EU's CBAM seen hurting Indian steel industry: finance minister

Europe’s Carbon Border Adjustment Mechanism, which levies a carbon tax on certain exports into the EU, is expected to hurt India’s steel industry, Indian Finance Minister Nirmala Sitharaman said Oct. 9, terming CBAM a trade barrier.

Speaking at the FT Energy Transition Summit held in New Delhi, Sitharaman said that Europe is bringing in a tariff for what they define as "dirty steel", but added that the bloc plans to use the money earned from this carbon tax to fund its own conversion to "green" steel.

“I think [CBAM is] unilateral. And as a country which has proven its record and for international agencies to have recognized that India is keeping its commitment and fulfilling it to have to face unilateral measures like this will be the challenge,” she said, adding that such unilateral measures are not helpful for countries like India.

“I'm not sure how [CBAM is] going to play out, but any such move, which is so unilateral for equal products here being produced, there's no level playing field,” the minister added.

India currently exports around 5 million mt of steel to Europe every year, according to industry participants.

CBAM is in a transition phase that started Oct. 31, 2023, and will phase in from 2026 through 2034. The iron-steel industry is expected to be the largest impacted sector by the implementation of CBAM.

Indian steel industry experts present in the event said placing such a measure can push the sector toward adopting pathways to produce green steel, but this may also pose plenty of problems for the sector.

India is aiming to bump up its annual steel production capacity to 300 million mt by 2030, about 88% higher than seen in 2022. But so far, most of the expansion plans announced are coming through the traditional blast furnace route, which is highly carbon intensive.

“Taking into account the present global environment and the need to push carbon reduction, this capacity expansion will also have to account for carbon reduction. So green steel will be perhaps the way forward,” Sandeep Poundrik, secretary of Indian steel ministry, said at the event.

However, currently there is no definite classification of what can be termed as green steel, making it harder for the steel industry to meet the requirements.

Moreover, higher input costs for securing green power and raw material, and a higher premium attached to green steel are also posing headaches for the steel industry to make any substantial progress, according to industry experts present at the event.

The cost of green steel is more than double than the cost of producing normal steel, according to Wim Van Gerven, director at ArcelorMittal Nippon Steel India.

“The price of green or low carbon steel is materially more than steel or rich carbon steel. And ...[i]f you're going to produce [green steel]... you need to make sure that someone is willing to pay for it,” said Ben Daly, managing director of transition finance at Standard Chartered Bank.

The development of the demand side is still nascent, but there maybe sectors like the auto industry that are willing to pay more, he said.

One of the other challenges for producing green steel is the higher cost of availability for using reducing agents such as gas or hydrogen to convert iron ore into steel.

“The amount of power of gas [used as reducing agent] we need is so huge that nobody can make it for the moment, not in India,” ArcelorMittal’s Gerven said. While in the case of hydrogen, the Indian steel industry needs millions of tons of hydrogen that we are not even producing, he added.