Green steel manufacturing: Meaning & significance

Climate change is accelerating, and industries worldwide are under pressure to cut emissions. The steel sector is central to this shift because it produces 7–8% of global CO₂ emissions. As the world’s second-largest steel producer, India plays a major role in global decarbonisation efforts. This responsibility is reshaping expectations within construction, automotive, and engineering supply chains. Together, these pressures are pushing green steel to the top of the industry agenda.

For MSME steel buyers, this transition is becoming impossible to ignore. Customers are asking for cleaner materials and proof of sustainable sourcing. Exporters must also meet new rules like the EU’s CBAM, which directly links carbon data to import costs. These requirements are already influencing raw material prices and procurement decisions. As a result, India’s steel ecosystem, from large mills to MSMEs, must adapt quickly to greener technologies.

What is ‘green steel’ manufacturing?

Green steel manufacturing refers to producing steel with far lower carbon emissions than traditional methods, which rely heavily on coal and energy-intensive processes. It focuses on cleaner production routes, smarter technologies, and renewable energy to reduce environmental impact. The goal is to cut emissions across every stage of the value chain, from mining and raw material processing to final steelmaking. This shift supports global climate targets and helps industries meet growing sustainability requirements.

Green steel typically involves:

• Low-carbon alternatives such as hydrogen-based DRI and electric arc furnaces.
• Higher use of renewable energy in melting, refining, and rolling stages.
• Greater scrap utilisation, which reduces the need for primary iron ore and cuts emissions.

Different grades of green steel are emerging based on their emission levels:

• Low-carbon steel, which achieves substantial but partial reductions.
• Deep green steel, which aims for near-zero emissions through full hydrogen use and 100% renewable power.

This transition is supported by global initiatives such as corporate net-zero pledges and regional carbon policies, along with India’s own Green Hydrogen Mission and the new Green Steel Taxonomy. Together, these efforts are steering both global and Indian steel industries towards cleaner, more sustainable production.

India’s new Green Steel Taxonomy – Key highlights

The Ministry of Steel has introduced a new Green Steel Taxonomy to create a unified and transparent definition of what qualifies as “green steel” in India. This framework helps align domestic producers with global standards and ensures that low-carbon steel can be clearly identified and certified. It also supports India’s long-term decarbonisation goals by guiding investment, reporting, and future regulatory action across the steel value chain.

The taxonomy categorises steelmaking technologies based on their level of emission reduction. It distinguishes between traditional blast furnace routes, improved low-carbon pathways such as gas-based DRI and EAFs, and advanced near-zero routes using hydrogen and renewable power. Each category is linked to specific emission intensity thresholds, allowing buyers and regulators to compare steel products more accurately.

Implications for different stakeholders include:

• Steel mills: Clear guidance on eligible technologies, reporting rules, and future compliance expectations.
• Downstream users: Transparent carbon data for automotive, construction, and engineering supply chains.
• MSME manufacturers and fabricators: Easier access to verified low-carbon materials and clearer documentation requirements for customer audits and export markets.

The government is expected to roll out the taxonomy in phases, with early adoption seen in large integrated mills and hydrogen-based pilot projects. As adoption grows, the taxonomy will shape procurement norms by encouraging buyers to prioritise certified low-carbon steel and include carbon intensity as a standard evaluation parameter. This shift will gradually make green steel an essential part of sourcing strategies across India’s steel ecosystem.

Why green steel matters for MSME steel buyers in India

Reason	What it means for MSMEs
Rising customer expectations	Clients now demand traceability, carbon data, and proof of sustainable sourcing in steel products.
Global regulations (e.g., EU CBAM)	Exporters must report emissions or face higher import costs, making low-carbon steel a must for global markets.
Access to finance	Banks and financial institutions are linking credit, interest rates, and loan approvals to sustainability performance.
Cost impact	Green steel may cost more today, but it reduces long-term risks such as penalties, compliance delays, and customer loss.
Ability to join global supply chains	Companies using certified low-carbon steel can qualify for international tenders and OEM sourcing programmes.
Preferential procurement	Government and large corporates increasingly prefer suppliers with cleaner materials and documented emissions.
Lower long-term risks	Reduced exposure to carbon taxes, import duties, and future compliance costs strengthens MSME competitiveness.

