Home › Research › India Blast Furnace Upgrade Operate Retire CCTS
Steel · Capital AllocationUpgrade, Operate, or Retire: The Three-Way Capital Decision Every Blast Furnace CFO Must Make Before Phase 2 CCTS Targets Land
India’s BF-BOF fleet runs at an average GEI of 2.36 tCO₂/tcs — comfortably above the CCTS Year 1 target of approximately 2.27 tCO₂/tcs for major integrated plants, and well above the National Steel Policy 2025 target of 2.0 tCO₂/tcs by 2035. A 3 Mtpa plant at the India average that does nothing faces a CCTS CCC purchase cost of approximately Rs 21.6 crore per year in Phase 1, rising sharply as Phase 2 targets require 2 to 8% annual GEI reduction from FY2027-28. A BAT upgrade package — PCI, CDQ, TRT, reline with modern features — costs approximately Rs 900 to Rs 1,100 crore for a 3 Mtpa plant and can shift the same plant from a CCTS buyer to a CCC seller, a financial swing of Rs 43 to Rs 86 crore per year at current CCC price assumptions. EAF conversion eliminates BF-BOF GEI risk permanently but requires Rs 10,500 to Rs 15,600 crore in replacement capex and depends on scrap availability at under approximately Rs 30,000/tonne. Each option has a different IRR, a different CBAM consequence for EU-exporting plants, and a different stranded asset risk profile. This article builds the decision model.
India’s BF capacity reached 88.5 Mtpa in 2025, producing approximately 70 Mt of crude steel via the BF-BOF route — 46% of national output. The average GEI is 2.36 tCO₂/tcs against a global average of 1.9 and the CCTS sector average target trajectory beginning at approximately 2.27 tCO₂/tcs for Phase 1. Only 21% of India’s BF capacity has access to gas pipeline infrastructure, which means that gas-based transition options (switching from coal injection to natural gas or green hydrogen in the blast furnace) are structurally unavailable for 79% of India’s integrated steel plants without major pipeline investment. This infrastructure constraint makes the BAT upgrade pathway — which is coal-based but delivers meaningful GEI reduction — the dominant near-term option for most Indian BF-BOF operators.
CPI and CEEW analysis confirms that BAT upgrades including PCI, CDQ, and TRT have a negative cost of CO₂ abatement — meaning the energy savings they generate exceed their capital cost even without a carbon price. Cumulatively, a full BAT package can deliver up to 15% GEI reduction for the BF-BOF route, bringing a 2.36 tCO₂/tcs plant to approximately 2.0 tCO₂/tcs — exactly the National Steel Policy 2025 target for 2035. At CCTS Phase 1 targets, a plant achieving 2.0 tCO₂/tcs after upgrading would hold a surplus of approximately 0.27 tCO₂/tcs against its Phase 1 target, generating CCC revenue. At Rs 800/CCC and 3 Mtpa, this is approximately Rs 64.8 crore per year in CCC income — in addition to the energy cost savings from the BAT upgrades themselves.
The CBAM dimension for EU-exporting plants materially changes the upgrade economics. A BF-BOF plant at 2.36 tCO₂/tcs with unverified data faces approximately Rs 19,000 per tonne in CBAM certificate costs for EU-destined steel from 2026. The same plant with verified GEI data faces approximately Rs 5,040 per tonne. And a plant that has upgraded to 2.0 tCO₂/tcs with verified data faces approximately Rs 3,980 per tonne — a saving of approximately Rs 15,020 per tonne versus the unverified default position. On 100,000 tonnes per year of EU exports, the difference between unverified-default and upgraded-verified is Rs 1,502 crore per year in CBAM cost. This number dwarfs the upgrade capex of Rs 900 to Rs 1,100 crore for the entire 3 Mtpa plant.
The EAF conversion option — retiring the BF and replacing with an EAF — is financially superior only under specific conditions: scrap price below approximately Rs 30,000/tonne, captive RE available at Rs 4.50 to Rs 5.50/kWh, and the BF at or near the end of its campaign life (so stranded asset cost is minimal). For plants mid-campaign, the stranded asset cost of an early BF retirement is substantial — a recently relined BF has Rs 1,600 to Rs 2,000 crore of book value that would need to be written off. The EAF conversion decision is therefore a next-reline decision: the question is not whether to convert mid-campaign, but whether to reline the BF one more time or convert to EAF at the next scheduled downtime. Framed this way, the EAF conversion capex of Rs 3,500 to Rs 5,200 crore per Mtpa competes directly with a BF reline cost of approximately Rs 500 to Rs 800 crore per Mtpa — a 4 to 7 times higher capital outlay that delivers permanent GEI compliance versus temporary CCTS relief.
