India's steel boom: A potential net zero setback

In a significant development, India has edged past China as the leading player in coal-based steel production, according to a report from US think tank Global Energy Monitor (GEM). However, this achievement comes with substantial risks as the growing steel sector faces potential "stranded assets" amidst global net-zero commitments.

Global capacity for coal-based steelmaking witnessed a significant jump in 2022, surging from 350 million tonnes per annum (mtpa) in 2021 to 380 mtpa. Despite this expansion, the sector faces the prospect of up to $554bn (£430bn) in stranded assets as countries grapple with the paradox of increasing coal-based capacity while striving for carbon neutrality.

Steel is a crucial contributor to annual global greenhouse gas emissions, accounting for 7 percent of the total. As demand for steel continues to rise - driven by the energy transition and infrastructure development in emerging economies - the environmental impact of this key industry is under scrutiny.

New technologies, including the use of low-carbon hydrogen for producing direct reduced iron, offer promising pathways for decarbonizing the primary steel sector. However, according to an April report, the global pipeline of near-zero-emissions steel projects must triple within the next three years to align with net-zero pledges.

GEM's Global Steel Plant Tracker includes data on the 731 mtpa of steelmaking capacity currently under development worldwide. Asia is responsible for virtually all of the coal-based capacity under development (99 percent), with China and India jointly accounting for 79 percent of these projects.

Remarkably, for the first time, India has surpassed China in developing coal-based capacity. India now holds 40 percent of coal-based "blast furnace-basic oxygen furnace" capacity under development, with China close behind at 39 percent.

Despite the progress, the transition from coal-based steelmaking to cleaner production methods is proceeding far too slowly, according to GEM. In order to align with the International Energy Agency's Net-zero by 2050 scenario, the total share of 'electric arc furnace' capacity must reach 53 percent by 2050. This shift necessitates the retirement or cancellation of 347 million metric tonnes (Mt) of coal-based capacity and the addition of 610 Mt of electric arc furnace capacity.

Caitlin Swalec, GEM's program director for heavy industry, emphasized the urgent need for steel producers and consumers to escalate their decarbonization efforts. She warned that developers expanding coal-based capacity now risk billions in future write-downs. The transition from coal-based steelmaking has begun, but the pace must significantly increase to meet global sustainability commitments.