Content

• Transitioning to green steel
• Cities of debt

Transitioning to green steel

A. Issue in Brief

• India’s net-zero target by 2070 heavily depends on decarbonising the steel sector, which contributes ~10–12% of India’s total CO₂ emissions and ~25–30% of industrial emissions, making it one of the largest hard-to-abate sectors in the economy.
• India is the 2nd largest steel producer globally (140+ million tonnes/year), and demand is projected to double by 2030–31 under National Steel Policy, risking a surge in emissions without green transition.
• The Ministry of Steel set up 14 task forces with industry and experts to map technological, financial, and policy pathways for low-carbon steel, highlighting the need for demand creation and fiscal support.
• The main barrier is the “green premium” (20–40% higher production cost globally for green steel) due to hydrogen costs, renewable energy prices, and new capital investments.

Relevance

• GS 1 (Geography – Resources & Industry)
  Steel industry location factors; mineral–energy linkages; shift toward renewable-energy-based industrial geography.
• GS 3 (Environment, Infrastructure)
  Industrial decarbonisation, net-zero strategy, green hydrogen mission, carbon markets, sustainable infrastructure materials.

B. Static & Policy Background

Policy Framework

• National Steel Policy 2017 targets 300 MT capacity by 2030–31, implying major emission implications if based on coal-intensive BF-BOF routes.
• India’s climate actions align with Paris Agreement NDCs, Panchamrit goals (COP26), and Long-Term Low Emission Development Strategy (LT-LEDS) submitted to UNFCCC.
• Article 48A & 51A(g) provide constitutional backing for environmental protection and sustainable industrial policy.

C. Data & Evidence

• Steel via BF-BOF emits ~2.2–2.5 tonnes CO₂ per tonne of steel, while green hydrogen-DRI-EAF routes can cut emissions by up to 80–90% (IEA estimates).
• India imports 50+ million tonnes of coking coal annually, mostly from Australia, exposing industry to price shocks and forex pressure.
• Steel accounts for ~18% of cost in large infrastructure projects, so even a 30% green premium raises project cost only ~5.5%, and partial adoption (~20%) raises costs ~1.1%.
• Globally, companies like SSAB (Sweden) and ArcelorMittal have already produced fossil-free or low-carbon steel using hydrogen pilots.

D. Governance / Administrative Dimension

• Public procurement is ~20–30% of India’s GDP-linked expenditure space (broad estimates including all levels), making it a powerful demand lever to create markets for green steel.
• Sectors like Railways, highways, defence, housing (PMAY), and urban infrastructure are large steel consumers where government demand can anchor green transition.
• India has introduced a Green Steel Taxonomy with 3-, 4-, 5-star ratings based on emission intensity, providing standardisation for procurement and market signalling.

E. Economic Dimension

• Early adoption may raise costs marginally but reduces long-term exposure to EU CBAM, which will tax carbon-intensive imports, affecting Indian steel exports to Europe.
• Green steel reduces dependence on imported coking coal and aligns with National Green Hydrogen Mission (₹19,700+ crore outlay) to build domestic hydrogen capacity.
• Transition can position India as a future exporter of green steel as global buyers (auto, construction, tech firms) adopt ESG-compliant sourcing norms.

F. Environmental Dimension

• Steel decarbonisation is essential to meet India’s target of reducing emissions intensity of GDP by 45% by 2030 (from 2005 levels).
• Green steel lowers not only CO₂ but also particulate and SOx emissions, improving local air quality in steel clusters like Odisha, Jharkhand, and Chhattisgarh.

G. Social / Ethical Dimension

• Protects long-term jobs in steel regions by future-proofing the industry against global carbon regulations and declining coal economics.
• Ethical principle: inter-generational equity, ensuring today’s industrial growth does not compromise future climate stability.

H. Global Examples

• Japan’s Green Purchasing Law mandates preference for environmentally friendly goods in public procurement.
• California Buy Clean Act (2017) sets embodied carbon limits for construction materials, including steel.
• EU Green Public Procurement (GPP) integrates lifecycle emissions in government purchasing.

I. Challenges / Gaps

• High capex for hydrogen-based DRI plants and limited green hydrogen availability.
• Lack of verifiable MRV (Monitoring, Reporting, Verification) systems for carbon intensity at product level.
• Procurement officers fear audit/vigilance issues when deviating from L1 (lowest cost) norms.
• Fragmented coordination between Steel, Finance, Power, and Environment ministries.

J. Way Forward

• Integrate Green Star ratings with QR-based digital verification and QCI accreditation for instant product authentication.
• Reform GFR/procurement norms to shift from L1 to “Value for Money + Sustainability” criteria.
• Align PLI schemes + National Green Hydrogen Mission + public procurement so the state acts as both subsidiser and anchor buyer.
• Introduce phased standards tightening (3★ → 5★ post-2030) to provide predictable transition signals.
• Pilot large-scale procurement through Indian Railways and NHAI to create demonstration effects.
• Develop a robust carbon market and green taxonomy alignment to monetise emission reductions.

K. Exam Orientation

Prelims Pointers

• BF–BOF (Blast Furnace–Basic Oxygen Furnace) uses coking coal as fuel and reductant → high-emission route (~2–2.5 t CO₂/tonne steel).
• DRI–EAF (Direct Reduced Iron–Electric Arc Furnace) using green hydrogen + renewable electricity → low-emission steel (up to 80–90% lower CO₂).
• Green steel = steel produced with significantly lower lifecycle CO₂ emissions, typically via hydrogen-based DRI and renewable-powered EAF.
• Steel sector contributes ~7–8% of global CO₂ emissions (International Energy Agency – IEA).
• India is the 2nd largest crude steel producer and a major importer of coking coal.
• EU CBAM (European Union Carbon Border Adjustment Mechanism) places carbon cost on imports of steel, cement, aluminium, fertilisers, electricity, hydrogen.
• Green hydrogen = hydrogen produced by electrolysis of water using renewable energy.

