This is the first of a three part series of blogs on Green Public Procurement (GPP) of low carbon steel in India.

In early 2023, we found ourselves asking a simple question: can the government’s purchasing power help accelerate decarbonisation in one of India’s high emitting sectors?

Steel is essential to India’s growth story but is also one of its most carbon-intensive industries. Policy discussions and industry strategies have largely concentrated on supply-side innovations and technologies, while the potential of public procurement to shape demand has been less emphasised.

At Climate Catalyst, we see Green Public Procurement (GPP) as a critical lever. The government is one of the country’s largest steel consumers, using it to develop infrastructure such as highways, metro rail, airports, power transmission, and public housing. A targeted GPP policy could create early demand for low-carbon steel, send credible signals to the market, and improve cost competitiveness over time.

Why Green Public Procurement?

When we began looking at GPP back in 2022, there was little published analysis on what a steel-focused GPP policy for India could look like, how it might be implemented or what the impact of such a policy might be.

Working with Global Efficiency Intelligence (GEI), we looked to answer some of these questions. We modelled different GPP scenarios and found that a well-designed policy could drive significant emissions reductions from steel used in public projects, with the scale of impact depending on the level of ambition. Government-funded infrastructure accounts for about 27 per cent of total steel consumption in India and government-funded steel use in India emits about 61 million tonnes of CO₂ each year, equal to the annual emissions of 13 million passenger cars. A strong GPP policy could cut this by 8 to 40 million tonnes annually. Such an opportunity to cut emissions at scale is not one India can afford to miss.

In April 2023, the Ministry of Steel acknowledged the importance of GPP, making demand-side levers the focus of one of the 14 expert committees set up to guide its decarbonisation strategy. The committees’ work culminated in the Greening Steel Roadmap released in September 2024, which highlighted the need to generate demand in both public and private sectors. The roadmap projected that public sector steel demand could almost triple from 25 million tonnes in 2022-23 to 67-73 million tonnes by 2030-31.

Given this sharp increase in demand, the roadmap also explored institutional options to channel it effectively. One idea proposed was to create a dedicated green steel procurement agency, modeled on the Energy Efficiency Services Limited (EESL), a public sector company that aggregates demand and enables bulk procurement of energy-efficient appliances. However, the proposal failed to gain traction and was reportedly rejected by the Ministry of Finance, as most steel for government projects is procured indirectly through contractors rather than directly by government agencies. This underlines a critical challenge: unlike energy-efficient appliances, steel flows through complex supply chains, and policy design must work with those realities. It also highlights that the Ministry of Finance will be a central stakeholder in how GPP is ultimately shaped.

Green steel taxonomy: Defining a new standard

While procurement will drive demand, it also needs to be backed by clear definitions of what qualifies as low-carbon steel. The launch of India’s Green Steel Taxonomy in December 2024 was a notable achievement in this regard, with India becoming one of the first in the world to formalise such a taxonomy.

The framework establishes three star-based categories and will be reviewed every three years:

• Three-star: Emissions between 2.0 and 2.2 t‑CO₂e per tonne of finished steel (tCO₂/tfs)
• Four-star: Emissions between 1.6 and 2.0 t‑CO₂e per tonne of finished steel (tCO₂/tfs)
• Five-star: Emissions below 1.6 t‑CO₂e per tonne of finished steel (tCO₂/tfs)

Under the taxonomy, finished steel under 2.2 tCO₂ meets the green threshold for procurement. India’s average is about 2.54 tCO₂ per tonne of crude steel (tCO₂/tcs) (roughly 2.65-2.8 tCO₂/tfs). Getting down to 2.2 tCO₂/tfs thus entails cutting emissions by around 20%. Yet a sizeable group is already there: as of FY25, 32 secondary mills fall between 1.6 and 2.2 tCO₂/tfs and qualify today without major technical upgrades. A few more are within reach and could qualify with modest operational improvements such as a better scrap mix, energy-efficiency tweaks, yield gains, and tighter process control.

This raises two important considerations. First, is a threshold of 2.2 tCO₂/tfs ambitious enough to drive decarbonisation if several producers are already close? While it brings early movers into scope, the risk is that it may not push larger investments in deep decarbonisation technologies. Second, how does India’s taxonomy compare internationally? The global average is already around 1.9 tCO₂/tcs (roughly 2.0–2.1 tCO₂/tfs) and is expected to fall further by 2030. Unless the bar is progressively raised and greater preference is given to four- and five-star steel in procurement, the incentive to invest in deeper cuts over the next five years may weaken.

The taxonomy thresholds cover Scope 1 and 2 emissions and some Scope 3 processes, such as agglomeration and pelletisation. This is a fair starting point, but by excluding mining, transport, and downstream use, the framework risks understating total emissions. Over time, expanding the scope to include or at least require reporting of broader Scope 3 categories will be important to capture the full climate footprint and maintain alignment with evolving international standards.

