The costs of India’s hunger for cheap steel

In late August, several thousand farmers gathered at the village of Kohadiya, in the central Indian state of Chhattisgarh. Word had spread that an iron ore and steel plant was coming to the area.

People from about two dozen local communities converged on a public meeting to protest against the proposed construction of the 60-acre facility next to their land, where crops including tomatoes, rice, jackfruit and guava are grown.

The site’s owners, local conglomerate Hira Group, set out in environmental assessment documents how it would mitigate the polluting impact from the coal-fired plant where sponge iron would be melted into liquid steel.

But the technical specifics were besides the point to the local residents, whose familiarity with the ash, contamination and pollution from Chhattisgarh’s legion of small-scale iron factories led them to combine forces.

“If we were alone, they might have been able to pressurise us into submission,” says Daneshwar Verma, a 31-year-old landowner, sitting in Kohadiya’s dusty village hall, alongside about 10 community leaders beneath portraits of Mahatma Gandhi and India’s first post-independence prime minister, Jawaharlal Nehru. “United, they cannot ignore us.”

The protest at Kohadiya encapsulates the broader dilemma India faces as its largely coal-fed and highly polluting steel industry expands to support the country’s ascendant economy and its vast demand for new highways, bridges, factories, ports and housing.

India has doubled steel production in the past decade, overtaking Japan to become the world’s second-largest steelmaker. Prime Minister Narendra Modi’s government is now aiming to boost India’s steelmaking capacity to 300mn tonnes by 2030, almost double its level in 2024.

In a global industry grappling with slowing demand in major markets such as China, where consumption has plateaued, India’s steel use bucks the trend, forecast to rise about 6 per cent a year through 2035.

“India is the best story as far as the steel industry is concerned, globally, there’s no other major market growing at this pace — in fact, most markets are shrinking,” says TV Narendran, chief executive at Tata Steel, one of the country’s biggest producers of the metal. “India is underinvested in infrastructure.”

The scale of that growth, however, comes with significant costs. Despite its essential role in engineering and construction, steel is one of the world’s dirtiest materials. Its production accounts for around 8 per cent of global carbon dioxide emissions, according to the International Energy Agency.

In India, steel production is responsible for around 12 per cent of total emissions, the highest share of any industrial sector. Much of that output flows from a ballooning proliferation of small and poorly regulated factories, which rely on coal and blast furnace technology whose basic mechanisms have remained little changed since the 1800s.

Almost half of India’s steel comes from such producers and “unfortunately their process is not the best”, Sajjan Jindal, the billionaire chair of the JSW Group conglomerate and India’s largest steelmaker, tells the Financial Times. “They generate much, much more CO₂, so that’s a challenge . . . eventually this has to be modernised.”

Some content could not load. Check your internet connection or browser settings.

An estimated 2.5mn Indians work directly and indirectly across the sector, making reforms challenging in the world’s most populous country as it attempts to provide widespread employment for its enormous labour force. “These small and medium-scale steel industries are spread across India and so many people are employed,” adds Jindal. “It’s very tough politically also to scrap that.”

Industry leaders and analysts question whether India, the third-largest carbon emitter, can reconcile its hunger for cheap steel with the climate imperative to clean it up. There are few viable business models to scale up cleaner steel production in the country, notes Sumant Sinha, chief executive of ReNew, one of India’s largest renewable power developers. “I can’t imagine that anybody would want to do it voluntarily,” he says.

Yet international pressure is mounting. Over one-third of India’s 6.4mn metric tonnes of annual steel exports go to Europe, which will implement its divisive carbon border adjustment mechanism (CBAM) on January 1, a tax on polluting overseas producers aimed at protecting EU industry from being undercut by cheaper but dirtier imports.

India’s European exports are expected to be disproportionately affected by the new rules, with Chinese steel imports subjected to an average tariff of 7.75 per cent compared with India’s 16 per cent levy, according to the Net Zero Industrial Policy Lab at Johns Hopkins University.

With almost 90 per cent of India’s operating iron-making capacity dependent on coal, making the country one of the most emissions-intensive steel producers, research group Global Energy Monitor warns that India could eventually be left with $187bn of stranded assets.

