H2-DRI in India: The Economics of Green Steelmaking in 2026 | Reclimatize.in
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Steel · Green Hydrogen · EconomicsH2-DRI in India: Where the Economics of Green Steelmaking Actually Stand
India has commissioned its first commercial-scale green hydrogen plant for steelmaking. An IOCL tender has discovered prices of Rs 397 per kg. The National Green Hydrogen Mission director says USD 2 per kg by 2032. JSW Steel has committed USD 1.2 billion to a hydrogen-ready DRI plant. None of this changes the fundamental fact that H2-DRI is still not commercially competitive with BF-BOF or NG-DRI at current hydrogen prices — and understanding exactly why, and exactly how that changes, matters more than any optimistic headline about the transition.
JSW Energy commissioned India’s first and largest commercial-scale green hydrogen plant at Vijayanagar in November 2025 — a 10 MW PEM electrolyzer producing 3,800 tpa of green hydrogen for direct supply to JSW Steel’s DRI unit under a seven-year SIGHT offtake agreement. This is a landmark achievement and a genuine proof-of-concept. It is also, at 3,800 tpa, less than 0.1% of what 5 MMTPA green hydrogen for steel would require.
India’s most recent market-discovered green hydrogen price — from an IOCL tender in June 2025 — was Rs 397 per kg (approximately USD 4.67/kg). The National Green Hydrogen Mission director has stated USD 2/kg by 2032. Break-even for H2-DRI to be cost-competitive with NG-DRI requires hydrogen at approximately USD 1.63 to 1.70/kg. The gap between current prices and competitive prices is substantial, and the timeline for closing it is uncertain.
At USD 4.67/kg hydrogen, the green steel premium above conventional BF-BOF steel is approximately USD 150 to 225 per tonne of steel. At USD 2/kg — the 2032 target — the premium narrows to approximately USD 50 to 80 per tonne. CBAM and domestic carbon market pricing are changing the financial calculation — but not enough yet to make unaided H2-DRI commercially viable against coal-based routes.
India’s structural coal dependence is the H2-DRI problem in its starkest form. India imports approximately 90% of its metallurgical coal. A further 182 MTPA of BF capacity is planned or under construction — representing 30 to 40 years of coal-locked steelmaking and a USD 124 to 187 billion stranded asset risk if decarbonisation policy tightens faster than currently expected.
The CBAM calculus changes the economics meaningfully but not decisively in the near term. CBAM costs for BF-BOF steel exported to the EU are approximately USD 65 to 80 per tonne today at current EU ETS prices — real money, but not enough to close the USD 150 to 225 green premium gap on its own. The combination of tightening CCTS targets, CBAM levy pressure, green procurement mandates from FY 2028 and declining hydrogen costs is what creates the viable commercial case — individually, none of these is sufficient.
India’s advantage in H2-DRI is real and structural. It imports 90% of met coal and is exposed to global coking coal price volatility. Green hydrogen produced domestically from solar and wind eliminates that import dependency. The energy security case for H2-DRI is at least as strong as the climate case — and in India’s industrial policy context, it may be more persuasive to more decision-makers.
The H2-DRI process — what it is and why it matters for India
Steelmaking requires iron — and iron ore is iron oxide. Making iron from iron ore means stripping the oxygen away from the iron. In the blast furnace, that stripping is done by carbon — coke, derived from coking coal — which combines with the oxygen to form CO₂. This is why the BF-BOF route is inherently carbon-intensive: the carbon is not just an energy source, it is a chemical reactant in the ironmaking process itself. You cannot reduce CO₂ from a blast furnace by making it more energy-efficient beyond a certain point. The chemistry is the constraint.
Hydrogen-based direct reduction of iron works on a different chemistry. Instead of carbon, hydrogen strips the oxygen from iron ore — combining with it to form water vapour rather than CO₂. If the hydrogen is produced from renewable electricity through electrolysis rather than from natural gas, the ironmaking process produces essentially zero direct carbon emissions. The DRI produced — sponge iron — is then melted in an Electric Arc Furnace, also powered by renewable electricity, to produce liquid steel. The result is a steelmaking route with approximately 85 to 90% lower CO₂ emissions than BF-BOF, and near-zero emissions when the power is fully renewable.
For India, this chemistry matters for a reason that goes beyond climate. India imports approximately 90% of its metallurgical coal — the high-grade coking coal that blast furnaces require. Global coking coal markets are volatile, geopolitically sensitive and increasingly subject to carbon pricing in exporting countries. Every tonne of BF-BOF steel India makes deepens its exposure to that dependency. Green hydrogen produced from domestic solar and wind eliminates it. The energy security argument for H2-DRI is not incidental to the climate argument — it is parallel and reinforcing.