Following the roadmap and taxonomy launch, reports also emerged that the Ministry of Steel had requested US$1.7 billion from the Ministry of Finance for a Green Steel Mission, which among other things would budget for the public procurement of green steel. However, when the 2025-26 Union Budget was announced, no specific provision for this mission was included. Instead, the only related allocation was ₹455 crore (approx. US$55 million) for green hydrogen pilot projects in the steel sector, under the National Green Hydrogen Mission. Media reports have since suggested that the Ministry of Finance may have been waiting for green hydrogen prices to become more competitive before approving larger-scale investment in green steel.

It has not helped that countries like the United States, where President Trump’s administration has been pulling back from climate commitments, and companies such as ArcelorMittal in Europe rolling back decarbonisation plans, have prompted questions in India about why it should move ahead when the rest of the world appears to be slowing down. But if India wants to establish itself as a leader in green hydrogen, it will need to keep moving forward despite these shifts abroad.

At the same time, the taxonomy’s launch reinforced expectations that a GPP policy would follow as a practical next step. Informal conversations with key stakeholders suggested that the Ministry of Steel had prepared a draft policy internally and submitted a cabinet note in January this year. But progress seems to have slowed, with questions reportedly emerging on how the cost premium for green steel would be managed – whether procurers would pay more, or producers would have to absorb the extra cost.

Managing the green premium will likely require a mix of instruments. International experience suggests options such as viability gap funding, pooled procurement models, or contract clauses that allow partial pass-through of higher costs to project budgets. Development banks and domestic financial institutions could also play a role by offering concessional finance to PSUs or secondary producers participating in early pilots. Without such mechanisms, GPP risks remaining an unfunded mandate.

Last month, an Economic Times article reported that GPP implementation could be pushed to FY28, one year later than the 2027 timeline referenced in the roadmap, which had projected procurement of 27.2 million tonnes of low-carbon steel between FY27 and FY31. The article noted that the proposed mandate would apply to projects with iron and steel procurement above ₹1 crore (approx. US$120,000), with indicative targets of 20% for 3-star, 5% for 4-star, and 1% for 5-star green steel. Senior Ministry of Steel officials have since confirmed at industry events that they are working to align these targets with pricing rules and tender requirements to ensure a smoother transition from conventional steel. However, clear commitments on GPP and a timeline for implementation are still awaited.

Envisioning a future of GPP in India

While a GPP policy for steel is slowly gaining momentum, many of the core building blocks remain unclear. How much green steel will be available in the near term, at what price points, and with what variation across production routes or star ratings? Just as important, who are the major procurers and what are their specific needs and constraints?

Answering these questions is essential to designing a policy that is both ambitious and workable. Without clarity on the price gap between green and conventional steel, it is difficult to judge the budgetary impact for government projects or determine the scale of incentives required. Without understanding what public buyers such as metro systems, highways agencies, and energy companies actually need, the risk is that policy design may end up disconnected from real procurement practices. And without mapping industry readiness, we risk creating standards that only a handful of producers can meet.

The recent Bureau of Energy Efficiency notification provides some early answers to the above questions. BEE has set emissions intensity reduction targets for 253 entities in the steel sector for FY26 and FY27. No primary steel producer has reached below the 2.2 threshold. ArcelorMittal Nippon Steel India’s Hazira facility in Gujarat, however, has been tasked with cutting its emissions from 2.2701 to 2.1696 tCO₂ per tonne over 2026-27, which would likely make it the first integrated producer to qualify as a 3-star facility and eligible to supply steel for public infrastructure projects in the near term.

While these targets offer an early signal of industry progress, they do not fully answer questions on supply availability, pricing, or procurement practices. To build a clearer picture, we have partnered with the Confederation of Indian Industry (CII) – Green Business Centre to examine the availability of green steel in the market and the specific requirements of public sector buyers. Through interviews with integrated and secondary producers, public procurers, standards bodies, and relevant ministries, we are developing a more grounded view of market readiness. A particular emphasis is on surfacing the perspectives of smaller producers, often excluded from policy dialogues, whose participation will be critical to achieving scale.

Reflections from the Raipur roundtable: Understanding current roadblocks to green steel procurement

As part of this research, we co-hosted a roundtable with CII in July 2025 held at the Green Steel Summit in Raipur, which brought together steel producers, government procurers, Public Sector Undertakings (PSUs), and other key stakeholders like the National Institute of Secondary Steel Technology and Bureau of Energy Efficiency. The discussion revealed several key insights.

Early signs suggest that certain public sector companies are open to procuring green steel. For example, a representative from the National Thermal Power Corporation (NTPC), which buys large quantities of steel to build and maintain the boilers at their thermal power plants, said there was no hesitation about bearing the cost premium of greener steel. They were open to exploring modifications to their tender documents to accommodate it, and that it was a natural extension of their broader decarbonisation efforts.

But this level of readiness is not universal. In sectors where costs can be passed through to end users, such as power generation, absorbing green premiums is more feasible. For companies like Steel Authority of India Limited (SAIL), which operate in competitive markets with razor thin margins, the ability to absorb or transfer those costs is far more limited. This highlighted the need for differentiated policy tools that reflect sector-specific constraints.

