India’s steel expansion risks locking in coking coal imports and losing competitiveness under carbon rules. Record low green hydrogen costs enable green steel at the same cost as coal-based steel, avoiding both risks.
The recent energy crisis and its repercussions for India, including gas shortages and price spikes, are a wake-up call about energy security. Yet another major vulnerability needs attention. India’s plans to expand steel production rely heavily on coking coal, most of which must be imported because domestic reserves are limited and often of poor quality. Under current plans, this pathway could lock the country into nearly $1 trillion in coking-coal imports over the coming decades while also locking in highly carbon-intensive steel production that risks making Indian steel uncompetitive as global carbon regulations tighten.
India now stands at an industrial crossroads. As highways, metros, renewable energy parks and industrial corridors expand, steel demand is set to surge. By the early 2030s, India may need close to 300 million tons of steel annually, almost double today’s output. Except for China’s infrastructure boom in the early 2000s, few economies have expanded steel production at this pace.
Yet much of the planned capacity still follows the traditional blast furnace route. If the next 180 million tonnes of steel capacity is built this way, India will deepen its exposure to volatile global coal markets and rising import bills. At the same time, it will lock in decades of carbon-intensive production just as major economies introduce carbon border adjustments and emissions-based trade rules.
India therefore faces two simultaneous risks: growing import dependence and declining export competitiveness. A steel sector built on imported coal and high emissions could struggle to compete in a world where both energy security and carbon intensity increasingly shape trade.
At the planned scale, blast furnaces would need about 161 million ton of coking coal each year once fully ramped. Domestic supply and usable grades are limited, so roughly 90% would be imported. At $200 a tonne, that is about $29 billion of annual imports—roughly $1.1 trillion over a 40-year plant life.
This is more than a financial issue. Coking-coal prices swing widely due to geopolitical tensions, supply shocks in Australia, shipping disruptions or changes in Chinese demand. Every price surge directly affects the cost of domestic steel and, in turn, the cost of building India’s infrastructure—from bridges and railways to housing and power lines. If India continues to rely on BF–BOF, the price of its development will be determined by global fossil-fuel markets.
The emissions intensity of blast-furnace steel also creates a growing export risk. Conventional steel production emits roughly 2.5 to 2.8 tonnes of CO₂ per tonne of steel. As major economies introduce carbon border adjustments and emissions-based product standards, these emissions will increasingly determine market access.
The European Union’s Carbon Border Adjustment Mechanism has entered its definitive phase in 2026, and the UK is implementing a similar system shortly thereafter. Over time, exporters will have to account for embedded emissions and potentially pay carbon levies at the border.
In such a world, steel produced with high emissions intensity risks becoming structurally disadvantaged. Indian producers could face shrinking export markets or lower margins precisely when global demand for low-carbon materials is growing.
The environmental consequences are also significant. BF–BOF steel emits 2.5–2.8 tonnes of CO₂ for every tonne of output and contributes to particulate pollution. In industrial belts already battling poor air, doubling down on coal will worsen health and productivity.
Fortunately, India has a credible energy-independence alternative: Using green hydrogen instead of imported coking coal. The process, called green-hydrogen-based direct reduced iron (H₂-DRI), is far simpler than its name suggests.
In this route, green hydrogen replaces coal to remove oxygen from iron ore pellets. The result is “sponge iron,” which is then melted in an electric arc furnace. Instead of producing carbon dioxide and soot, the reaction releases water vapour.
And importantly, this is not futuristic technology. India is already the world’s largest producer of DRI, with decades of experience operating the furnaces and equipment that H₂-DRI relies on. Concerns about ore grade are also outdated. Beneficiation and pelletisation facilities in Odisha, Karnataka and Chhattisgarh already upgrade Indian ore to the required quality. The technology exists. The ore base exists.
The only barrier—until recently—was cost.
India recorded its lowest ever green hydrogen price of ₹279/kg (about $3.08/kg) in a tender to supply 10,000 tonnes per year to Numaligarh Refinery, roughly one third of prices seen in parts of Europe. At these hydrogen costs, fixed in nominal rupee terms, green steel can be produced at the same cost as fossil based steel, especially given rising coking coal import costs driven by rupee depreciation and coal price inflation.
Green hydrogen steel is, therefore, no longer a distant prospect. Renewable electricity, the dominant input to green hydrogen production, can be secured through long term rupee denominated power purchase agreements, typically lasting about 25 years. Over time, this structure tends to reduce costs in dollar terms as the rupee depreciates while power prices remain fixed in nominal terms.
By contrast, blast furnace basic oxygen furnace (BF-BOF) steel remains tied to dollar priced imported coking coal, meaning both rupee depreciation and coal price spikes directly increase production costs. When these real-world dynamics are considered, IECC analysis suggests that cost parity between hydrogen based direct reduced iron (H₂-DRI) steel and blast furnace steel can be reached by around 2030, even if a static comparison in that year still shows a modest premium.
India’s strongest rationale for switching is domestic. Most of India’s steel is consumed by its own roads, railways, housing, power infrastructure and industrial growth. Using green hydrogen instead of imported coal strengthens energy independence, stabilises project costs, and builds domestic supply chains in electrolysers, storage systems, solar modules, and electric arc furnaces.
A major additional benefit—though not the first reason to shift—is cleaner air.
Moving away from coal-based steel reduces particulate emissions and can significantly improve air quality in manufacturing regions, supporting both public health and economic productivity.
There is also an export upside. As countries in Europe and East Asia impose strict carbon rules and face high-energy costs, they will increasingly seek low-carbon hot-briquetted iron (HBI) and green steel. India, with its low renewable-energy costs, can supply that demand. But exports are a complement—the domestic need is more than enough to justify the transition.
Economics alone will not deliver the first commercial H2-DRI plants. What is missing is bankability: Long-tenor offtake agreements with payment security. India already has a template. SECI’s green ammonia and hydrogen tenders aggregated demand and delivered record low price discovery. A SECI-style mechanism can be adapted to steel, starting with green hot briquetted iron and a limited set of near-zero-carbon steel products. Bids could be structured as a transparent premium over a benchmark index, supported by emissions verification and payment security. Alongside pooled offtake, a 5% public procurement mandate for near-zero steel in government infrastructure projects would create 3–4 million tons per year of guaranteed demand, at less than 0.05% of the infrastructure budget.
The next step is to build the enabling ecosystem: Reliable access to clean power, hydrogen infrastructure, risk sharing for first-of-a-kind plants, and an ore and pellet strategy to ensure feedstock is ready at commissioning. To accelerate scale-up and exports, India could also establish a small number of port-linked Green Steel Acceleration Zones with single-window clearances and priority grid connectivity.
India can build its next 40 years of steel on imported coal—or on Indian sunlight. The trade balance will tell us which path was chosen.
This article is authored by Amol Phadke, faculty director and Neelima Jain, director, Industrial and Trade Policy, and Nikit Abhyankar, co-faculty director, India Energy and Climate Center, UC Berkeley.