The current cost reality — what green hydrogen actually costs in India
The most honest starting point for any analysis of H2-DRI economics in India is the current price of green hydrogen. The most recent market-discovered price in India was Rs 397 per kg — approximately USD 4.67/kg — from an IOCL tender in June 2025. This is a competitive price by global standards and consistent with the USD 4 to 5/kg range estimated by RMI for ISTS-connected projects in India as of mid-2025. It is significantly below the USD 7 to 10/kg range that characterised early project bids in 2022 and 2023. India’s renewable energy cost advantage is real and widening.
But USD 4.67/kg is still far above the level at which H2-DRI becomes cost-competitive with conventional steelmaking. The academic break-even analysis from the Lawrence Berkeley National Laboratory puts the competitive threshold — where H2-DRI becomes cost-equivalent to NG-DRI in levelised cost of steel — at approximately USD 1.63 to 1.70/kg of hydrogen. The National Green Hydrogen Mission’s director, Shri Abhay Bakre, stated in September 2025 that green hydrogen costs will reach USD 2/kg by 2032. That is still above the competitive threshold, though close enough that with carbon pricing, CBAM levies and declining electrolyzer costs, H2-DRI could be financially viable in some configurations by the mid-2030s.
The gap between USD 4.67/kg and USD 1.63/kg is the core H2-DRI economics problem in India right now. It is a factor of approximately 2.8 times. At USD 4.67/kg, green hydrogen in DRI steelmaking creates a cost premium of approximately USD 150 to 225 per tonne of steel above conventional BF-BOF routes — a very significant cost disadvantage in a commodity market where margins are already thin. At USD 2/kg, that premium narrows to approximately USD 50 to 80 per tonne. At the break-even hydrogen price of USD 1.63/kg, the premium effectively disappears.
Three things drive the cost of green hydrogen down: declining electrolyzer capital costs, declining renewable electricity costs, and increasing utilisation rates as the technology matures. All three are moving in the right direction in India. Electrolyzer costs have fallen by approximately 50% since 2020. India’s renewable tariffs are among the lowest in the world. The domestic electrolyzer manufacturing industry — supported by the SIGHT production-linked incentive — is building scale that will reduce equipment costs further. The question is the pace of that cost reduction relative to the commercial urgency created by CBAM, the CCTS and the Green Public Procurement mandate.
What India has actually commissioned — the pilots and investments
The most important recent development in India’s H2-DRI story is the commissioning of JSW Energy’s green hydrogen plant at Vijayanagar in Karnataka in November 2025. This is a genuine milestone — India’s first and largest commercial-scale green hydrogen plant for steelmaking, based on proton exchange membrane electrolysis technology, using Karnataka’s solar and wind resources as its power source.
India’s first commercial-scale green hydrogen plant for steelmaking. Capacity: 10 MW PEM electrolyzer, producing 3,800 tpa of green hydrogen and 30,000 tpa of green oxygen. Located adjacent to JSW Steel’s Vijayanagar DRI facility in Karnataka, with direct pipeline supply. Operates under a seven-year offtake agreement with JSW Steel — part of JSW Energy’s 6,800 tpa SIGHT programme allocation from SECI. A separate MOU commits JSW Energy to supply 85,000 to 90,000 tpa of green hydrogen to JSW Steel by 2030 — roughly 23 times the current commissioned capacity. This scale-up will require the electrolyzer capacity to expand from 10 MW to approximately 300 MW, tracking Karnataka’s expanding solar and wind capacity. The hydrogen supplies JSW Steel’s DRI unit, partially substituting the natural gas currently used in the reduction process — demonstrating that technical integration of green hydrogen into an operating DRI facility is feasible at industrial scale.
JSW Steel has committed USD 1.2 billion to a new hydrogen-ready DRI plant at its Vijayanagar complex, with a designed capacity of 1.5 MTPA. The plant will initially operate on a mix of natural gas and hydrogen before transitioning progressively to 100% green hydrogen as the Vijayanagar electrolyzer capacity scales toward the 90,000 tpa supply target. This is the design philosophy that enables commercial viability before green hydrogen reaches break-even cost — starting on NG-DRI economics and transitioning as hydrogen costs fall, rather than waiting for full competitiveness before committing capital. JSW Steel’s group decarbonisation target is a 42% reduction in carbon intensity by 2030 from a 2005 baseline.
