More than half of India’s steel exports now flow to the European Union, a market that has effectively rewritten the economics of carbon-intensive manufacturing. With the EU’s carbon border adjustment mechanism entering its implementation phase this month, Indian steelmakers face the prospect of paying levies tied directly to the emissions embedded in their products, a shift that threatens to erode price competitiveness built on coal-based production.
India became the world’s second-largest steel producer eight years ago, and Europe has emerged as one of its most important export destinations. Estimates suggest that roughly 60 percent of Indian steel exports are now absorbed by the EU. Under the carbon border regime, those exports will increasingly be priced not just on quality and volume, but on the carbon intensity of their production processes. For an industry still dominated by coal, the exposure is structural rather than marginal.
Coal-fired blast furnace and basic oxygen furnace routes account for about 43 percent of India’s steel output, according to a June assessment by Johns Hopkins University’s Net Zero Industrial Policy Lab. These pathways remain among the most carbon-intensive in global steelmaking. The remainder of production comes from electric arc furnaces and induction furnaces, which are often presented as cleaner alternatives. In India’s case, that distinction is limited. Much of the iron fed into these furnaces is still produced using coal, and more than 75 percent of India’s electricity generation is coal-based, embedding emissions upstream even in electricity-driven processes.
This production profile places Indian steel at a disadvantage under the EU’s carbon pricing framework. The mechanism effectively equalizes the carbon cost between domestic European producers and foreign suppliers. For Indian exporters, this means higher landed costs in Europe unless emissions intensity can be demonstrably reduced. As Kaushik Deb of the University of Chicago’s Energy Policy Institute notes, Europe has become the decisive external pressure point, accelerating the need for India to consider pathways toward lower-emissions steel.
Some progress is visible, but it remains uneven. Indian steelmakers have begun expanding direct reduced iron capacity, a route that can significantly lower emissions compared to blast furnaces when paired with natural gas or hydrogen. However, many Indian DRI plants still rely on coal as the reducing agent, limiting their climate advantage. In contrast, DRI facilities in the United States and Europe increasingly use natural gas today and are positioning for hydrogen-based operation in the future.
The challenge is compounded by India’s broader energy system. While renewable deployment is accelerating, coal continues to dominate power generation, constraining the emissions benefits of electrified steelmaking routes. The government has acknowledged this bottleneck as it pursues record installations of solar and wind capacity alongside plans for new nuclear power stations, all aimed at reducing the carbon intensity of industrial electricity supply over time.
Policy awareness is increasing. In September 2024, India’s Ministry of Steel released a comprehensive report outlining potential decarbonization pathways for the sector. The document examines options ranging from replacing coal in DRI processes with green hydrogen produced from renewable power, to retrofitting existing facilities with carbon capture technologies. It also highlights the need for workforce retraining as production methods evolve. Yet the report is explicit about the central constraint: financing. Low-carbon steelmaking requires large upfront capital investment, long lead times, and policy certainty that extends beyond pilot projects.