Structural limitations also continue to stand in the way. Green steel is not yet included in the official Schedules of Rates (SoR) – a government-approved list of materials and prices used for public works. Without this formal inclusion, agencies like Bangalore Metro Rail Corporation Limited (BMRCL) say they cannot legally procure green steel, even if they are willing to. This highlighted the need for procedural reforms to translate intent into action. Alongside SoR inclusion, procurement agencies will also need practical tools to verify compliance. This could include standardised MRV protocols, digital product passports, or a requirement for Environmental Product Declarations (EPDs) to accompany bids. Training procurement officers across ministries and PSUs will also be vital to ensure that the new criteria are not just written into tenders but actually implemented on the ground.

On the supply side, a few producers said they could manufacture 3-star steel but only in limited quantities. They cited a 20 to 25 percent price premium and warned that tighter thresholds in the future would require more support – either via incentives or disincentives for carbon-intensive production routes. Some suggested carbon pricing as a helpful mechanism, at least in the short term.

Secondary steel producers expressed deeper concerns. They highlighted their lack of visibility into future demand, limited access to finance, and the perception that they are less preferred in public tenders. Most procurement agencies and government departments maintain a list of empanelled steel suppliers, which are typically limited to the top five or six integrated steel producers like SAIL, Tata Steel, JSW, JSPL etc. Integrated producers are also often perceived to offer more consistent quality, reinforcing their preference in tenders. As a result, even if smaller or secondary producers are able to meet green steel standards, they worry they will continue to be excluded from major procurement opportunities. Procurement reforms could consider wider empanelment criteria that allow qualified secondary producers to bid, or earmarked quotas that ensure their inclusion.

Procurement decisions can also be location-specific, with agencies required to source steel from within the state where it is produced. This is partly driven by rules and partly by transportation economics, as moving steel over long distances can significantly increase project costs. Over the next few years, green steel supply is likely to remain limited and concentrated in certain regions, so projects in other states may face restricted access unless current state-level sourcing requirements are revised.

Methodological clarity was another recurring theme. There was confusion stemming from differences in how emissions are reported under two separate frameworks. India’s recently launched Carbon Credit Trading Scheme (CCTS) – designed to create a national carbon market – uses crude steel as the reference unit for emissions accounting. In contrast, the green steel taxonomy uses finished steel as the basis for its star rating system. This misalignment has led to uncertainty amongst several players. For example, some secondary steel mills that report 2.2 tCO₂ per tonne of crude steel believe they qualify as 3-star producers, while their actual finished steel intensity may be closer to 2.4 tCO₂.

The NISST, which is the nodal agency for implementing the taxonomy, has been working on a methodology to reconcile the two systems and enable consistent reporting. This will likely be released soon. Unofficially, some decarbonisation experts account for the difference by treating finished steel intensity as roughly nine to ten per cent higher than crude steel intensity.

Participants also raised concerns about how certification would work in plants that use both low-emission and conventional production routes. For example, in facilities running both gas-based Direct Reduced Iron (DRI) and Blast Furnace (BF) operations, there is a risk that emissions from the cleaner gas-based route could get averaged out with the higher-emitting BF route. This would fail to reflect the true impact of cleaner production. One proposed solution is batch-level or product-level certification, which would allow emissions to be measured and credited separately for each production method, rather than at the site level.

Overall, interest in green steel is growing across both industry and the public sector. But unlocking its full potential will require greater policy clarity, reliable emissions data, and targeted reforms to existing procurement systems. Industry players also want to see more regular forums to bring different actors together to ensure smooth implementation of upcoming policies.

GPP: A key piece in the puzzle to unlock India’s green steel future

GPP has another strategic dimension. With the EU Carbon Border Adjustment Mechanism (CBAM) now in force, domestic demand for low-carbon steel can prepare Indian producers for export competitiveness. Seen this way, GPP is not only a climate policy but also an industrial strategy that strengthens India’s position in future global markets. The shift though will not happen overnight. But what is clear is that many parts of the ecosystem are already leaning forward.

The steel industry is beginning to offer low-carbon products. The Minister of State for Steel, Bhupathiraju Varma, recently informed Parliament that 39 iron and steel producers have applied for green steel certification in line with the new taxonomy. Public procurers are also increasingly receptive to embedding sustainability in tenders. The policy frameworks from the green steel taxonomy to national standards are starting to take shape.

What is needed now is coherence. A well-designed GPP policy, backed by clarity on definitions, procurement procedures, incentives, and data standards can play a catalytic role. Done right, it can unlock early demand, enable investment, and send a strong signal that India is serious about leading on industrial decarbonisation.

At Climate Catalyst, we will continue to bring in international best practices, support the development of data and evidence-backed research, convene forums for government and the private sector to collaborate and advocate for enabling policies. Our goal is to build the enabling conditions for a green steel transition that is credible, inclusive, and timely. We are committed to supporting the Government of India in advancing this work and unlocking the full potential of GPP to drive industrial decarbonisation. A single, well-designed policy could deliver transformational change. The question isn’t whether to act, it’s how quickly we can move in the right direction.

If you’d like to learn more about our work on GPP in India or discuss this topic further, get in touch at nandan@climatecatalyst.org

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