The Ministry of Steel awarded five pilot projects for hydrogen use in steelmaking under the National Green Hydrogen Mission’s Rs 455 crore steel sector allocation. The three categories are: 100% hydrogen-based DRI production (government covers 70% of eligible costs); hydrogen injection into existing blast furnaces to reduce coal and coke consumption (50% cost coverage); and blending hydrogen with natural gas in existing DRI plants (50% cost coverage). The initial hydrogen requirement can be met by any source, but final implementation mandates green hydrogen. Two of the Ministry of Steel’s awarded pilot projects are for 100% hydrogen-based DRI in vertical shaft furnaces; one is for hydrogen injection into an existing blast furnace. These pilots are designed to generate operating data that informs the commercial case for H2-DRI at scale.
Jindal Steel and Power Limited has disclosed plans for green hydrogen integration at its Angul DRI facility in Odisha — one of India’s largest DRI complexes. The specific scale and timeline have not been publicly disclosed in detail, but the intent aligns with JSPL’s broader decarbonisation commitments and the SIGHT programme structure. Angul’s location in Odisha — a state with significant renewable resource potential and a strategic priority for aluminium and steel decarbonisation — makes it a natural candidate for hydrogen integration once the economics improve.
Both Tata Steel and ArcelorMittal Nippon Steel India have disclosed hydrogen-in-steelmaking trial programmes. Tata Steel’s focus includes hydrogen injection into blast furnaces as a transitional decarbonisation measure, which does not require a DRI route but reduces coke consumption and associated CO₂. AM/NS India’s H₂-DRI trials are exploring the technical parameters for hydrogen integration at its existing DRI-EAF facilities. These trials sit at lower technology readiness than the JSW Vijayanagar commissioning but represent the industry-wide move toward hydrogen as a serious operational input rather than a theoretical future technology.
How CBAM changes the financial calculation
The green steel premium — the additional cost per tonne of H2-DRI steel versus BF-BOF steel — exists in isolation from the carbon pricing environment. But Indian steel producers do not operate in isolation. CBAM, the CCTS and the Green Public Procurement mandate are all applying countervailing pressure on the other side of the equation, making conventional BF-BOF steel progressively more expensive relative to its low-carbon alternatives.
At current EU ETS prices of approximately €60 to €70 per tonne of CO₂, the CBAM levy for an Indian BF-BOF producer exporting to Europe — at an average emission intensity of 2.55 tCO₂/ts — is approximately €153 to €179 per tonne of steel (2.55 tCO₂/ts multiplied by the EU ETS price). This is already in the same order of magnitude as the green steel premium at current hydrogen prices. The arithmetic is not yet favourable for H2-DRI — the green premium is still larger than the CBAM saving — but the direction of movement is significant. As EU ETS prices rise toward the €100 to €130 range that is projected under the EU’s Fit for 55 scenario by 2030, and as hydrogen costs fall toward USD 2/kg, the CBAM-adjusted economics of BF-BOF versus H2-DRI narrow substantially.
| Scenario | H₂ price | Green steel premium vs BF-BOF (est.) | CBAM cost BF-BOF to EU | Net financial gap |
|---|---|---|---|---|
| Today (2026) | USD 4.67/kg | USD 150–225/t steel | ~€153–179/t steel (EU ETS ~€65/t) | Still H2-DRI disadvantage |
| 2028–2030 Mission trajectory | USD 2.5–3/kg | USD 80–120/t steel | ~€180–230/t steel (EU ETS ~€80/t) | Approaching parity for EU exports |
| 2032 and beyond Mission target | USD 2/kg | USD 50–80/t steel | ~€225–260/t steel (EU ETS ~€100/t) | H2-DRI potentially competitive for EU-export producers |
The table makes the trajectory clear. For Indian producers exporting to Europe, the combination of declining hydrogen costs and rising CBAM pressure creates a financial crossover point somewhere between 2030 and 2035 — contingent on hydrogen costs falling as projected and EU ETS prices continuing their upward trend. For domestic-market producers with no CBAM exposure, the crossover comes later and depends more heavily on domestic carbon market pricing through the CCTS and public procurement mandates that create a premium for green-rated steel.
