Strategic deployment of public finance needed to scale green steel in India

Following the global trend, India needs to deploy public capital strategically to bridge the financing gap for green steel projects, which are technically proven but considered risky for private finance, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA).

It said nearly $24 billion has been injected into steel decarbonisation projects. Virtually every major green steel initiative globally has relied on substantial public finance to reach viability.

With 92% of India’s planned steel capacity expansion from 180 million tonnes (Mt) to 300Mt not yet built, technology choices made now will influence emissions for 30–40 years. Steel plants typically operate for decades once constructed, making early public finance intervention important.

IEEFA’s assessment of select international green steel projects shows that while public support is needed to make these technologies commercially viable, the efficiency of public spending varies from $110 to $1,168 per tonne of CO₂ abated, depending on whether projects use Electric Arc Furnace with scrap or Direct Reduced Iron–Electric Arc Furnace, and on the level of public support provided.

“While venture capital and private equity typically fund emerging technologies, these sources may not be well-suited for green steel given its low technology readiness level, massive capital requirements, and extended payback periods,” says Meenakshi Viswanathan, co-author of the note.

The analysis reveals how markets differentiate between green steel types. Gas-based Direct Reduced Iron projects like Cleveland-Cliffs in the US and ArcelorMittal in Germany failed to secure buyer premiums and were cancelled despite grants, while integrated hydrogen-based projects like Sweden’s Stegra secured long-term offtakes with 20–30% premiums.

“The market data shows buyers will pay premiums for steel with end-to-end green credentials spanning renewable energy, hydrogen production, and steelmaking,” says Viswanathan.

The Indian government is also formulating a National Mission for Sustainable Steel with an estimated Rs 5,000 crore ($600 million) outlay aimed at decarbonising steel production. The programme is likely to offer production-linked incentives, concessional loans, or risk guarantees to steelmakers, with up to 80% of funds expected to support secondary steel mills.

Another key pillar under development is Green Public Procurement (GPP). A draft GPP policy would mandate that 25–37% of steel used in public projects be low-carbon, creating an assured domestic market for green steel. However, implementing GPP has been challenging—a proposal to establish a centralised agency for bulk procurement of green steel was rejected by the Ministry of Finance in 2024.

Under the Carbon Credit Trading Scheme, set to begin trading in October 2026, emissions intensity targets will be imposed across nine industrial sectors, including steel. While this could reward cleaner steel production, its impact will depend on carbon pricing levels which will be driven by target stringency.

“These measures signal government intent, but the scale of proposed funding remains modest,” she added.