Speakin Green Steel: A Transitional Saga

Decarbonization is a worldwide movement, and the European Union (EU) has proposed CarbonBorderAdjustmentMechanism(CBAM),apolicythathascreatedquiteastir.

CBAM aims at taxing commodity imports based on their carbon emission footprint. It will be implemented in three phases, culminating in a Plastics Tax. W.e.f. October 1, 2023, Emissions Trading System (ETS) will assess the manufacturing process of every consignment of steel, aluminum, cement, fertilizer, hydrogen, and electricity imports in Europe for its carbon footprint. Initially starting with six, the scope of commodities will broaden to transform into the Carbon Tax of 25-30 percent from January 2026. The tax shall be levied similarly to Excise Duty in accordance with the features of the imported commodity.

Naturally, exporters to Europe need to assess and re-design their manufacturing processes to clear the border trade barriers. One of the six commodities shortlisted is steel, which contributes to 8 percent of emissions worldwide. Decarbonization in steel manufacturing is possible through Green Steel, which is manufacturing without the use of fossil fuels and practices leading to carbon emissions.

NetZero targets have been set worldwide, the EU's target is 2050 and various laws, regulations, and policies have been designed to aid in lesser emissions. However, the absence of caps beyond the EU will lead to Carbon Leakage with manufacturing processes shifting to non-restrictive regions. The EU's CBAM will heavily scrutinize import commodities for the carbon footprint of their manufacturing processes and hamper Carbon Leakage.

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As per the EU, CBAM will help cut down the emissions of the steel, iron, and aluminum industry in Europe by nearly 29 percent. Steel manufacturing comes under heavy industrial functions. Presently, oxygen is the catalyst used to manufacture steel, which when oxidized at high temperatures in fossil-based furnaces results in CO emissions. 2 Green Hydrogen is proposed as an alternative to this catalyst, as its oxidization at high temperatures results in water. The transition to Green Steel entails the replacement of fossil energy with renewable energy with the least possible emissions. However, heavy structural changes across the manufacturing set-up are required, leading to a capex investment of huge amounts even in isolated settings. According to ArcelorMittal, it will have to invest nearly USD 40 billion to meet the 2030 requirements of the EU. As of today, time and cost are stronger catalysts in the Green Steel transition.

While the World Bank is working with the EU to discuss Carbon Tax pricing, World Trade Organization (WTO) is assessing the base motives of the policy. CBAM poses a significant concern for various countries, including India which manufactures 6.1 percent of the world's steel, and whose steel, iron, and aluminium exports to the EU amount to 27 percent of its overall steel exports.

Meanwhile, India has its own NetZero targets in place, going up to 2070. The Ministry of Steel has identified three phases for the Green Steel transition; 2030: reduction of emissions through energy and resource efficiency and shifting to renewable energy; 2030-47: utilization of green hydrogen and carbon capture, utilization, and storage; 2047-70: disruptive alternative technological innovations. In 2022, The Ministry of New and Renewable Energy (MNRE) launched the National Green Hydrogen Mission to transform India into a lead producer, and exporter of Green Hydrogen and derivative applications. Recently, Shri JyotiradityaScindia, Union Minister of Steel of India, approved 13 task forces for Green Steel, which will design and organize action plans to integrate Green Steel in India.