The CBAM-CCTS financial calculation is not the only lens through which H2-DRI economics should be evaluated in India. India imports approximately 90% of its metallurgical coal — primarily from Australia, the United States, Russia, Mozambique and Indonesia. Coking coal prices spiked to over USD 400 per tonne in 2022, adding directly to steel production costs across India’s entire primary sector. A 1.5 MTPA H2-DRI plant running on green hydrogen eliminates the coking coal dependency for that capacity entirely — removing approximately 1.5 MTPA of coal import exposure and the associated price volatility. At current met coal import prices of USD 200 to 250 per tonne, the coking coal cost saving partially offsets the green hydrogen cost premium. This is why leading producers like JSW Steel frame H2-DRI as an energy security investment alongside a climate one — and why IEEFA characterises it as providing India with “steel without the energy security challenge.”
The structural problem — 182 MT of new BF capacity
The most important number in India’s H2-DRI economics story is not the current hydrogen price. It is the 182 MTPA of BF capacity currently planned or under construction. India’s steel capacity target is 300 MTPA by 2030, up from approximately 205 MTPA today. The overwhelming majority of that capacity expansion is being built through the BF-BOF route — the coal-intensive primary production pathway.
A steel plant built today operates for 30 to 40 years. A BF-BOF plant commissioned in 2026 or 2027 will be operating in 2056 or 2057 — well into the period when India’s net-zero 2070 pathway requires deep decarbonisation of the steel sector. Global Energy Monitor estimates that the stranded asset risk from India’s BF-BOF capacity in development is USD 124 to 187 billion — capital that would be written down if carbon policy tightens faster than currently expected, as the global net-zero trajectory requires. This is the “build now, decarbonise later” risk that IEEFA and GEM have both documented extensively.
The counterargument from India’s steel industry is that the country’s infrastructure needs are immediate and urgent, that BF-BOF produces the structural steel grades required for Indian construction that scrap-based EAF cannot yet fully substitute, and that requiring producers to wait for H2-DRI competitiveness before building new capacity would delay India’s infrastructure programme by a decade. This is a genuine policy tension, not a bad-faith argument. The Ministry of Steel’s approach — pilot projects, green steel taxonomy, public procurement mandates, SIGHT incentives — is designed to create the conditions for H2-DRI to be commercially viable by the time the next wave of capacity investment decisions comes, rather than imposing a technology mandate today that the economics do not yet support.
One important design choice that partially addresses the lock-in risk: JSW Steel’s USD 1.2 billion DRI plant at Vijayanagar is explicitly designed as “hydrogen-ready” — meaning the engineering is set up to transition from natural gas to hydrogen as the feedstock without requiring a fundamental redesign of the plant. Building natural gas DRI today with hydrogen-ready engineering, in a location with access to renewable electricity and a demonstrated electrolyzer supply chain, is a different risk profile from building a BF-BOF plant. It is a bridge technology strategy, and in the current economics, it is probably the right one.
What needs to happen for H2-DRI to scale in India
The economic conditions for H2-DRI to scale beyond pilots and demonstration projects in India require a convergence of five factors. None is individually sufficient. Together, they create the viable commercial case.
Green hydrogen cost below USD 2/kg
The National Green Hydrogen Mission’s USD 2/kg by 2032 target is achievable if electrolyzer manufacturing costs continue declining, domestic renewable tariffs hold at current levels, and the ISTS waiver for renewable electricity continues. India’s geographic distribution of solar and wind resources — concentrated in Rajasthan, Gujarat, Tamil Nadu and Andhra Pradesh — combined with the ISTS waiver means that the cheapest renewable electricity can be wheeled to electrolyzers wherever they are located. RMI estimates ISTS-connected projects can achieve USD 4 to 5/kg currently, with a clear trajectory downward.
Domestic iron ore quality improvement
H2-DRI requires high-grade iron ore pellets — typically above 67% iron content — because the hydrogen reduction process is less forgiving of impurities than the blast furnace. India’s domestic iron ore is predominantly lower grade, requiring beneficiation and pelletising. The SIGHT programme’s focus on 100% H2-DRI pilots is partly about generating operational data on how well Indian iron ore can be processed to meet DRI-grade requirements. If Indian iron ore cannot consistently achieve DRI grade, imports of high-grade ore from Australia or Brazil add to the cost structure.
Carbon pricing that reflects the full cost gap
The CCTS’s current intensity-based targets create a modest carbon price signal — CCC prices in the early market are expected to be modest. For H2-DRI economics to be driven by domestic carbon market incentives alone, CCC prices would need to rise substantially — to levels more consistent with the CBAM levy than with India’s current development-stage carbon market. The CCTS tightening trajectory, combined with CBAM pressure on EU-oriented producers, creates the right directional incentive even if the current absolute price is insufficient.