Core technologies driving green steel manufacturing

Hydrogen-based steelmaking (DRI using green hydrogen)

Hydrogen-based DRI replaces coal with hydrogen as the reducing agent, allowing steelmakers to produce iron without generating CO₂. This makes it one of the most important pathways for moving away from coal-based blast furnaces. India’s National Green Hydrogen Mission is speeding up trials, with several major mills planning pilot plants. The main challenge remains the cost and availability of green hydrogen, which will take time to scale. For MSMEs, this means future price shifts and new documentation requirements as hydrogen-based steel gradually enters the market.

Electric Arc Furnaces (EAFs) and renewable electricity

EAFs melt scrap or DRI using electricity, offering a cleaner alternative to the traditional BF–BOF route. Because many Indian secondary steel producers already use EAFs, this technology is set to expand further as renewable electricity becomes more accessible. The carbon footprint of an EAF depends heavily on whether the electricity comes from coal or solar–wind sources, making clean power a crucial factor. As India increases its renewable energy capacity, EAF-produced steel will become a more credible low-carbon option. MSMEs can expect improvements in scrap availability, but also fluctuations in pricing and quality standards as demand rises.

Carbon Capture, Utilisation & Storage (CCUS)

CCUS captures CO₂ from steel plants and stores it underground or converts it into usable products. This allows existing blast furnaces to stay operational while still cutting emissions; an attractive option for countries with large coal-based capacity. India has begun pilot projects, but global experience shows CCUS is costly and technically complex. Scaling it requires infrastructure for transport and long-term storage, which is still under development. For MSMEs, CCUS-based steel may come at a higher price, and carbon traceability systems may eventually extend to smaller buyers.

Recycling & scrap-based steelmaking

Scrap-based steelmaking is already one of the lowest-emission routes because steel can be recycled endlessly without losing strength. India still lacks fully organised scrap collection and high-quality shredding facilities, but major investments are underway. As the scrap ecosystem matures, scrap-based EAF steel will become a central part of India’s green steel transition. This will improve availability of cleaner, competitively priced material for domestic markets. MSMEs will need to pay more attention to scrap quality, origin, and documentation as demand increases.

Other Emerging Innovations

Several new technologies support decarbonisation while hydrogen and CCUS scale up. AI-driven optimisation tools help mills cut energy waste and identify inefficiencies. Modern reheating furnaces lower fuel use, while near-net-shape casting reduces material losses during rolling. Experiments with biochar and green coke offer partial substitutes for coal in existing processes. Improvements in sustainable mining and cleaner raw material sourcing ensure that carbon reductions begin right from the supply chain’s first stage.

What makes green steel expensive?

Breakdown of current cost factors

Green hydrogen – Still much costlier than conventional fuels and limited in large-scale availability.

Renewable energy reliance – Steelmakers need dedicated solar or wind power, increasing upfront capital costs.

Furnace upgrades – Existing blast furnaces require expensive retrofits or full replacement to adopt low-carbon technologies.

CCUS infrastructure – Installing and operating Carbon Capture, Utilisation & Storage adds significant expenditure.

Future trend

Costs after 2030 – Expected to decline as hydrogen becomes cheaper, technologies scale, and carbon pricing becomes more common.

Impact on MSMEs

Price premiums – Higher production costs will likely be passed down to MSME buyers.

Compliance pressure – Even with higher prices, using green steel may become unavoidable due to export-linked regulations and global supply-chain rules.

Global policy push: How the world is adopting green steel

Governments and companies worldwide are increasingly requiring steel to meet strict carbon standards. These rules are creating strong incentives for steel producers to adopt greener technologies. Indian exporters, including MSMEs, will need to adapt to remain competitive in global markets.

Key global drivers include:

1. EU Carbon Border Adjustment Mechanism (CBAM) – Imports of steel into the EU may face taxes based on the carbon emissions of their production, making low-carbon steel essential for exporters.
2. US and Japan green procurement standards – Governments in these countries prefer suppliers who meet low-carbon criteria, affecting eligibility for contracts.
3. Corporate commitments – Major companies in automotive, construction, and appliances are requiring certified green steel from their suppliers, creating market demand for low-emission products.
4. Impact on Indian MSMEs – Smaller exporters will need to track carbon footprints, source greener materials, and comply with documentation requirements to stay in global supply chains.

This global push is driving India’s steel sector, including MSMEs, toward adopting cleaner technologies and more sustainable practices.

India’s green steel roadmap

Initiative/policy	Key details/impact
National Green Hydrogen Mission	Promotes production and adoption of green hydrogen for low-carbon steelmaking.
Ministry of Steel’s green steel roadmap	Sets national targets, technology guidelines, and timelines for decarbonisation.
Ongoing industry projects	SAIL, Tata Steel, JSW, JSPL, and others are piloting hydrogen DRI, EAF expansion, and CCUS systems.
Public procurement policies	Government increasingly prefers suppliers using certified low-carbon steel.

