A new IEEFA analysis says India’s planned strategy for secondary steel should pair guaranteed loans with milestone grants, because small steelmakers cannot fund decarbonisation upfront and banks rarely lend against future government payments.
India’s planned National Strategy for Sustainable Secondary Steel (NSSS) should pair guaranteed loans with milestone grants, according to a new analysis from the Institute for Energy Economics and Financial Analysis (IEEFA). The authors, Saurabh Trivedi, Soni Tiwari and Saumya Nautiyal, say secondary steel makes up about 47% of national output and relies heavily on coal-based direct reduced iron (DRI).
Efficiency has limits
Indian secondary steel producers still improve energy efficiency, IEEFA says. Plants can become more efficient without becoming low-carbon, and the scope for emission cuts shrinks as efficiency rises. Further cuts must come from renewables, more scrap and iron ore pellets, and cleaner fuels.
The Ministry of Steel estimates that 43% renewable energy penetration across the sector would cut emission intensity from 2023-24 levels by 7.5%. A study cited by IEEFA found that steel units buying 10 megawatts of group-captive solar could get power at a tariff 34% below the grid and recover their equity within two years. Barriers include upfront capital and regulatory complexity, such as group-captive ownership rules, Green Open Access approvals and charges, inter-state transmission costs and state banking rules.
One tonne of scrap steel can save up to 1.1 tonnes of iron ore and cut greenhouse gas emissions from raw-material use by about 58%, IEEFA says. A sectoral modelling exercise found that 30% scrap with 50% renewable electricity can reduce emission intensity by 28%. Scrap collection and processing remain fragmented and informal, despite the Steel Scrap Recycling Policy and the End-of-Life Vehicles Rules.
Iron ore pellets can cut consumption by about 20% and emission intensity by about 12%. Automated process control, energy monitoring and management systems can save up to 12% of energy. Biochar could cut emissions by up to 1.19 tonnes of CO2 per tonne of crude steel, and gas-based steelmaking emits 30% less. Hydrogen-based ironmaking is a longer-term route that depends on cheaper hydrogen and new infrastructure.
The gap in a results-only model
The steel secretary said last year that the NSSS would reward year-on-year emission cuts and would exclude upfront capital subsidies. IEEFA argues that paying only for results leaves small units stuck. They must invest first, and banks seldom lend against future government payments.
Existing schemes have limits. ADEETIE offers interest subvention, energy audits and upgrade reports, but excludes coal-based DRI kilns and induction furnaces, the main emission sources. MSE-SPICE encourages scrap recycling, yet has sanctioned loans to only 14 units since its 2023 launch. The GIFT scheme offers risk-sharing and interest subvention on loans of up to INR2 crore ($207,000) for micro and small units.
Two kinds of support
IEEFA proposes support matched to technology risk. For proven technologies, such as renewable power, higher scrap use, pellet switching and waste heat recovery, the NSSS could guarantee part of a commercial loan. It would pay its incentive as an interest rebate once the cut is verified. Cluster projects, including group-captive solar, could borrow through a special purpose vehicle convened by a renewable developer or industry association. The government would pay only for verified cuts or when a guaranteed loan defaults.
For first-of-a-kind technologies, such as hydrogen use in rotary kilns and vertical shaft DRI, IEEFA proposes a small grant window that releases funds in stages for design, commissioning and verified performance. The EU Innovation Fund pays up to 40% of its grant against milestones before a plant starts operating, and the rest against verified cuts.
Three conditions for funding
IEEFA says the NSSS should fund only units that meet three conditions. The first is energy efficiency, ideally confirmed by an audit from an accredited Bureau of Energy Efficiency auditor. The second is no new or expanded coal-based DRI capacity. The third is at least a ZED Bronze certificate covering product quality, process control and energy management.
The authors argue that this design builds on existing schemes, pays for real carbon cuts and directs public money to where small firms cannot finance the change themselves. Policymakers drafting the strategy will find the detailed options in the analysis. Related coverage includes a study on India green steel costs and a report on how CBAM could reshape Indian steel exports.