Green public procurement creating guaranteed offtake
The Green Public Procurement Policy mandating 25 to 37% green-rated steel in government projects from FY 2028 is potentially the most powerful near-term demand-creation instrument for green steel in India. Government procurement of 30.6 MTPA of steel at a 25% green mandate would create immediate offtake for 7.6 MTPA of certified low-carbon steel per year. That is a large, predictable demand signal that green steel producers can raise debt and equity against. The CII report projects it could drive 10.6 MTPA of green steel consumption by FY 2031 — which is itself a market signal that would pull hydrogen supply investment forward.
Targeted public finance for early H2-DRI projects
IEEFA’s November 2025 analysis concludes that the financing gap for early H2-DRI projects — which are technically proven but still considered high-risk by commercial lenders — requires public capital to bridge. The proposed Rs 5,000 crore National Mission for Sustainable Steel, structured as production-linked incentives, concessional loans and risk guarantees, is the instrument designed for this purpose. With 80% of those funds expected to target secondary steel mills and early-stage low-carbon primary production, the mission is oriented toward the producers who most need bridging capital.
Frequently Asked Questions
What hydrogen price does H2-DRI need to become commercially competitive with BF-BOF?
With no carbon pricing, H2-DRI becomes cost-competitive with NG-DRI at approximately USD 1.63 to 1.70/kg of hydrogen (LBNL analysis). Competitive with BF-BOF requires a similar or slightly lower price depending on plant configuration, iron ore quality and energy costs. With carbon pricing — CBAM plus CCTS — the effective break-even hydrogen price is higher, because the carbon cost imposed on BF-BOF steel partially offsets the green premium. At a combined CBAM plus CCTS carbon cost of USD 50 to 80 per tonne of steel, the break-even hydrogen price for H2-DRI vs BF-BOF in an EU-export context moves up to approximately USD 2 to 2.5/kg — which is consistent with the Mission’s 2032 cost target.
Is India’s DRI route an advantage for H2-DRI adoption?
Yes — a significant one. India is the world’s largest producer of DRI (direct reduced iron), producing approximately 55 MTPA. The DRI route — whether coal-based, gas-based or hydrogen-based — uses a shaft furnace where the reducing gas (coal gas, natural gas or hydrogen) contacts iron ore. Switching from NG-DRI to H2-DRI in an existing shaft furnace is a lower capital step than building H2-DRI from scratch at a BF-BOF plant. India’s large existing DRI infrastructure — particularly gas-based DRI plants that already handle the shaft furnace technology — is a structural advantage for H2-DRI adoption that China, Japan and South Korea, which are predominantly BF-BOF producers, do not share to the same degree.
How much green hydrogen would India’s steel sector need by 2030?
EY projects that steelmaking could require approximately 5 MTPA of green hydrogen by 2030 if the transition to H2-DRI proceeds at an accelerated pace. India’s National Green Hydrogen Mission targets 5 MTPA of total domestic green hydrogen production by 2030 across all sectors. Steel alone consuming 5 MTPA by 2030 would require the entire national production target — which is why IEEFA and others emphasise that steel demand for green hydrogen is a 2030 to 2050 story, not a 2030 story, with the commissioned JSW Vijayanagar plant’s 3,800 tpa being the genuine starting point of a much longer scaling trajectory.
What is the emission reduction from H2-DRI versus BF-BOF?
H2-DRI using green hydrogen and renewable electricity for the EAF achieves approximately 85 to 90% reduction in direct CO₂ emissions compared to BF-BOF — bringing emission intensity from approximately 2.5 to 3.0 tCO₂/ts (BF-BOF range in India) to approximately 0.3 to 0.5 tCO₂/ts. This places H2-DRI well within the five-star tier of India’s Green Steel Taxonomy (below 1.6 tCO₂e/tfs) and effectively eliminates CBAM exposure for exports to Europe, as the embedded emissions fall below the EU CBAM benchmark of 1.37 tCO₂/t for steel.
How does the SIGHT programme support H2-DRI in steel?
SIGHT provides two categories of incentive: production-linked incentives for domestic electrolyzer manufacturing (reducing equipment costs), and demand incentives for green hydrogen production (reducing the cost gap with grey hydrogen). For steel applications, SECI has awarded specific capacity under SIGHT for DRI use, with offtake agreements providing revenue certainty for early producers. JSW Energy’s Vijayanagar plant operates under a 7-year SECI offtake agreement. The Ministry of Steel separately provides 50 to 70% coverage of eligible pilot project costs for H2-DRI demonstration, not including hydrogen production costs. The combined effect is to make the early project economics work at current hydrogen prices while the technology and supply chain mature toward commercial competitiveness.