehicles.”
Moreover, he adds that the key to decarbonization also lies in digitalization of the entire process value chain of operations and through it adopting blockchain initiatives to measure, report and audit carbon emissions of operations. This requires using data analytics, along with technologies like AI and machine learning to improve efficiencies that enhance profitability while reducing carbon footprint, employ less power-intensive equipment, switching to biofuels and encouraging use of scrap based metal making and urban mining.
Strategies and Policies to Decarbonize the Indian Steel Sector
Given the escalating need for low-carbon steel attributed to swift global infrastructure growth, urbanization, and industrial expansion, it becomes vital to analyze the policy frameworks of leading steel-producing G20 nations. This analysis aims to pinpoint effective policy choices India can adopt to decarbonize its steel sector.
The policy tools employed by G20 countries to bolster their domestic steel industries fall into categories like the Demand Side Policy Levers, Supply Side Policy Levers, and Export Promotion Levers. The report by ICRIER on Policy Landscape for Transition towardss Carbon Neutral Steel Sector provides the following recommendations:
When it comes to India:
Need for India on the supply side:
Takeaways for India:
TERI reports a projected 35% rise in global steel demand by 2050. Its report on steel decarbonisation affirms that existing methods don’t align with the Paris Agreement, but due to this demand surge, decarbonizing the sector is crucial. To adhere to a 2050 net-zero path, process emissions must drop by a minimum of 30% by 2030.
Achieving net-zero steel emissions involves two key decarbonization paths. The first relies on demand management, employing circular business models for efficient scrap steel collection, recycling, and optimizing building designs.
The second path is energy efficiency, such as adopting coke dry quenching in steelmaking. Nonetheless, reaching net-zero steel emissions by 2050 demands significant production method changes via deep decarbonization technologies like:
1. Transitioning to direct reduction of iron (DRI) ore through natural gas and hydrogen.
2. Electricity-based techniques (Electric Arc Furnace)
3. Employing advanced coal-based approaches with carbon capture and storage
India is projected to more than double its steel production from 111 million tonnes in 2019 to 255 million tonnes in 2030-31. However, according to a CSE report, India may end up with a bigger share of BF-BOF in steel production of over 65%, making it even more challenging to reduce overall GHG emissions. Existing players have high installed capacity of BF-BOF over DRI-EAF, and even though technologies like EAF/IF are low carbon emitting, factors like low availability and high prices of natural gas, high demand for primary steel in end-use sectors (where BF-BOF becomes the most suitable option), and low availability of scrap limit their options. In this scenario, the report suggests the following:
Utilising all the best technology options together can lead to a reduction in emissions to 140-230 tonnes by that year, over 80% in comparison to the business-as-usual scenario.
Interestingly, steel companies disclosing their data to CDP India (2022) have reported climate-related issues such as water scarcity, changes in precipitation patterns, enhanced emissions-reporting obligations, and increased cost of raw materials which would potentially cost them around Rs 194.4 billion. However, the cost of decarbonisation for private players is 21% (Rs 161.3 billion) lower than the cost of inaction. Therefore, while the government aggressively contests the use of trade restrictive measures like CBAM and asks for more leeway to adjust (which it should), it is pertinent for the steel industry to explore all options to bring down its carbon footprint in the next 6-7 years. Doing this is ultimately going to be in their best interests.
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