“India’s strategy has mostly been to develop steel capacity right now to feed its growing demand . . . and worrying about decarbonising later,” says Henna Khadeeja, heavy industry researcher at Global Energy Monitor. “We are creating a big carbon monster that we will not be able to tackle in the future.”

JSW’s gargantuan steel facility at Vijayanagar in southern India is a visual testament to the rapid rise of the metal production underpinning the domestic economy, the fastest growing of any major country.

What was once a “godforsaken” barren expanse of land, according to PK Murugan, president of JSW’s Vijayanagar site, has become a meticulously planned industrial city since its commissioning in the 1990s.

A private airport jets in visiting executives and dignitaries, while tree-lined residential blocks house workers beside the 10,000-acre steelworks, the largest in India, producing 17.5mn tonnes of the metal a year.

Behind its monumental edifice, sparks fly from open blast furnaces that burn a hellish red beside large slag heaps. Overhead, miles-long conveyor belts shuttle iron ore from nearby mines across the metal labyrinth as gas flares shoot up from towers across the vast site.

Like most of the country’s major steelmakers, JSW is grappling with the complex imperative of decarbonising the sector.

A government report last year set out the core challenges. While richer countries benefit from abundant recyclable scrap steel, cleaner electricity grids and access to affordable cleaner natural gas, India is constrained by limited scrap availability and expensive gas. Instead, integrated steel plants tend to be powered by coal, further increasing emissions.

There is little price incentive to change course, says one industry executive. “If I can get gas at $4 and my [coal] price is $0.5, why will I move towards gas?” they say. “We are businessmen.”

India’s raw materials add to the problem. “The iron ore quality is not great,” says Hemant Mallya, who leads industrial sustainability at the Council on Energy, Environment and Water, a New Delhi-based think-tank. “What that means is to remove the [impurities], you need to use higher amounts of energy.”

While India is “less efficient” compared with other major steel-producing nations, with an emissions intensity of 2.5 tonnes of CO₂ per tonne of crude steel compared with the global average of 1.9 tonnes, “we are also seeing private players initiating pilot projects and investing in decarbonising”, says Shreyas Shende, senior research associate at the Net Zero Industrial Policy Lab.

Inside the control room of JSW’s Blast Furnace 4 in Vijayanagar, sheltered from the fierce heat and noxious gases produced by the open blazing flame in the pit outside, engineers outline steps they are taking to reduce the steel company’s emissions from 2.37 tonnes to 1.95 tonnes of CO₂ per tonne of crude steel by 2030.

Those include expanding the use of renewable energy at its plants, waste heat recovery and carbon capture pilots. JSW Steel now operates 1-gigawatt of renewable power capacity at its factories and is trialing a 25-megawatt green hydrogen plant at Vijayanagar.

“There are so many new technologies,” says Jindal, pointing to the “many, many micro steps” being taken to reduce coal usage. However, the tycoon concedes that green hydrogen, a potential cleaner fuel for steel production, remains uneconomical and intermittence in solar and wind power means there “is a lot of to and fro happening on this”.

With the EU’s CBAM looming, New Delhi is also trying to demonstrate seriousness in cleaning up the sector as part of its 2070 net zero plans.

The steel ministry is working on financial incentives and may require minimum green steel use in state-funded projects. But last year it defined green steel as output emitting less than 2.2 tonnes of CO₂ per tonne, which is above the global average for steel production.

Still, Indian officials, including the country’s finance minister, have lashed out against the EU’s plans calling CBAM an arbitrary “trade barrier” as the country attempts to industrialise and argues that it has not been historically responsible for the world’s build-up of greenhouse gas.

The EU’s policy “will definitely impact” steel exports, India’s steel secretary Sandeep Poundrik told an audience in September at the FT’s Energy Transition Summit India in New Delhi. “CBAM is an area of concern.”

India’s lobbying so far has had limited success. EU officials told the FT this month that an Indian exemption proposal, under which the country would levy its own export fees based on value not carbon content, would not incentivise manufacturers to cut greenhouse gas emissions.