MSME support schemes:

• Cluster-based renewable energy – Shared renewable energy projects for steel clusters reduce costs and carbon footprint.
• Access to certified scrap – Easier sourcing of low-carbon scrap steel for MSMEs.
• Decarbonisation financing – Sustainability-linked loans and incentives help MSMEs upgrade technology and adopt greener practices.

Challenges slowing down green steel adoption in India

1. Green hydrogen is not yet widely available for large-scale steel production.
2. High capital expenditure is needed for mills to adopt low-carbon technologies.
3. Inconsistencies in scrap quality limit its use in clean steelmaking.
4. Gaps in energy infrastructure make reliable renewable power a challenge.
5. Many MSME buyers and fabricators have low awareness of green steel benefits.
6. Certification systems for green steel are complex and difficult to navigate.

What MSMEs & steel buyers should start doing

Indian MSMEs need to prepare for a shift toward green steel by adopting practical steps in procurement, compliance, and operations. Focusing on visibility, supplier selection, and process improvements can reduce risks and costs while ensuring access to low-carbon materials.

Strengthen procurement visibility

MSMEs should ask suppliers for emission disclosures, mill certificates, and scrap origins. Tracking the carbon footprint of purchased steel will help in compliance and sustainability reporting.

Explore suppliers offering low-carbon steel

Identify EAF-based or scrap-based producers and prefer suppliers with sustainability-linked certifications. Early engagement ensures access to greener steel at competitive rates.

Invest in energy-efficient equipment

Upgrading fabrication machinery and using energy-optimised furnaces, cutters, and rolling mills can lower operational carbon footprints for MSMEs with captive operations.

Improve scrap management practices

Structured scrap segregation, selling scrap to certified recyclers, and traceable sourcing improves quality and supports low-carbon steel production.

Prepare for compliance and documentation

Understand CBAM requirements, build capacity for sustainability audits, and digitise procurement documentation to stay ahead in exports and corporate sourcing.

Adjust procurement strategy

Build long-term contracts with green steel suppliers, balance green and conventional steel buying, and account for green steel premiums in project costing.

Collaborate within industry clusters

Pooling resources in MSME clusters allows shared renewable energy, recycling systems, certification programs, and training, making the transition to green steel more feasible and cost-effective.

Conclusion

Green steel is no longer optional and is becoming essential for all steel buyers. With India’s new taxonomy, standards will be formalised, helping the market distinguish low-carbon steel. MSME buyers need to begin their transition now to remain competitive and future-ready. Investing a small premium today can prevent higher costs from CBAM and stricter procurement rules. By moving early, whether a large mill or a small buyer, companies can gain a clear advantage in the evolving green steel market.

FAQs

What is green steel manufacturing?

Green steel is steel produced with significantly lower carbon emissions using cleaner energy, hydrogen, EAFs, and recycled scrap. 

What is India’s Green Steel Taxonomy?

It is a framework defining low-carbon steel, categorising technologies by emission levels to guide mills, buyers, and regulators. 

Why does green steel matter for MSME buyers?

MSMEs must meet customer demand, comply with global rules like CBAM, and access finance linked to sustainability. 

Which core technologies drive green steel production?

Hydrogen-based DRI, electric arc furnaces, carbon capture (CCUS), scrap recycling, and emerging innovations like AI optimisation. 

Why is green steel more expensive today?

High costs come from green hydrogen, renewable energy, furnace upgrades, and CCUS systems; prices are expected to fall after 2030. 

How is the world pushing for green steel adoption?

Through EU CBAM, US/Japan green procurement rules, and corporate mandates requiring certified low-carbon steel. 

What is India’s roadmap for green steel?

It includes the National Green Hydrogen Mission, Ministry of Steel targets, industry pilot projects, public procurement policies, and MSME support schemes. 

What challenges slow green steel adoption in India?

Limited hydrogen supply, high capex, scrap quality issues, energy infrastructure gaps, low awareness, and complex certification systems. 

What should MSMEs start doing now?

Strengthen procurement visibility, explore low-carbon suppliers, invest in energy-efficient equipment, manage scrap better, and prepare for compliance. 

Why should MSMEs act early?

Early adoption ensures access to certified low-carbon steel, avoids future compliance penalties, and offers a competitive advantage in global supply chains.