India has released draft emission targets for 255 steel units under the Carbon Credit Trading Scheme. These regulations aim to lower the carbon intensity of steel production to help meet national climate goals. Companies with higher current emission levels face stricter reduction mandates, which may impact operational costs and future capital spending.
The Ministry of Power has released updated draft emission targets for India's iron and steel sector as part of the Carbon Credit Trading Scheme (CCTS). This initiative marks a significant step toward regulating industrial emissions in a sector that currently contributes roughly 10-12% of India's total carbon dioxide output. With crude steel production reaching approximately 151 million tonnes in FY 2024-25, the government is focusing on reducing the emission intensity per tonne of steel produced.
Impact on Steel Producers
The new mandate covers 255 distinct units across the country. Currently, India’s average emission intensity sits at 2.54 tonnes of CO2 per tonne of crude steel, which is notably higher than the global average of 1.9 tonnes. The government's objective is to bring this national average down to 2.2 tonnes of CO2 by 2030. Starting in the financial year 2026-27, companies will need to meet specific reduction targets ranging from 2.1% to 9.3%. Facilities that currently operate with higher baseline emissions, specifically those exceeding 3 tonnes of CO2 per tonne of steel, will be required to implement more significant improvements to stay within compliance.
Adjustments and Industry Challenges
The notification reflects a recent recalibration based on updated site data. While 73 units received more relaxed targets, 24 sites face tighter restrictions, indicating that the government is closely monitoring individual plant performance. This creates a complex environment for companies, as they must balance output targets with the cost of upgrading technology. Investors should monitor how these mandates affect profit margins, particularly for smaller players relying on older, more carbon-intensive production methods.
Production Routes and Future Risks
A primary challenge for the industry lies in its reliance on conventional production methods. Currently, the Blast Furnace-Basic Oxygen Furnace route accounts for 42.7% of production, while the Induction Furnace route—which is significantly more emission-intensive—makes up 35.4%. The Electric Arc Furnace route, which is generally cleaner, accounts for only 21.9% and has recently seen contraction. There is a concern that ongoing expansion of coal-based steelmaking capacity could lead to long-term 'carbon lock-in,' where factories remain tied to high-emission technology for decades. This shift in regulatory pressure means companies may need to increase spending on cleaner technologies, which could impact free cash flow and require higher capital allocation toward environmental compliance in the coming years.