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Home / Opinion / Views /  Warning from Port Talbot for Indian steel plants

There will be at least one Indian corporate which will be keenly waiting for the outcome of the United Kingdom’s fractious ongoing process to find a successor to Boris Johnson, who resigned on July 7 under a cloud of scandal. And not just because one of the two contenders left in the fray happens to be the Indian-origin Rishi Sunak.

No. Tata Steel has a lot riding on the next Prime Minister, since UK’s current Business and Energy secretary Kwasi Kwarteng has made it clear that the caretaker government will not take a call on Tata Steel’s call for more than GBP 1.5 billion (over 14,500 crore) in government assistance to help decarbonise its steel plants located in Port Talbot, Wales.

On its website, Tata Steel says it “aspires to set the steel industry benchmark in environment performance’ and lists a number of commendations it has received for its sustainability actions. It has also set itself what it calls an “aspirational goal" of reducing 2 tonnes of CO2 and greenhouse gas emissions per tonne of crude steel production by 2025.

But when it comes to business, it is about money. In a recent interview to Financial Times, Tata Sons chairman Natarajan Chandrasekaran had said that Tata Steel may be forced to shut its Port Talbot works unless the government steps in with the funding required to convert its existing coal-burning blast furnaces in Port Talbot to the lower carbon emission electric arc furnaces. However, Kwarteng has, according to British media reports, kicked the can down to the next Prime Minister and the new cabinet to take a call on the bailout.

Whether or not the UK government opens up its purse strings is an issue between Tata Steel, the UK government and the Port Talbot unions, who are worried about the more than 5,000 jobs at stake if Tatas do follow through on their threat to shut shop.

But the issue should serve as an ominous warning to the Indian government. Steel in India is one of the biggest emitters of greenhouse gases. Currently the steel industry represents almost 23 per cent of total energy inputs and 30 per cent of the industrial carbon dioxide (CO2) emissions in the industrial sector, according to estimates by the IEEFA, Institute for Energy Economics and Financial Analysis.

The Ministry of Steel has fixed the Intended Nationally Determined Contributions (INDC) for reducing GHG emissions in the Iron & Steel sector, while projecting CO2 emission of 2.2 -- 2.4 T/TCS (Tonnes per ton of crude steel) in the blast furnace route and 2.6- 2.7 T/TCS in electric arc furnace route (electric arc furnaces are cleaner but depend up to 90 per cent on fossil-fuel-based energy) by the terminal year 2030, from the 3 tonnes of CO2 per tonne of crude steel level prevailing in 2005.

Even this relatively modest (in comparison to the self-set goals of big Indian steel producers like Tata Steel and Jindal) aim would require massive investments in not only converting the steel plants themselves to greener processes but also the supply chain, ranging from power generation to pelletisation to sponge iron production.

The International Energy Agency has forecast India’s steel output to double by 2030 and quadruple by 2050. India has an installed capacity of around 140 million tonnes per annum. It produced a little over 118 million tonnes in 2021. Steel producers like Tata, Arcellor Mittal and Posco have already announced plans of large capacity addition to meet this surging demand. However, they have not committed to greener or carbon-free technologies for this capacity addition. If these investments follow the conventional pattern, India will be committed to coal in a big way to 2050 and beyond.

India currently does not have a policy framework in place to address this. There is the Perform Achieve and Trade (PAT) scheme, which is a flagship programme of Bureau of Energy Efficiency under the National Mission for Enhanced Energy Efficiency (NMEEE). Under this, energy savings by notified industries can be converted into energy certificates, which are tradeable. Currently in its sixth cycle, major sectors like cement, commercial buildings (hotels), iron and steel, petroleum refinery, pulp and paper and textiles have just been notified. It is going to be a while before steel sector’s energy savings initiatives start showing up in bottom lines.

This slow pace is doomed to fail. Currently, most of the low-carbon solutions for steel manufacture being talked about like carbon capture and storage and use of coal bed methane or syngas are either in the lab or small pilot stage. While some technologies like using green hydrogen are already available, the costs are prohibitive. Unless India’s green hydrogen plans come through in a big way and prices fall to the projected $1 per kilogramme level for green hydrogen, it remains unviable.

India simply does not have the fiscal headroom to help finance its steel sector into the green age. What it needs to do instead is to focus its limited resources on funding public research and supporting private sector research into low-carbon initiatives, as well as use a mix of policy measures–such as enforcing green codes in user sectors like construction and automobiles–to encourage the market for higher priced green steel. It also has to set clear deadlines and milestones for the sector to achieve green targets.

The Tatas can afford to walk away from high-cost steel production in the UK or Europe without significantly harming their interests in the long run. But the same does not hold true for them in India or indeed for other steel makers, particularly the smaller ones. Nor can the country afford to depend on imports for a vital nation-building input like steel. Instead of waiting and getting stuck with even higher bills down the road, we need to act now.

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