Europe’s carbon border tax sparks a race for green power in India | Mint

Mumbai: Indian steel and other metal companies are rushing to secure renewable energy deals to reduce their net carbon emissions to avoid penalties under Europe’s upcoming Carbon Border Adjustment Mechanism (CBAM).

The demand is not just from the large steel and aluminium companies – two key products to come under the ambit of CBAM – but also from their suppliers as companies seek to minimize emissions throughout their supply chains.

Renewable energy companies say that the demand is far greater than what they can keep up with and upcoming capacities for the next couple of years are already sold out.

“Due to constraints related to land availability and transmission infrastructure, the earliest solar and wind projects can be delivered is in 2026. This demand has led to early commitments for future projects,” said Vineet Mittal, chairman of Avaada, a renewable energy company.

He estimates that the demand-supply mismatch currently is about 10 gigawatts. For context, India’s total operational wind and solar energy capacity is about 134 gigawatts, as per the Union ministry of new and renewable energy.

Similarly, at Sunsure, another renewable energy producer, companies concerned over the EU’s carbon border tax make up 15% of the customer base. The push for decarbonization coupled with a shortage of renewable energy suppliers for commercial and industrial (C&I) customers like metal companies has led to an acute shortage of available capacity in the short term, according to Shashank Sharma, the founder and chief executive of Sunsure.

“This trend is leading to businesses rushing to secure capacities from dependable renewable energy developers and may lead to an increase in tariffs,” he said. “Consequently, few developers are able to promise power supply to C&I customers until at least 2025-26.”

At Sunsure, 90% of the 1-gigawatt capacity coming up in the next 15 months is already sold out, he said.

The demand is particularly high for round-the-clock (RTC) green power, experts said. Renewable energy from solar irradiation and wind is intermittent and needs additional infrastructure like battery or pumped-hydro storage systems to ensure uninterrupted power.

Avaada’s Mittal said that RTC renewable power will remain in short supply at least till 2027, when a lot of the under-construction pumped-hydro storage plants will become operational. Until then, RTC power supply will largely rely on expensive battery storage systems.

Effective from October 2023, the CBAM regime looks to monitor the carbon emissions imbedded in products imported into the European Union and the UK and levy a tax on the excess emissions compared to baseline for European companies. The levies will start from January 2026 and will be initially applicable to six sectors—iron and steel, aluminium, cement, fertilizers, electricity and hydrogen.

India’s position

Europe is an important export market for Indian steelmakers. India was the second-largest exporter of steel to the EU in 2023 at 3 million tonnes, slightly behind South Korea’s 3.2 million tonnes.

But Indian mills lagged the Koreans squarely in terms of emissions with an average of 2.55 tonnes of carbon dioxide put in the air to make every tonne of steel. In comparison, Korean steelmakers emitted an average of 1.6 tonnes of CO2 for every tonne of steel, as per data from BigMint, a market intelligence firm.

Indian steel companies were the most polluting amongst major exporters to Europe, the data show, with nearly 20% higher average emissions than even the second-worst figures of China.

While Indian steel mills are likely to remain reliant on the highly-polluting blast furnace-based process for the foreseeable future—limiting the scope of any sharp reduction in emissions—they are trying to minimize emissions through the rest of their supply chain.

Among India’s leading steelmakers, JSW is investing in about 2.2 gigawatts of renewable energy at its manufacturing sites, largely through power purchase agreements with group firm JSW Energy. Tata Steel has signed similar agreements with Tata Power.

Aluminium maker Hindalco is looking to operationalize 300 megawatts of renewbale energy by next year. The Vedanta Group, which has the country’s largest aluminium and zinc manufacturing capacities, has set up a group firm Serentica to serve its renewable energy requirements.

Hindustan Zinc has even launched a low-emission line of zinc to sell to steelmakers ahead of CBAM levies from 2026. The company has set up a separate production line that runs on RTC renewable power from Serentica to make this low-emission zinc. Zinc is an important additive for steelmaking.