Buy Carbon Credits or Cut Emissions? The Abatement Cost Maths for Indian Steel Plants
On 26 June 2026 the Ministry of Environment, Forest and Climate Change issued a revised draft notification setting greenhouse gas emission intensity targets for 255 iron and steel units under the Carbon Credit Trading Scheme, 2023. It amends the Greenhouse Gases Emission Intensity Target Rules, 2025, uses 2023-24 as the baseline year, and fixes targets for compliance years 2025-26 and 2026-27. Those units carry a combined baseline of roughly 358.6 million tonnes of CO2 equivalent.
That makes iron and steel the largest single block of India's compliance carbon market — and it turns a policy debate into a budget line. If your plant lands short of its intensity target, you can buy Carbon Credit Certificates or spend capital to cut the tonnes. Here are both costs, side by side.
Who is covered, and on what basis
The draft covers integrated majors including JSW Steel, Tata Steel, SAIL and ArcelorMittal Nippon Steel, alongside sponge iron, alloy and secondary producers across ten states. Targets are set in tonnes of CO2 equivalent per tonne of product, not as absolute caps, so a plant that grows output can still comply if intensity falls fast enough. A 60-day objection window ran from publication, so final figures may still move.
Scale matters here. Indian steelmaking averages about 2.55 tonnes of CO2 per tonne of crude steel against a global average near 1.85, and the Ministry of Steel's Green Steel Taxonomy, released in December 2024, sets 2.2 tCO2e per tonne of finished steel as the entry threshold for a green rating. Most Indian plants start above that line.
What abatement actually costs in Indian steel
Climate Policy Initiative's cost-of-abatement analysis for Indian steel gives the clearest ladder available. Ranked cheapest to dearest:
Energy efficiency and heat recovery — coke dry quenching, top pressure recovery turbines, waste heat recovery — carry a negative cost of abatement, but cumulatively shave only 10 to 20 per cent off emission intensity.
Scrap-based EAF secondary steel cuts intensity 60 to 85 per cent below USD 10 per tonne of CO2, with negligible impact on production cost. The constraint is long-term availability of low-cost domestic scrap.
Top gas recycling blast furnace and smelting reduction cut intensity 20 to 25 per cent at roughly USD 35 per tonne, adding about 5 per cent to levelised cost. Both are at demonstration stage.
Partial green hydrogen in gas-based DRI, at a 10 to 60 per cent blend, cuts intensity up to 80 per cent versus coal-based DRI at roughly USD 50 per tonne — but adds 20 to 25 per cent to levelised cost at hydrogen near USD 5 per kg.
Hydrogen injection into a conventional blast furnace delivers a 15 to 20 per cent cut at close to USD 450 per tonne. Uneconomic without a viability gap fund.
CPI places most high-potential levers between USD 30 and USD 100 per tonne of CO2, and notes its figures assume greenfield investment — retrofit costs at an existing plant run higher.
What a Carbon Credit Certificate will cost
The trading side is built. CERC notified the CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026 on 27 February 2026, gazetted 3 March 2026. Certificates trade on power exchanges in monthly sessions, and each exchange must have its rules approved by CERC before it can start.
One number is still missing, and it is the one that settles this comparison. Prices are discovered inside a band with a floor and a forbearance price, approved by CERC on a proposal from the Bureau of Energy Efficiency. That band has not been published. Until it is, every buy-versus-build model rests on an assumption.
The penalty is defined, and it is not a fixed ceiling. An entity that fails to surrender enough certificates faces an environmental compensation order from the Central Pollution Control Board equal to twice the average price at which certificates traded during that compliance year's cycle. Non-compliance gets most expensive exactly when credits are scarce.
How to sequence the decision
Do the negative-cost work first. Efficiency and heat recovery retrofits pay for themselves and cut the number of certificates you need, whatever the band turns out to be.
Size the gap in tonnes before you price it. Multiply projected output by the difference between current intensity and your notified target. That tonnage, not the credit price, drives the budget.
Model three price cases. Run the shortfall at low, mid and high certificate prices, then add the twice-average penalty as your do-nothing scenario.
Check the scrap maths separately. Raising scrap charge is the cheapest real abatement available to Indian steel — on CPI's numbers, cheaper than most plausible certificate prices.
Keep an offset lane open. The CCTS offset mechanism lets non-obligated projects earn credits, which matters if your group holds land, biomass or renewable assets outside the covered entity.
The export overlay
If you ship to Europe, the answer shifts. CBAM entered its definitive phase on 1 January 2026: only authorised declarants may import covered goods, reported emissions must be verified, and 2026 imports carry certificate cost exposure. A certificate bought for domestic compliance does not automatically reduce a CBAM bill — what counts is the carbon price actually paid on the exported consignment. Treat CCTS compliance and CBAM exposure as two linked but separate budgets.
Csquare helps Indian manufacturers run this sequence — measuring the intensity gap, sizing the certificate requirement, and sourcing verified carbon credits where abatement cannot close it in time. Talk to our team to scope your plant's CCTS position before the final notification lands.
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