How the steel sector can turn CBAM into a green hydrogen advantage

By Pankaj Aggarwal, Associate Vice President and Zonal Head, Jindal Stainless Limited

Since January 1, 2026, every tonne of Indian steel that lands in Europe has carried a second price tag: its carbon. The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) is in place, and the bill will rise every year until 2034. Over the same period, green hydrogen has moved from conference slides to plant floors in Vijayanagar, Jamshedpur and Hisar. 

These are not separate stories. CBAM sets the penalty for carbon. Meanwhile, green hydrogen, together with clean power and a focus on scrap, is the way out. Together, they impact the sustainability pledges of companies, export margins, cost of capital and competitiveness.

Rising cost of carbon

CBAM’s cost rises as the EU phases out the free emission allowances it gives to its own mills. Importers pay only for the share not covered by that free allocation: about 2.5 per cent in 2026, 10 per cent in 2028, 48.5 per cent in 2030, and the full amount by 2034. The pain is back-loaded, and by 2030, it will decide export margins. 

The numbers are not trivial. The CBAM carbon price was around $88 per tonne of carbon dioxide in early 2026. Exporters that cannot prove their actual emissions must use default values, and India’s default for steel is about 4.32 tonnes of carbon dioxide per tonne, roughly double the national average. The burden could average around 35 per cent of shipment value once fully phased in. 

Diplomacy has softened the edges but not the core. The India-EU Free Trade Agreement in January 2026 adds a preferential steel quota of about 690,000 tonnes and a most favoured-nation clause on CBAM flexibilities, but it does not exempt Indian steel. Moreover, the UK plans to roll out its own mechanism from January 2027. Europe is the first mover, not the last. 

Stainless steel’s structural advantage

Stainless steel enters this transition with a structural advantage. Made mainly through the electric arc furnace-argon oxygen decarburisation route from scrap and ferroalloys, it avoids the coking coal at the heart of blast furnace emissions. Jindal Stainless had approximately 72 per cent recycled input in FY 2026. 

However, two exposures can erase that lead. The first is nickel: Commodities Research Unit estimates CBAM costs for 304 cold-rolled coil at about €141 per tonne with Brazilian nickel, against about €380 per tonne with Indonesian nickel pig iron, while default values for Asian origins run from €572-€904 per tonne. The second is power: an electric furnace on a coal-heavy grid carries a large indirect footprint. For stainless steel, clean electricity and traceable nickel matter more than any furnace upgrade. 

There is an upside. CBAM penalises nickel pig iron and stainless steel from Indonesia and China far more than scrap-rich Indian products with verified data. Handled well, the mechanism could widen India’s edge in Europe. CBAM sets the price of carbon. Green hydrogen, clean power and scrap decide who pays it. 

Why green hydrogen?

Green hydrogen matters because it can replace carbon as the agent that strips oxygen from iron ore. In a blast furnace, the oxygen leaves as carbon dioxide; with hydrogen, it leaves as water vapour. Electrification can clean up scrap melting, but only a non-carbon reductant can clean up iron-making from ore. Hydrogen-based direct reduction, followed by an electric furnace or smelter, can cut emissions by 90 per cent or more, as per the International Renewable Energy Agency, using about 50-60 kg of hydrogen per tonne of steel. 

Smaller roles matter too. Hydrogen injected into blast furnaces trims 10-20 per cent of carbon dioxide from existing assets. In stainless steel, bright annealing it is already in use, so switching from grey to green hydrogen is a low-risk win. The barriers are economic rather than technical. Green hydrogen costs roughly $4-$6 per kg against $1-$2 per kg for grey hydrogen, adding a green premium of perhaps 20-40 per cent per tonne of steel. A fully hydrogen-based plant needs about 3.5-4 MWh of electricity per tonne, so a 5 million tonnes per annum plant would need several GWs of round-the-clock (RTC) clean power. Much of India’s iron ore also needs beneficiation before it suits shaft-furnace direct-reduced iron (DRI) production. Hydrogen is the right destination, but rarely the cheapest first step against CBAM. 

