Financing Steel Decarbonization

Overview 

The instrument proposes blended financing for adaptable steel decarbonization technologies in a comprehensive money-to-market approach. The goal is to decarbonize horizontal processes from energy feed to product manufacturing and the vertical supply chain ecosystem. This initiative plans to enable target countries to become pioneers in green steel. 

The Problem 

Indian steel industry accounts for 242 Mt of CO2 emissions, which is expected to double by 2030 and more than triple by 2050. In addition, the steel industry, along with other major industries, is a significant contributor to local and regional air pollution. In India, climate and air pollution disproportionality impact vulnerable communities and result in an economic loss of over USD 20 billion per year. 

With increasing awareness and the imminent need for climate action, both government and the steel industry are looking for a comprehensive green solution. Still, India has no structured financial and technology pathway to de-carbonize steel. Also, the Indian industry has limited access or availability of project finance for such high-risk endeavors due to a lack of global capital market access for most. Besides, domestic capital is inherently risk-averse in the absence of proven off-the-shelf solution availability. 

The Solution 

Financing Steel Decarbonization is a holistic money-to-market initiative that can fast track steel decarbonization and de-risk investment by pairing blended financing with project-specific adaptable technology mix to address green steel market demand and project viability. It addresses the steel industry’s decarbonization quest in energy, carbon technologies, manufacturing technologies and processes, supply chain, and market access with an unwavering focus on monitoring, measurement, and transparency of climate, economic and social outcomes to deliver UN Sustainable Development Goals.  

A vital part of this initiative is establishing a de-carbonized (green) end-end steel supply chain and market connectivity, coupled with currency hedging strategies for local currency loans and bonds to further de-risk new investments, incentivizing seamless adoption and transition to de-carbonized steel. Incentive mechanisms and monitoring are continuous by design to align human nature to nature action in a perfect balance of motive and measurement. 

“Industry response to climate transition involves addressing finance, business, technology, and humanity questions to empower a comprehensive Just First approach and deliver Just transition while maintaining industry viability. Creating the proposed financial instrument in collaboration with The Lab will complete the framework to decarbonize hard-to-abate steel industry and enable a climate-resilient economy in line with the UN Sustainable Development Goals in employment, health, equity, and innovation” – Abhijit Basu, Keeper of the Purpose, Smartex  

Target Impact 

The initial focus is to de-risk USD 120 billion new investments in conventional technologies earmarked for doubling steel capacity over the next ten years to avoid lock-in into high emitting technologies and stranded steel assets before expanding to other industry verticals and geographies. 

Decarbonization investments in the Indian steel industry alone are estimated to be worth USD 3 billion+ per year. According to the proponent, the potential impact could be exponentially higher as the initiative gains momentum beyond steel and expands to other countries.