India’s developing carbon market and the European Union’s Carbon Border Adjustment Mechanism are not, on their own, sufficient to make new green-steel projects commercially compelling, according to research by Transition Asia and The Energy and Resources Institute. The study identifies electricity arrangements and hydrogen supply as key factors in the economics of low-emission steelmaking.
The research examines a potential second phase of AM/NS India’s Rajayyapeta project in Andhra Pradesh. Its modelling assumes 9.6 million tonnes of annual capacity, a project decision around 2030 and commissioning in 2033. These assumptions describe a future investment scenario and do not represent a new commitment by the company.
Green hydrogen route retains a production cost premium
Under the study’s modelling, producing steel entirely with green hydrogen results in a 6–13% cost premium compared with blast-furnace production.
The hydrogen-based route would substantially reduce emissions intensity. The study places emissions at approximately 0.3–0.6 tonnes of carbon dioxide per tonne of steel, compared with around 2.6 tonnes of CO2 per tonne for the conventional production route.
The research finds that the economics can be influenced more significantly by electricity sourcing, regulatory treatment of power purchases and the availability of affordable hydrogen than by the initial carbon-price signal alone.
Carbon policies provide limited initial investment support
The authors indicate that stronger carbon policies could reduce the remaining cost difference between conventional and low-emission steelmaking. However, carbon pricing would not eliminate the requirement for competitive contracts covering the project’s key inputs.
Carbon Pulse, reporting the research on 1 October, described the initial impact of India’s Carbon Credit Trading Scheme and the EU CBAM on green-steel economics as limited. The finding relates to investment incentives and does not mean that exporters would face no carbon-related costs.
For developers assessing future projects, the potential avoidance of a CBAM charge therefore represents only one component of the investment case. Construction expenditure, electricity availability, hydrogen delivery and the price customers are prepared to pay for the resulting steel would also form part of the commercial assessment.
Power and hydrogen contracts remain central to project economics
The study’s findings place the availability and cost of energy and feedstock alongside carbon policy in determining the viability of future Indian green-steel capacity.
For the proposed Rajayyapeta scenario, the difference between conventional and low-emission production depends not only on the carbon cost attached to emissions, but also on whether bankable electricity and hydrogen supply contracts can support the economics assumed for the project.
