Steelmakers are on course to achieve carbon emissions target by 2030: Crisil

27 Mar 2024 Evaluate

Credit rating firm Crisil in its latest report has said that domestic primary steelmakers are on course to achieve their carbon emissions target of less than 2 tonne of carbon dioxide per tonne of crude steel (tCO2/tcs) - around the current global average - by 2030 through measures such as energy transition and increasing production from less carbon-intensive processes. It said reducing emissions will broaden fund-raising avenues and improve export competitiveness, a positive for credit quality. That said, complete transition to low carbon steel, also known as green steel, remains a challenge.

According to the report, the carbon emission rates of Indian steelmakers are currently higher than the global average mainly due to high reliance on traditional high-carbon production routes involving blast furnace-basic oxygen furnace (BF-BoF; accounting for around two-thirds of capacity) and dependence on coal in the direct reduced iron (DRI) - electric arc furnace (EAF) process. Globally, however, gas-based DRI-EAF, which is less carbon polluting, has a higher share. Apart from capacity addition of around 35% over fiscals 2024 to 2027, Indian primary steel makers are also working to improve their environmental, social and governance (ESG) profile by reducing carbon emissions and enhancing disclosures.

The report further said as of last fiscal, reported carbon emissions by the steelmakers were down to around 2.35 tCO2/tcs from over 3 tCO2/tcs in fiscal 2005. This translates to around 65% of the targeted emission reduction at a compound annual growth rate of around 1.4% over the 18 years. The narrowing gap in carbon emissions vis-a-vis global players will help Indian steelmakers retain their competitiveness even with a potential carbon tax of around 100 Euros per tonne of emission under the Carbon Border Adjustment Mechanism (CBAM) in the European Union. For the record, around 10% of the domestic steel output is exported. The reduced emissions will also strengthen ESG profiles, which will improve access to additional funding avenues such as sustainable finance that has a lower cost of capital and long tenure. This is important, given the expected annual capital expenditure of Rs 55,000-60,000 crore between fiscals 2024 and 2027.

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