Indian steel executives, including Jindal, downplay the immediate impact of CBAM. Only around 5 per cent of India’s steel is exported to Europe, according to the Net Zero Industrial Policy Lab.

Even so, JSW is commissioning a green-steel plant near Mumbai designed to supply cleaner products to the EU. “We keep [CBAM] in mind,” says Murugan at the Vijayanagar plant. “We have got various strategies to comply with that, because we want to be in the global market.”

But analysts are dismissive that there will be a quick technological solution. The Institute for Energy Economics and Financial Analysis reported this month that 94 per cent of India’s planned green hydrogen capacity remains at the announcement stage, with higher production costs at around $4-5 a kilogramme a principal deterrent.

“Until and unless it reduces to something around $1 per kg, it will not be feasible,” says Nivit Kumar Yadav of the Centre for Science and Environment in New Delhi. New blast furnaces and basic oxygen furnace plants continue to be built in India, he notes, meaning they will operate for decades to come.

On the outskirts of Ludhiana in the northern state of Punjab, Tata Steel’s first green steel plant provides a glimpse of an alternative path. The 117-acre facility will run on natural gas when it opens in March, but will produce only 850,000 tonnes of steel a year — albeit with comparatively low emissions of 0.4 tonnes of CO₂ per tonne.

Driving through the surrounding farmland, David William Augustine, the plant’s chief, says local villages enjoy clean air. “We have to keep it that way.”

Yet the economics remain forbidding for a wider rollout. “Customers are not yet willing to pay you a premium for green steel, like they do in Europe,” says Tata Steel CEO Narendran. The plant cost an estimated $340mn to build.

India’s “government needs to have more policies in place to support this transition”, he adds, listing support such as the UK’s funding of £500mn for Tata’s upgrade to a cleaner electric arc steel furnace at its Port Talbot plant in Wales.

“There’s no business case for the transition,” says Narendran. “No steel plant can afford to invest.”

In the lands around Kohadiya, coal pits, iron ore mines and steel mills have carved an industrial frontier through one of India’s most mineral-rich yet environmentally scarred regions.

On the road to the village, the outskirts of Raipur, the state capital of Chhattisgarh, give way to a brutal landscape of rusting factory complexes and towering smoke-belching chimneys. Fine black dust settles on nearby vegetation and buildings, while small streams run with blue and grey effluent. The air carries a pungent burning smell.

The villagers in and near Kohadiya are little concerned about India’s global competitiveness. Rather they are anxious that the planned steel and iron ore processing plant will damage crops and contaminate the air. Many refer to Siltara, a nearby industrial hub, as a cautionary tale.

“A white lamb looks black around there . . . we know what is lost,” says Rohit Shivare, the 51-year-old village chief, who has worked as a welder at a steel facility in Siltara. “We do not want a steel plant here because we already live in pollution for eight hours a day. We will at least have clean air at night when we are back home.”

Their concerns echo those across India’s industrial heartlands. In Koppal, a town in southern India close to the Unesco-recognised Hampi temple monuments, residents recently burnt effigies of a government minister after he unveiled plans for a $280mn steel plant they fear will poison their fields and further degrade air quality.

Sponge iron plants are a particular flashpoint. They are “not only greenhouse gas polluting, but they produce lots of hazardous waste material,” says Yadav at the CSE think-tank. “Wherever they are, they are causing a lot of pollution to the nearby community.”

Seated in a side office in his plush home in an expansive compound in Raipur, Abhishek Agrawal, executive director at Hira Group, which is developing the factory close to Kohadiya, defends the region’s industrial expansion. He says the company is experimenting with pilot green technologies, including carbon capture, though these remain far from commercially attractive.

“Change is the only constitution, slowly and slowly, probably two years, three years down the line it starts making economic sense,” he says.

Agrawal acknowledges the broader environmental impacts of the Kohadiya plant. “We do understand it’s polluting,” he says, but argues that economic development must continue. “If industry doesn’t come they will not grow, they won’t get more income.”

But Verma, the landowning farmer, sees the question of growth from a different perspective. “A steel plant here will not have any benefit for us, it’s only a loss,” he says. “The pollution will not let anything grow.”

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here