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India's Steel Industry Urges Decarbonisation Focus in 2026 Budget

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  Published in Business and Finance on Thursday, January 8th 2026 at 2:48 GMT by Business Today

New Delhi, January 8th, 2026 - As India prepares to unveil its Union Budget for 2026, the Associated Chambers of Commerce and Industry of India (Assocham) has issued a strong call for prioritising decarbonisation efforts within the steel industry. The industry body believes that strategic financial incentives and a focus on innovative technologies are crucial to aligning India's second-largest steel production with global climate goals.

India's steel industry is a cornerstone of the nation's economic growth, providing vital materials for infrastructure, manufacturing, and construction. However, its traditional production methods are notoriously carbon-intensive, making it a significant contributor to India's overall greenhouse gas emissions. Decarbonising this sector is therefore paramount if India is to credibly pursue its commitments under the Paris Agreement and achieve its ambitious net-zero targets by 2070.

Assocham's pre-budget recommendations center around two key pillars: the promotion of Hydrogen-based Direct Reduced Iron (DRI) technology and the establishment of a comprehensive green finance framework. Hydrogen DRI represents a potentially transformative shift in steel production, offering a pathway to significantly reduce reliance on fossil fuels. Traditional steelmaking relies heavily on coal, but DRI utilizes hydrogen as a reducing agent, drastically lowering carbon emissions. While the technology isn't entirely emission-free - hydrogen production itself can have a carbon footprint depending on the method used - using 'green hydrogen' (produced using renewable energy) creates a nearly carbon-neutral process.

The challenge, however, lies in the initial investment required to implement this technology. Assocham is urging the government to consider a revamped Production Linked Incentive (PLI) scheme - a 'PLI 2.0' - specifically tailored to encourage the domestic manufacturing of critical equipment necessary for green steel production. The original PLI scheme has seen successes in other sectors, and extending it to green steel could provide the necessary financial impetus for companies to adopt hydrogen DRI and other sustainable practices. This includes incentivising the production of electrolyzers - the crucial components needed to generate green hydrogen - and specialized DRI reactors.

Beyond technology adoption, Assocham emphasizes the need for a robust green finance framework. This involves creating accessible and affordable financial instruments - loans, grants, and bonds - specifically designed to support green steel projects. Existing financial mechanisms often fail to adequately address the long-term investment horizons and specific risks associated with transitioning to sustainable technologies. A dedicated green finance framework could de-risk these investments, attracting both domestic and international capital.

Industry analysts suggest that the cost of transitioning to green steel will be substantial. Estimates vary, but significant investment will be needed over the next decade to replace existing infrastructure and implement new technologies. This isn't simply a matter of environmental responsibility; it's also a matter of economic competitiveness. As global markets increasingly prioritize sustainability, Indian steel producers who fail to decarbonize risk losing market share to competitors who have embraced greener practices. The European Union, for example, is already implementing Carbon Border Adjustment Mechanisms (CBAM) which place a carbon levy on imported goods, potentially penalizing steel from countries with high carbon footprints.

The government has already taken initial steps toward promoting green steel, notably through the National Green Hydrogen Mission. This mission aims to make India a global hub for green hydrogen production and utilization, which directly supports the adoption of hydrogen DRI in the steel industry. Assocham's recommendations build upon this foundation, calling for a more comprehensive and coordinated approach.

Looking ahead, the success of India's green steel transition will depend on close collaboration between the government, industry, and research institutions. Further investment in research and development is crucial to improve the efficiency and cost-effectiveness of green steel technologies. Furthermore, a skilled workforce will be needed to operate and maintain these new facilities. The 2026 Budget presents a critical opportunity for India to demonstrate its commitment to sustainable development and solidify its position as a global leader in green steel production.