Decarbonisation of the Steel Sector

Tags:

• GS Paper 2: Government Policies & Interventions
• GS Paper 3: Environmental Pollution & Degradation, Growth & Development, Conservation

Source: The Hindu

Why in the News?

The Ministry of Steel is currently exploring funding strategies to support decarbonization efforts within the steel sector, driven by growing environmental concerns and the shift towards sustainable industrial practices.

What Options are Being Considered for Steel Sector Decarbonization?

• Performance-Linked Incentives (PLI): The Steel Ministry is considering utilizing PLI schemes to fund decarbonization projects. Discussions are at a preliminary stage, with specific mechanisms yet to be finalized.
  • A Ministry report estimates that comprehensive decarbonization will require nearly USD 300 billion, including over USD 13 billion for technology upgrades in small steel mills and an additional USD 150 billion for advanced technologies like direct iron reduction and carbon capture.
  • India’s Green Steel Policy is under development, with several PLI schemes being considered for decarbonization, although these discussions are still in their infancy.
• Natural Gas: Natural gas is being considered as a potential alternative to coal or coke in blast furnaces to lower emissions.
  • Energy consumption in most Indian steel plants ranges from 6-6.5 Gigacalorie (Gcal)/tonne, higher than the 4.5-5 Gcal/tonne in international plants, primarily due to coal usage and outdated technologies.
  • India’s steel industry carbon dioxide (CO2) intensity is projected to decline from 3.1 T/tcs (tonne/tonne of crude steel produced) in 2005 to 2.64 T/tcs by 2020, with a target of 2.4 T/tcs by 2030 (a 1% annual reduction).
• Import Duties and Protection Measures: There are ongoing discussions on protecting the domestic industry from foreign imports through mechanisms such as price adjustments, increased import duties (possibly from 7.5% to 10-12%), and safeguard duties.
  • The goal is to balance import and export trends, as India has shifted from being a net exporter to a net importer of steel in fiscal 2024, with a trade deficit of 1.1 million tonnes.

What is Decarbonization of the Steel Sector?

• About: Decarbonization in the steel sector refers to the reduction of carbon dioxide (CO2) emissions and the overall carbon footprint in steel production, leading to the creation of Green Steel, which is vital for combating climate change and promoting sustainability.
• India’s Steel Industry Overview: India is the second-largest producer of crude steel, with a capacity of 179.5 million tonnes, and the largest producer of sponge iron at 55 million tonnes (FY 2023-24).
  • India’s per capita steel consumption is 97.7 kg in FY 2024, below the global average of 221.8 kg in 2022. The National Steel Policy 2017 aims to increase this to 160 kg by 2030, with rapid growth anticipated beyond this target.
  • India remains a net importer of steel, with a 25% rise in imports compared to the previous year and a 40% drop in exports during the April to August (FY25) period.
• India’s Climate Commitment: India is committed to low-carbon development, contributing only 4% to global Greenhouse Gas (GHG) emissions while housing 17% of the world’s population.
  • Revised Nationally Determined Contributions (NDCs) focus on renewable energy and greening industrial sectors.
  • To meet the 2070 net-zero target, India’s industrial sector, including steel, must undergo significant decarbonization.
• Significance of Decarbonizing Steel: The steel industry accounts for 10-12% of India’s total emissions, making its decarbonization essential for achieving the country’s climate goals.
  • The Ministry of Steel has established 14 task forces to focus on incentivizing green steel, enabling decarbonization strategies, and supporting the transition.
• Green Steel: This refers to steel produced without the use of fossil fuels. Green hydrogen, generated through electrolysis using renewable electricity, and blue hydrogen, produced from fossil fuels with carbon capture, are key to reducing the steel industry’s carbon footprint.
  • Accelerating the shift to green steel is crucial for reducing the sector’s carbon emissions.

Challenges to Decarbonizing India’s Steel Sector:

• Scrap and Pellet Usage: Developed countries rely more on scrap and have higher pellet utilization, with access to low-carbon fuels. In contrast, India lacks sufficient scrap and has costly natural gas.
• Energy Sources: India’s use of low-grade coal and iron ore increases emissions and energy consumption.
  • The emission intensity of Indian steel is 2.54 tonnes of CO2/tonne of crude steel (tCO2/tcs), higher than the global average of 1.91.
  • Integrated steel plants in India rely on coal-based captive power plants, which result in higher emissions compared to the cleaner energy grids used in other countries.
• Research, Development, and Demonstration (RD&D): RD&D is essential for sustainability in the steel industry, with emerging technologies like hydrogen-based direct reduction iron (DRI) production playing a pivotal role.
  • India’s RD&D spending is relatively low compared to global standards, with only 0.64% of GDP allocated, and only 36% of this from the private sector.
  • There is a lack of coordinated efforts and consortiums in RD&D, driven by concerns like sharing intellectual property rights.
• Finance: Decarbonizing the steel sector requires substantial financial investment. The global cost to achieve net-zero emissions in the sector is estimated at USD 5.2-USD 6.1 trillion.
  • Indian steel plants alone will need approximately USD 283 billion to transition to green technologies.
  • Financial barriers include the complexity of steel production processes, high capital costs, and limited knowledge of low-carbon technologies.
• CO2 Emissions Monitoring: Integrated Steel Plants (ISPs) in India use the World Steel Association (WSA) methodology for emissions disclosure. Challenges include complex supply chains, unreliable and fragmented data, inadequate measurement infrastructure, and a shortage of skilled experts for carbon management, hindering effective CO2 emissions monitoring across the sector.

