India steel sector competitiveness under threat as Europe tightens carbon rules

The Indian steel sector—the world’s second-largest—faces a critical challenge in 2025 as the European Union (EU) tightens its environmental standards, intensifying its focus on carbon neutrality. With Europe being key customer for Indian steel, accounting for 25% of exports, India must urgently comply with stricter carbon regulations to avoid steep financial penalties that could undermine its global position in the steel market. Rystad Energy’s research suggests that by 2034, India and Russia could face some of the highest carbon costs in steel production, potentially incurring levies of up to $397 per tonne, even if carbon prices remain stable.

Key policy shifts, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), which will take full effect by 2034 but begins next year, will assign a carbon cost to imports, including steel, based on embedded carbon emissions. According to the EU’s Joint Research Centre (JRC), India’s steel production is more carbon-intensive than most of its global competitors. As a result, this policy could impose a potential surcharge of up to $80 per tonne by 2030 unless cleaner technologies are adopted in India. These rising costs threaten to undermine the country’s competitiveness in the European market, making its steel less attractive compared to lower-emission alternatives. South Korea and Turkey are well-positioned to benefit from this shift and could potentially displace India from the top three producers.

In the coming years, reducing carbon emissions could extend beyond regulatory compliance and become a competitive necessity as buyer sentiment continues to evolve. Governments and industries are increasing support for low-carbon technologies, and companies that fail to adapt risk falling behind. In India, where steelmaking remains heavily reliant on coal, transitioning to low-carbon alternatives such as natural gas-based ironmaking or green hydrogen will require substantial investment and innovation. However, with limited time for transition, India must confront the carbon cost challenge in front of them, as early adopters of greener production methods could gain a stronger competitive edge in global markets

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In response to these policy shifts, the Indian government and its biggest steel players are tweaking their approaches to adapt to their external environment. The Indian government introduced a green steel classification system under the Production Linked Incentive (PLI) scheme in December 2024. Under this framework, steel producing less than 2.2 tonnes of carbon dioxide (CO₂) per tonne of finished steel qualifies as ‘green,’ while steel with emissions below 1.6 tonnes per tonne earns a five-star rating. The initiative aims to incentivize Indian steelmakers to cut emissions and adopt cleaner technologies. Discussions are also under way to mandate green steel in public sector projects, potentially reshaping domestic demand.

The nation’s top five largest steel producers – namely Tata Steel, JSW Steel, Jindal Steel & Power (JSPL), Steel Authority of India (SAIL) and AM/NS India – collectively account for more than 50% of the nation’s steel output and have made changes with some setting net-zero carbon goals as early as 2045. To curb emissions, these producers are also adopting a mix of renewable energy integration, process optimization and circular economy initiatives.

Tata Steel, for instance, will commission a 0.75 million tonne per annum (Mtpa) electric arc furnace (EAF) plant in Ludhiana by March for low-carbon steel production. The company has also invested in a carbon capture plant in Jamshedpur and is securing 379 megawatts (MW) of captive renewable power for its operations. Meanwhile, JSW Steel, targeting net-zero emissions by 2050, has raised $500 million through sustainability-linked bonds and is expanding production using low-carbon technologies. The company has also committed $1 billion to decarbonization and is incorporating biomass and hydrogen into its processes for steel making.

In addition, these domestic giants are also planning major capacity expansions, with total production projected to reach 189 Mtpa by 2035. While this growth is essential to meet both domestic and global demand, it must be carefully balanced with emission reductions if decarbonization and scale are to advance in tandem.

Currently, these companies are on track to cut emissions by only 43% in the next decade—well below the levels needed to comply with stringent EU standards and mitigate CBAM-related costs. Furthermore, if this trajectory continues Indian steelmakers could face carbon costs of up to $116 per tonne by 2034, assuming a carbon price of $100 per tonne. This slow progress leaves Indian steelmakers vulnerable to significant carbon taxes, potentially $116 per tonne by 2034, and jeopardizes their competitiveness in the EU due to rising carbon penalties and India's high carbon intensity.

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Alistair Ramsay
Vice President, Supply Chain
Phone: +44 20 3936 4393
Alistair.ramsay@rystadenergy.com

Swastik Das
Analyst, Supply Chain
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swastik.das@rystadenergy.com

Kartik Selvaraju
Media Relations Manager 
Phone: +65 8779 4619
kartik.selvaraju@rystadenergy.com 

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