Investment economics for new green-steel capacity in India will depend heavily on electricity procurement and hydrogen availability, alongside domestic carbon pricing and the European Union’s Carbon Border Adjustment Mechanism (CBAM), according to research by Transition Asia and TERI.
The study examines production options for the second phase of ArcelorMittal Nippon Steel’s planned complex at Rajayyapeta in Andhra Pradesh. The project is modelled at approximately 9.6 million tonnes per year of capacity, with an investment decision expected around 2030 and commissioning targeted for 2033.
Green hydrogen routes carry higher production costs
The research compares coal-based production with direct-reduced-iron routes using entirely green hydrogen. Under the model, hydrogen-based production has a 6%-13% cost premium compared with the coal-based reference route.
The emissions difference is substantial. The modelled green-hydrogen routes produce 0.3-0.6 tonnes of CO2 per tonne of steel, while the coal-based reference route produces 2.6 tonnes of CO2 per tonne of steel.
The study finds that carbon-market targets can reduce the cost gap between the production pathways. However, the economics are also strongly affected by the structure of electricity supply and the availability of hydrogen, with these factors potentially having a greater impact than the technological choice between the production routes assessed.
Carbon pricing alone may not support project financing
The findings, reported by Carbon Pulse on 1 October, indicate that India’s Carbon Credit Trading Scheme and the EU’s CBAM have limited capacity to create investment incentives when considered separately from the underlying energy and hydrogen arrangements.
For the Rajayyapeta project, the research distinguishes between improving the relative competitiveness of lower-emissions steel production and generating revenues capable of supporting project financing.
Carbon policy can influence the first element by reducing the relative cost disadvantage of cleaner production. Bankable electricity and hydrogen supply contracts, however, remain central to the revenue and financing structure required for the investment.