Industry learnings

India’s leading producers have taken different routes, shaped by their assets, ore and markets. In April 2023, Tata Steel began continuous hydrogen injection trials in the E-blast furnace at Jamshedpur, using 40 per cent of the injection system, targeting 10 per cent lower coke use and 7-10 per cent lower carbon dioxide per tonne. In November 2025, JSW Steel commissioned a 3,800 tonnes per annum green hydrogen plant at Vijayanagar under the government’s Strategic Interventions for Green Hydrogen Transition programme, feeding a DRI unit on a seven-year offtake. The group plans 85,000-90,000 tonnes per year by 2030.

Jindal Steel adopted coal gasification at its facility in Angul, Odisha, using synthetic gas (syngas) for DRI, blast-furnace injection and coating lines, and presents it as support for CBAM compliance. Its long-term value depends on carbon capture that actually stores carbon dioxide and a path to blending hydrogen. Additionally, Jindal Stainless has been using green hydrogen in bright annealing at its Hisar plant since March 2024, supplied by Hygenco from solar power with storage under a build-own-operate model. 

These developments highlight three important lessons for the steel industry. First, focus on annealing lines and existing DRI units that need no new steelmaking route. Second, offtake and finance come before technology; each project that moved had a long-term buyer, a captive or build-own-operate structure, and public support. Third, transitional technologies can provide time for the industry to prepare for deeper decarbonisation. Under CBAM’s 2030 schedule, partial cuts will deliver lasting benefits only if they support a transition towards lower-carbon production routes. 

Road to 2030 

The most practical pathway for Indian steel producers involves improving emissions data first, securing clean power and scrap supplies next, and subsequently scaling up green hydrogen adoption, supported by appropriate policy interventions.

The immediate priority should be reducing avoidable CBAM liabilities through better emissions accounting. For exporters, investments in data management could deliver more immediate savings than new production equipment. An exporter who can prove plant-level emissions close to the national average can roughly halve its CBAM liability against the default. That means enterprise resource planning-linked monitoring, third-party verification and environmental product declarations issued alongside mill test certificates. Large mills must also integrate micro, small and medium enterprise suppliers, who make about 40 per cent of Indian steel, into the data net, because a re-roller’s data gap becomes the exporter’s cost. Stainless steel producers should trace nickel and ferrochrome to source and raise scrap ratios. Green hydrogen in annealing and hydrogen-ready burners are the quick wins. 

By 2030, the emphasis should shift towards structural decarbonisation measures. RTC renewable power is the largest lever for electric-furnace and stainless steel producers, and the main cost of green hydrogen. New DRI capacity should run on gas or syngas today but be built to blend rising shares of hydrogen, paired with beneficiation or smelters suited to India’s domestic ore characteristics. Focusing on scrap, sharing hydrogen hubs with fertiliser and refining industries, and a product mix tilted towards coated, electrical, automotive and specialty grades for Europe complete the picture. 

Policy interventions would be necessary. India’s Carbon Credit Trading Scheme should be recognised by the EU, so that carbon revenue funds Indian decarbonisation rather than European budgets. Public procurement for railways, metros, ports and defence should reward low-carbon steel through the Green Steel Taxonomy, and assign a monetary value to the carbon saved. Furthermore, green finance should reach downstream partners and fabricators, not just the largest mills. The long service life of stainless steel should also receive greater recognition in lifecycle carbon assessments. With a potential lifespan of 50-70 years and relatively low maintenance requirements, stainless steel can offer lower whole-life emissions than alternative materials requiring frequent replacement due to corrosion.

A price signal, not just a barrier 

CBAM is often described as a trade barrier. However, it can also be interpreted as an early price signal indicating the direction of international industrial markets. India’s leading steel producers have demonstrated that the initial steps towards decarbonisation are achievable: measure precisely, use hydrogen where it already fits, and secure power and buyers before scaling. The next four years will sort the industry into three groups: mills with verified data and a premium export book, mills that absorb rising costs while retreating to the home market, and mills for which Europe simply closes. Decisions taken now, not in 2030, will decide which group each company joins.