On the first day of COP26, at Glasgow, India announced its commitment to reach net-zero greenhouse gas (GHG) emissions by 2070. This essentially lays down a long-term roadmap for investors and companies in India’s industrial sector, especially steel and iron manufacturing.

The steel industry contributes to roughly 9 per cent of the country’s total GHG emissions, which has to be mitigated substantially to achieve this target. Also, Indian steel mills annually import $8-10 billion worth of coking coal, which amounts to roughly 2 per cent of India’s total import bill. The steel sector’s consumption of coal, emissions footprint and import dependency is set to increase manifold as the government plans to double India’s steel manufacturing capacity to 300 million tonnes per annum (mtpa) by 2030.

Green hydrogen, obtained from the splitting of water using solar and wind power, offers a cleaner alternative for producing steel. This can also help reduce the sector’s dependence on imports. However, the cost of producing green steel, at present, is significantly higher than the predominant coal-based steel. The trilemma of cost-competitiveness, lower emissions footprint through phase down of coal, and self-reliance could be solved through four pathways.

First, green hydrogen can replace part of the existing fuel in coal and gas-based iron-making processes . There are two main pathways for coal-based iron-making required for manufacturing steel: the blast furnace route where iron ore is melted to make molten iron, and the rotary kiln route where iron ore is reduced to iron without melting.

Green hydrogen can potentially offset 15-20 per cent of energy consumption in blast furnaces. Similar estimates for rotary kilns aren’t yet available. Also, natural gas-based shaft furnaces produce iron without melting the ore. These shaft furnaces are amenable to absorbing as much as 30 per cent green hydrogen without any major changes to the production process. These can be subsequently modified into absorbing 100 per cent green hydrogen.

Evaluating the potential of blending hydrogen in rotary kilns and incremental replacement of coal and natural gas in these steel-making processes with green hydrogen could create a demand of 2.7 million tonnes per year of green hydrogen. This might translate into an emission reduction of 28 million tonnes CO2e per year.

Second, new production capacities should be ready for the green hydrogen transition. The existing coal-based routes (blast furnace and rotary kiln) for iron production do not allow a complete transition to hydrogen. Blast furnaces require investments to the tune of ₹7000 crore per mtpa that are recovered over a period of 40-50 years.

Hence, policymakers should discourage manufacturers from investing in blast furnaces going forward. In addition to being unfit for a transition to green hydrogen, blast furnaces would also lock-in imported coal supplies till mid-century or beyond. On the other hand, the natural gas-based shaft furnaces are hydrogen-ready and can operate with a varying blend of green hydrogen and natural gas.

Third, given the current high cost of green steel, steel producers should also be encouraged to blend grey hydrogen (derived from natural gas) with green hydrogen, and grid electricity with renewable power. A recent study by the Council on Energy, Environment and Water (CEEW) estimates that green hydrogen-based steel is 50-70 per cent more expensive than coal-based technologies.

However, the analysis shows that by blending 9 per cent green hydrogen, manufacturers could achieve profitability even today with the upper range of blast furnace costs. With a 60 per cent blend of green hydrogen by 2030 and 100 per cent by 2040, steel manufacturing companies could potentially break even with the average and lower range of blast furnace costs. On the emissions front, a 9 per cent green hydrogen blend combined with the use of renewable energy for power requirements could potentially achieve a 60 per cent reduction in emissions.

Finally, there is a need for market creation for green steel to provide an impetus for steel producers to engineer the switch to hydrogen-based steel-making. Government-funded infrastructure projects such as the Pradhan Mantri Awas Yojana, Bharatmala, and Jal Jeevan Mission would consume as much as 160 million tonnes of steel. To nudge manufacturers towards this transition, government tenders should specify the carbon intensity of steel that will be procured for these infrastructure projects.

While the iron and steel manufacturing sectors are greenhouse gas emissions heavyweights, they can rely on the lightest element to phase down the use of coal and help us reach the net-zero goals. The scale of the sector and potential for growth provide a significant opportunity for ushering in the green hydrogen economy in India.

Mallya is a Senior Programme Lead, and Yadav is a programme associate, at the Council on Energy, Environment and Water

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