Blast furnace expansion plans threaten India’s NDC pledge to reach net zero by 2070 and risk punitive tariffs under the EU’s Carbon Border Adjustment Mechanism

LONDON, 17 October –The capacity growth plans of the Indian steel majors risk the achievement of India’s national climate targets, according to new research from Carbon Transition Analytics, in partnership with Carbon Tracker.

In order to meet India’s rapidly growing demand for steel, all four companies are planning significant expansion, from 80 million tonnes per annum (Mtpa) today to 150 Mtpa by 2030 and nearly 250 Mtpa in 2040. They intend to rely on traditional blast furnace technology (forecast to deliver over 200 Mtpa in 2040) to reach these capacity targets, as low-carbon alternatives remain too costly to be competitive in the short term.

To optimise its return on investment, a new blast furnace must operate continuously over a 20-25 year lifespan. With a pipeline of new blast furnaces planned throughout the 2030s, achieving mid-century net zero targets* will be impossible without premature shut-downs or wide-scale carbon capture and storage (CCS). The latter is unlikely as India’s geological carbon sinks are either ‘too small, too far, or too late’, with basalt formations typically over 400 km away from steel plants and saline aquifers not due to arrive until after 2050.

Of the four companies’ capex pipeline of US$172bn, Carbon Transition Analytics categorises 70% as having high risk of ‘systemic carbon lock-in’. This will have economic as well as environmental consequences:  Based on their emissions intensity, the four companies could face tariffs from the EU’s Carbon Border Adjustment Mechanism (CBAM) in the region of $150/tonne in 2030 and $300 from 2034 onwards.

JSPL is the most exposed to the CBAM as it has the highest CO2 intensity and the largest fraction of exports destined for the EU. JSW Steel ranks second for CBAM exposure and it is implementing the most abatement measures to limit these potential costs, planning to expand ‘hydrogen ready’ Direct Reduction – Electric Arc Furnace (DR-EAF) capacity to 10 Mtpa.

“The CBAM tariff on exports to the EU acts as an incentive to switch to low carbon production for these exports in a similar way to achieving a green premium on the sale of low carbon steel”, notes report co-author Carole Ferguson. “Based on our analysis, optimal configurations of green steelmaking routes in 2030 may come with a lower cost of abatement than the cost of carbon under the EU ETS.”

The analysis suggests that developing the hydrogen direct reduction – electric arc furnace (HDR-EAF) pathway to full industrial scale provides the best route to circumventing the worst impacts from the CBAM and will help to accelerate cost reductions.

“This process would benefit from private and public procurers of green steel willing to pay a premium”, according to report lead Paul Griffin. “Transition financing could play a role in scaling up the adoption of low carbon steel processes – but only if companies can provide the credible transition plans required to access it.”

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Notes to editors

For more information and to arrange interviews please contact: 

Conor Quinn      conor.quinn@greenhouse.agency      +44 7444 696 214

* All four analysed companies aim for net zero carbon: JSW Steel by 2050, JSPL by 2047, and Tata Steel by 2045. The target year for AMNS is less clear, we assume 2070 as per the Indian steel sector’s ambition.

About Carbon Tracker

The Carbon Tracker Initiative is a not-for-profit financial think tank that seeks to promote a climate-secure global energy market by aligning capital markets with climate reality. Part of the Tracker Group, Carbon Tracker’s research on the carbon bubble, unburnable carbon and stranded assets started a new debate on how to align the financial system with the energy transition to a low carbon future. www.carbontracker.org