Record-low prices for green hydrogen suggest a way out

The recent energy crisis and its consequences for India, including gas shortages and rising prices, are a warning about energy security. Yet another major weakness needs attention. India’s plans to expand steel production depend heavily on coking coal, much of which must be imported as domestic reserves are limited and often of poor quality. Under current plans, this route could limit the country to about $1 trillion in coking-coal imports over the coming decades, while also locking out highly carbon-intensive steel production, which risks making Indian steel uncompetitive as global carbon regulations tighten.

India now stands at an industrial crossroads. As highways, metros, renewable energy parks and industrial corridors expand, the demand for steel is set to increase. By the early 2030s, India may need about 300 million tonnes of steel annually, almost double what it produces today. With the exception of China’s infrastructure boom in the early 2000s, few economies have expanded steel production at this pace.

Yet the majority of planned capacity still follows the traditional blast furnace route. If the next 180 million tonnes of steel capacity is built in this manner, India will be exposed to volatile global coal markets and rising import bills. At the same time, it would phase out decades of carbon-intensive production, just as major economies introduce carbon border adjustments and emissions-based trading rules.

India therefore faces two simultaneous risks: increasing import dependence and declining export competitiveness. A steel sector built on imported coal and high emissions may struggle to compete in a world where both energy security and carbon intensity are increasingly shaping business.

At the planned scale, the blast furnace will require approximately 161 million tonnes of coking coal every year once it is fully built. Domestic supplies and usable grades are limited, so about 90% will be imported. At $200 per tonne, that means annual imports of about $29 billion – about $1.1 trillion over the 40-year life of the plant.

This is more than a financial issue. Coking-coal prices vary widely due to geopolitical tensions, supply shocks in Australia, shipping disruptions or changes in Chinese demand. Each price increase directly impacts the cost of domestic steel and, in turn, affects the cost of building India’s infrastructure – from bridges and railways to housing and power lines. If India continues to rely on BF-BOF, the price of its development will be determined by global fossil-fuel markets.

The emissions intensity of blast-furnace steel also creates increased export risks. Conventional steel production emits approximately 2.5 to 2.8 tonnes of CO₂ per tonne of steel. As major economies introduce carbon cap adjustments and emissions-based product standards, these emissions will increasingly determine market access.

The EU’s carbon border adjustment mechanism enters its definitive phase in 2026, and the UK is implementing a similar system soon after. Over time, exporters will have to account for embedded emissions and potentially pay a carbon levy at the border.

In such a world, steel produced with higher emission intensities risks being structurally disadvantaged. At the same time as global demand for low-carbon materials is rising, Indian producers may face shrinking export markets or lower margins.

Environmental consequences are also important. BF-BOF steel emits 2.5-2.8 tonnes of CO₂ for every tonne produced and contributes to particulate pollution. In industrialized areas already struggling with bad air, doubling down on coal would worsen health and productivity.

Fortunately, India has a credible energy-independence option: using green hydrogen instead of imported coking coal. The process, called green-hydrogen-based direct reduced iron (H₂-DRI), is simpler than its name suggests.

In this route, green hydrogen replaces coal to extract oxygen from iron ore pellets. The result is “sponge iron”, which is then melted in an electric arc furnace. Instead of producing carbon dioxide and soot, the reaction releases water vapor.

And importantly, this is not a future technology. India is already the largest producer of DRI in the world, with decades of experience operating the furnaces and equipment on which H₂-DRI depends. Concerns about ore grade are also outdated. Beneficiation and pelletization facilities in Odisha, Karnataka and Chhattisgarh are already upgrading Indian ore to the required quality. The technology exists. Ore base is present.

The only barrier until recently was cost.

India records lowest ever price of green hydrogen ₹Numaligarh refinery to supply 10,000 tonnes per year was quoted at Rs 279/kg (about $3.08/kg), about a third of the prices seen in parts of Europe. At these hydrogen costs, which are fixed in nominal rupee terms, green steel can be produced at the same cost as fossil-based steel, especially considering rising coking coal import costs due to rupee depreciation and coal price inflation.

Therefore, green hydrogen steel is no longer a distant possibility. Renewable electricity, the key input to green hydrogen production, can be secured through long-term rupee-denominated power purchase agreements, which typically last for about 25 years. Over time, this structure reduces the cost in dollar terms as the rupee depreciates while electricity prices remain stable in nominal terms.

In contrast, blast furnace basic oxygen furnace (BF-BOF) steel is linked to dollar-priced imported coking coal, meaning both the rupee depreciation and coal price directly increase production costs. When these real-world dynamics are considered, the IECC analysis shows that cost parity between hydrogen-based direct reduced iron (H₂-DRI) steel and blast furnace steel could be reached by around 2030, even if static comparisons for that year still show a slight premium.

India’s strongest argument for switching is domestic. Most of India’s steel is consumed in its own roads, railways, housing, power infrastructure and industrial development. Using green hydrogen instead of imported coal strengthens energy independence, stabilizes project costs, and creates domestic supply chains in electrolyzers, storage systems, solar modules, and electric arc furnaces.

A major additional benefit—though not the first reason for the change—is cleaner air.
Moving away from coal-based steel reduces particulate emissions and could significantly improve air quality in manufacturing areas, supporting both public health and economic productivity.

There is also an increase in exports. As countries in Europe and East Asia implement stricter carbon regulations and face higher energy costs, they will increasingly look to low-carbon hot-briquetted iron (HBI) and green steel. India, with its low renewable-energy costs, can supply that demand. But exports are a complement – ​​domestic need is more than enough to justify the transition.

Economics alone will not deliver the first commercial H2-DRI plant. What is missing is bankability: long-term offtake agreements with payment security. India already has a blueprint. SECI’s green ammonia and hydrogen tenders aggregated demand and discovered record low prices. A SECI-style mechanism can be adapted to steel, starting with green hot briquetted iron and a limited set of near-zero-carbon steel products. Bids can be structured as transparent premiums on a benchmark index backed by emissions verification and payment security. Along with aggregated offtake, a 5% public procurement mandate for almost zero steel in government infrastructure projects will generate a guaranteed demand of 3-4 million tonnes per annum, at less than 0.05% of the infrastructure budget.

The next step is to build the enabling ecosystem: reliable access to clean energy, hydrogen infrastructure, risk sharing for first-of-its-kind plants, and an ore and pellet strategy to ensure that the feedstock is ready for commissioning. To accelerate scale-up and exports, India can also set up a small number of port-linked Green Steel Acceleration Zones with single-window clearance and priority grid connectivity.

India can make its next 40 years of steel on imported coal or Indian sunlight. The balance of trade will tell us which path was chosen.

This article is written by Amol Phadke, Faculty Director and Neelima Jain, Director, Industrial and Trade Policy, and Nikit Abhyankar, Co-Faculty Director, India Energy and Climate Center, UC Berkeley.