India will need to deploy public capital strategically to bridge the financing gap for green steel projects, which are technically proven but still considered risky for private capital, a report prepared by US-based Institute of Energy Economics and Financial Analysis (IEEFA) said on Friday, November 28.
The report said that 92 percent of India's planned steel capacity expansion from 180 million mt per year to 300 million mt per year is not yet built, while technology choices made now will influence emissions for 30-40 years.
Steel plants typically operate for decades once constructed, making early public finance intervention important, it said.
“Carbon lock-in occurs when steel plants with 30-40-year life spans are built with conventional technology, locking in emissions until 2060-70. This could affect India’s net-zero goals," the report noted.
Beyond climate implications, traditional blast furnaces use metallurgical coal as a primary energy source, largely imported from Australia. As India adds more BF-BOF capacity, the country's coal imports are expected to nearly double by 2035, posing an energy security challenge.
IEEFA’s assessment of select international green steel projects shows that, while public support is needed to make these technologies commercially viable, the efficiency of public spending varies from $110 to S$1,168 per mt of CO₂ abated, depending on whether projects use electric arc furnaces with scrap or direct reduced iron-electric arc furnaces, and on the level of public support provided. Credit guarantees achieve 2.4:1 private capital mobilization compared to 0.5-1.5:1 for direct grants, the report said.
“While venture capital and private equity typically fund emerging technologies, these sources may not be well-suited for green steel given its low technology readiness level, massive capital requirements, and extended payback periods,” it said.
Nearly $24 billion has been injected into steel decarbonization projects. Virtually every major green steel initiative globally has relied on substantial public finance to reach viability, it added.