What are the Government Initiatives for Promoting Decarbonization in the Indian Steel Industry?

• Task Forces and Roadmap: 14 Task Forces have been formed under the Ministry of Steel to explore and recommend strategies for decarbonizing the steel sector.
• Steel Scrap Recycling Policy, 2019: This policy supports a circular economy and green transition by boosting the supply of domestically produced scrap.

It provides a framework for establishing metal scrapping centers and includes guidelines for scrap processing and the scrapping of End-of-Life Vehicles (ELVs).

• National Green Hydrogen Mission: Launched by the Ministry of New and Renewable Energy (MNRE), this mission focuses on the production and use of green hydrogen, with the steel industry being a key stakeholder.
• Motor Vehicles Scrapping Rules, 2021: These rules aim to increase the availability of scrap for the steel sector by establishing a framework for vehicle scrapping.

• National Solar Mission: Initiated in January 2010, this mission encourages the use of solar energy, helping to reduce emissions in the steel industry.

• Perform, Achieve, and Trade (PAT) Scheme: Under the National Mission for Enhanced Energy Efficiency, this scheme incentivizes energy savings in the steel sector.
  • By the end of PAT Cycle III, the sector had saved 5.583 Million Tonnes of Oil Equivalent (MTOE) of energy, leading to a reduction of 20.52 million tonnes of CO2 emissions.
• Carbon Credit Trading Scheme (CCTS): Established in June 2023, this scheme provides a framework for trading carbon credits to reduce greenhouse gas emissions. It aims to help both public and private sector companies reduce their emission costs.

What are Decarbonization Strategies to Reduce Carbon Emissions in the Indian Steel Industry?

• Energy Efficiency (EE): The PAT (Perform, Achieve, and Trade) scheme has led to substantial energy savings, with the sector achieving 6.137 million tonnes of oil equivalent (Mtoe), exceeding its target.
• Further reductions in energy intensity are possible by adopting Best Available Technologies (BATs).
• Material Efficiency: Enhancing beneficiation and pelletization processes of iron ore can improve productivity and reduce coke consumption. The Ministry of Steel is considering incentives and support for these technologies.
  • Green Hydrogen: Green hydrogen can substitute fossil fuels in blast and shaft furnaces and is being explored for 100% hydrogen-based direct reduced iron (DRI). Ongoing research is being led by Tata Steel and JSW in India.
  • Hydrogen injection can reduce coke consumption and CO2 emissions. If green hydrogen costs decrease to around USD 1/kg, consumption could rise significantly.
• Carbon Capture, Utilization, and Storage (CCUS): CCUS is essential for achieving deep decarbonization in the steel sector, potentially mitigating 56% of emissions from existing technologies.

The Ministry of Steel is investigating non-green hydrogen-based CCU applications and emerging technologies such as carbon recycling.

• Biochar: Produced from biomass such as crop residues, bamboo, forest residues, and bagasse, biochar can significantly reduce carbon emissions in the iron and steel sector.
  • It offers similar metallurgical properties to coal and coke and can partially or fully replace these fossil fuels.
  • Biochar can be used in various processes, including iron ore sintering, pellet making, coke production, and in electric arc furnaces, with an emission reduction potential of up to 1.19 tonnes of CO2 per tonne of steel.
  • Challenges include inadequate biomass supply chains, lack of mechanization, absence of storage infrastructure, and limited scientific data.
  • The Ministry of Steel is exploring measures to support biochar technology development, including R&D support, blending mandates, and market mechanisms.

Way Forward

• Defining Green Steel: A clear definition of Green Steel is crucial for decarbonizing the steel sector and fostering demand for low-emission steel products.
  • Currently, there is no universally accepted definition of green steel, although many organizations and countries are working towards one.

• Policy Support: The adoption of Best Available Technologies (BATs) in both BF-BOF and direct reduction iron-electric arc furnace processes can facilitate compliance with global energy consumption benchmarks.

The Ministry can collaborate with the Bureau of Energy Efficiency (BEE) to set benchmarks and energy-saving targets.

• Scrap Recycling: Enhancing scrap recycling can save significant resources and reduce emissions. The Ministry of Steel is focusing on formalizing the scrap recycling sector and supporting circular economy initiatives.

• International Focus: Effective decarbonization of the global steel industry necessitates international collaboration. India can benefit from global expertise by engaging with international platforms, establishing a global advisory council, and creating a domestic consortium.

• • India should explore multilateral financial options and establish a National Green Steel Think Tank to lead in steel decarbonization while integrating global expertise and financial support.
• Skill Development: Transitioning to a green steel industry will require upskilling the workforce to adapt to new technologies and processes, including hydrogen-based production, CCUS, and other low-carbon innovations.
  • Collaborative efforts between the government, educational institutions, and the private sector can ensure that the workforce is prepared for these changes.

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