Mains Practice Question (15 Marks)
“Green public procurement can accelerate industrial decarbonisation in hard-to-abate sectors.” Discuss with reference to India’s steel sector and net-zero target.

Cities of debt

A. Issue in Brief

• The updated Urban Challenge Fund (UCF) pushes market-linked urban infrastructure financing, with the Centre funding 25% of project cost only if cities mobilise ≥50% via bonds, loans, or PPPs, signalling a shift from grants to credit-based urban development.
• This model aims to instil fiscal discipline and reform incentives, but risks overburdening financially and institutionally weak ULBs, many of which are already struggling to complete projects under multiple centrally sponsored schemes.
• The debate reflects a deeper tension between market-based urban financing and constitutional decentralisation, where ULBs lack real fiscal autonomy yet are expected to behave like creditworthy entities.

Relevance

• GS 1 (Urbanisation & Society)
  Urbanisation challenges; city-level inequality; stress on urban infrastructure and services.
• GS 2 (Polity & Governance)
  74th CAA, 12th Schedule, State Finance Commissions; fiscal federalism; decentralisation and ULB autonomy.

B. Constitutional / Legal Dimension

• 74th Constitutional Amendment Act (1992) envisaged devolution of functions, funds, and functionaries to ULBs, but in practice fiscal powers remain heavily controlled by States.
• 12th Schedule assigns urban planning, water supply, sanitation, slum improvement, etc., to ULBs, yet revenue authority for major taxes is limited, creating vertical fiscal imbalance.
• State Finance Commissions (SFCs) are constitutionally mandated but often delayed, under-implemented, or politically influenced, weakening predictable fiscal transfers to cities.

C. Governance / Administrative Dimension

• Many ULBs face weak accounting systems, poor project preparation, and limited technical staff, reducing their ability to design bankable projects or manage complex PPP and bond financing structures.
• Underutilisation and delays in schemes like AMRUT, SBM-U 2.0, Smart Cities, PMAY-U indicate capacity and coordination constraints, not merely funding shortages.
• Lack of clear eligibility criteria and application processes for UCF, as noted in parliamentary queries, raises risks of discretion and politically driven allocation.

D. Economic / Fiscal Dimension

• ULBs in India raise only about 0.6–0.8% of GDP as own-source revenue, far lower than cities in many middle-income countries, limiting their debt-servicing capacity.
• Property tax, the most stable local tax globally, remains under-assessed and poorly collected in India, often due to outdated valuation and political reluctance to revise rates.
• Conditioning grants on borrowing may push cities toward commercially viable projects (e.g., real estate, monetisable assets) rather than essential but low-return services like drainage or slum upgrading.

E. Social / Equity Dimension

• Market-oriented financing can sideline poorer and smaller cities, which lack creditworthiness, thereby widening inter-city inequalities and contradicting balanced regional development goals.
• Focus on “bankable” infrastructure risks neglecting informal settlements, renters, and urban poor, whose needs yield high social returns but low financial returns.
• If ULBs rely more on user charges and land monetisation to repay loans, urban services may become less affordable for low-income groups.

F. Political Economy Dimension

• Local taxation and transfers are shaped by State-level political considerations, where raising property tax or user fees is electorally sensitive, constraining ULB revenue reforms.
• Expecting cities to “earn their growth” without fixing intergovernmental fiscal design shifts responsibility downward without corresponding authority.
• There is a broader trend since 2014 of reducing unconditional public support and increasing reliance on private finance, seen in sectors like higher education, health, and power.

G. Evidence & Cross-Sector Lessons

• Experience with UDAY in the power sector showed that financial restructuring without governance reform leads to recurring stress and non-adherence.
• Studies on National Health Mission fund flows reveal delays and reimbursement-based systems forcing frontline institutions to pre-finance services.
• Higher education infrastructure loans turned many public universities into debt-bearing institutions reliant on fee hikes, affecting access and equity.

H. Key Risks / Criticisms

• Risk of debt accumulation without revenue reforms, leading to future bailouts or stalled projects.
• Overemphasis on creditworthiness may distort urban priorities toward visible, revenue-generating projects.
• Weak land records and frequent master plan violations undermine investor confidence and project viability.
• Potential subordination of urban policy to “bankability” rather than service guarantees and spatial justice.

I. Way Forward

• Strengthen municipal capacity: professional cadres, urban financial management systems, and project preparation facilities at State and regional levels.
• Reform property tax systems through GIS mapping, rational valuation, and improved collection efficiency to build stable own-source revenues.
• Ensure predictable, formula-based fiscal transfers via empowered and regularly functioning State Finance Commissions.
• Use municipal borrowing selectively for revenue-generating or productivity-enhancing infrastructure, not for basic services that require grant support.
• Introduce minimum urban service guarantees (water, sanitation, housing) before linking support to market access.
• Develop pooled financing mechanisms and credit enhancement for smaller ULBs rather than city-by-city exposure.
• Improve transparency, standardised criteria, and independent evaluation to reduce politicisation of funds.

J. Exam Orientation

Prelims Pointers

• 74th CAA relates to urban local self-government; 12th Schedule lists ULB functions.
• State Finance Commissions recommend devolution to local bodies, analogous to Finance Commission at Union level.
• Municipal bonds are a debt instrument for ULBs, but repayment depends on stable revenue streams.

Mains Practice Question (15 Marks)

“Market-based financing can improve urban infrastructure but may weaken equity and accountability if local capacity is low.” Critically examine in the context of Urban Local Bodies in India.