The Phase 2 CCTS target — which BEE will notify for the FY2027-28 to FY2029-30 period — is the single most important unknown in this decision. If Phase 2 requires a 4 to 6% annual GEI reduction (consistent with India’s 2035 target of 2.0 tCO₂/tcs from 2.36 tCO₂/tcs today), then a plant that has already upgraded to 2.0 tCO₂/tcs through BAT is well-positioned as a CCC seller through Phase 2. A plant that has not upgraded and is buying CCCs in Phase 1 will face mounting purchase costs as Phase 2 tightens. The Phase 2 target notification is expected approximately 12 to 18 months before FY2027-28 — meaning decisions on BAT upgrades must be made in 2026, before the notification arrives, based on what the trajectory of Indian steel policy clearly signals.
Where India’s BF fleet sits versus CCTS targets — the starting point
The CCTS GEI targets gazette-notified in October 2025 establish a two-year trajectory for each covered entity. For the iron and steel sector, the sector-average BF-BOF target sits at approximately 2.2701 tCO₂/tcs for Year 1 (FY2025-26) and 2.1696 tCO₂/tcs for Year 2 (FY2026-27) — based on the ArcelorMittal Nippon Steel Hazira entity notification as the reference, which is among the more efficient integrated plants. Less efficient plants face proportionally higher targets. India’s fleet-average GEI of 2.36 tCO₂/tcs means most BF-BOF operators entered Phase 1 already in shortfall, before any upgrade or mitigation action.
The three options — what each one costs and delivers
The full P&L model — 3 Mtpa BF-BOF over 10 years under each option
The model below compares the cumulative 10-year financial position of a representative 3 Mtpa BF-BOF integrated steel plant under each of the three options. Assumptions: CCTS Phase 1 price Rs 800/CCC; Phase 2 (FY2027-28 onwards) tightening at 4% annual GEI reduction; CCC price rising to Rs 1,200 in Phase 2 as supply tightens; EU exports 100,000 tpa; energy cost savings from BAT upgrades Rs 300/tonne of crude steel (conservative); scrap for EAF Rs 28,000/tonne.
The model delivers a clear hierarchy for most Indian BF-BOF operators. Option B — the BAT upgrade — is the financially dominant strategy for plants that have at least five to seven years of remaining campaign life: it generates positive returns even without CCTS through energy savings, and CCTS and CBAM returns accelerate the payback significantly. Option A is a value-destructive holding pattern that makes sense only for imminent closure. Option C — EAF conversion — is the right long-term structural decision but the CCTS and CBAM returns alone cannot justify the incremental capex over a reline within a 10-year horizon; it requires either a green steel premium market that prices low-carbon output above BF-BOF steel by Rs 3,000 to Rs 5,000 per tonne, or Phase 2 CCTS prices rising to Rs 2,000 to Rs 3,000 per CCC, or both.
The EAF conversion becomes financially superior to repeated BF relining when three conditions are simultaneously met. First, CCTS Phase 2 and Phase 3 targets tighten to the point where a BAT-upgraded BF-BOF at 2.0 tCO₂/tcs falls back into shortfall — which occurs if BEE sets Phase 3 targets below 2.0 tCO₂/tcs (consistent with the National Steel Policy 2025 target). Second, green hydrogen DRI prices fall sufficiently to make DRI-EAF competitive with coal-based BF-BOF on operating cost — currently projected to occur around 2030 to 2032 at USD 2/kg green H₂. Third, the global and Indian green steel premium market matures to the point where EAF steel commands Rs 3,000 to Rs 5,000 per tonne above BF-BOF steel in key market segments. None of these conditions are fully met in 2026. All three are on a trajectory to be met by 2030 to 2032. This means the optimal strategy for most BF-BOF operators is: upgrade with BAT now to achieve CCTS Phase 1 and Phase 2 compliance and generate CCC revenue, while simultaneously planning the EAF conversion as the Phase 3 decision timed to the next reline after 2030.
The CBAM dimension — why EU-exporting BF-BOF plants face a different decision
For BF-BOF plants that export to the EU, the CBAM cost structure materially changes the upgrade economics. The CBAM certificate cost for unverified steel at the EU default GEI of 4.752 tCO₂/tcs is approximately Rs 19,000 per tonne of EU-destined steel at current EU ETS prices. A verified BF-BOF plant at 2.36 tCO₂/tcs pays approximately Rs 5,040 per tonne. A BAT-upgraded verified plant at 2.0 tCO₂/tcs pays approximately Rs 3,980 per tonne. An EAF plant with captive RE at 0.5 tCO₂/tcs pays approximately Rs 800 per tonne.
For a plant exporting 100,000 tonnes per year to EU markets, the annual CBAM cost difference between unverified-default and BAT-upgraded-verified is approximately Rs 1,502 crore per year. This is not a speculative future cost — CBAM certificates are being purchased for 2026 imports right now, with the first annual declaration due September 30, 2027. A plant that invested Rs 1,000 crore in BAT upgrades and MRV infrastructure can recover that entire capex from CBAM savings alone in less than one year of EU export operations at 100,000 tonnes. The economics are this stark because the EU default GEI is calibrated to be punitive for exactly this reason: to force Indian exporters either to verify emissions or to stop exporting to EU markets without penalty.
The window for deferring the upgrade decision is closing on two fronts simultaneously. On the CCTS front, Phase 2 target notification is expected approximately 12 to 18 months before FY2027-28 — meaning it arrives in 2026 or early 2027. Once Phase 2 targets are known, the financial case for BAT upgrades becomes even clearer — but the lead time for engineering, procurement, and installation of PCI, CDQ, and TRT systems is 18 to 36 months for a 3 Mtpa plant. A decision made in late 2026 or early 2027 cannot deliver operational BAT capacity before the Phase 2 compliance year begins. On the CBAM front, the first CBAM annual declaration covering 2026 data is due September 30, 2027 — meaning the MRV infrastructure for 2026 must be in place now. Plants that have not commissioned their ACVA-verified emissions measurement by mid-2026 will file their first CBAM annual declaration on unverified data — paying Rs 19,000 per tonne rather than Rs 5,040 per tonne on every EU-destined tonne of steel. The cost of that single-year error on 100,000 tonnes of EU exports is Rs 1,396 crore in excess CBAM certificates. This is not a future risk. It is the consequence of a decision — or non-decision — made in the next six months.
Frequently Asked Questions
What GEI reduction can a BF-BOF plant achieve through BAT upgrades, and at what cost?
CPI and CEEW analysis confirms that a full BAT package — Pulverised Coal Injection (PCI), Coke Dry Quenching (CDQ), and Top Pressure Recovery Turbine (TRT) — can deliver up to 15% GEI reduction for the BF-BOF route. This shifts a plant at India’s average GEI of 2.36 tCO₂/tcs to approximately 2.0 tCO₂/tcs — exactly the National Steel Policy 2025 target for 2035. The critical finding is that these upgrades have a negative cost of CO₂ abatement — meaning the fuel and energy savings they generate exceed the capital cost even without any carbon price. PCI replaces coke with cheaper pulverised coal; CDQ recovers heat from coke quenching; TRT recovers pressure energy to generate electricity. For a 3 Mtpa integrated steel plant, the full BAT upgrade package costs approximately Rs 900 to Rs 1,100 crore. Energy savings alone generate approximately Rs 300 per tonne of crude steel — Rs 900 crore per year for 3 Mtpa — making the payback period approximately 1 year on energy savings alone, with CCTS and CBAM returns on top.
When does it make financial sense to convert from BF-BOF to EAF rather than upgrade?
EAF conversion is financially superior to repeated BF relining when three conditions are simultaneously met: Phase 2 and Phase 3 CCTS targets tighten below 2.0 tCO₂/tcs (making even BAT-upgraded BF-BOF a CCTS buyer again); green hydrogen DRI prices fall to USD 2/kg or below (making DRI-EAF competitive on operating cost with BF-BOF); and the green steel premium market matures to Rs 3,000 to Rs 5,000 per tonne above conventional BF-BOF steel. None of these conditions are fully met in 2026. All three are on trajectory to be met by 2030 to 2032. The practical implication: for most BF-BOF operators, the correct 2026 decision is to invest in BAT upgrades for CCTS Phase 1 and Phase 2 compliance, while planning EAF conversion as the Phase 3 decision timed to the next BF reline after 2030. EAF conversion mid-campaign before reline is not financially rational because the stranded asset cost of the existing BF (approximately Rs 1,600 to Rs 2,000 crore for a recently relined 3 Mtpa furnace) must be written off immediately.
What is the CCTS financial exposure for a 3 Mtpa BF-BOF plant at India’s average GEI that takes no action?
A 3 Mtpa BF-BOF plant at 2.36 tCO₂/tcs against a Phase 1 CCTS target of approximately 2.27 tCO₂/tcs faces a shortfall of approximately 0.09 tCO₂/tcs — 270,000 CCCs per year. At Rs 800/CCC, this is Rs 21.6 crore per year in Phase 1. As Phase 2 targets tighten by 4 to 8% annually from FY2027-28 (consistent with reaching the NSP 2025 target of 2.0 tCO₂/tcs by 2035), the shortfall grows and the CCC price is expected to rise toward Rs 1,200. By Phase 2 Year 3 (approximately FY2029-30), the same plant doing nothing could face a CCTS purchase cost of Rs 65 to Rs 130 crore per year — three to six times the Phase 1 cost. Over 10 years, cumulative CCTS cost for Option A is estimated at Rs 563 to Rs 823 crore, against an upgrade capex of Rs 900 to Rs 1,100 crore that generates net positive returns over the same period through energy savings, CCC revenue, and CBAM cost reduction.