Rough Road to Decarbonisation

Technology-readiness gaps, policy uncertainty, limited access to green finance and lack of green demand remain the biggest challenges for companies to decarbonise

- By Himanshu Ojha

India Inc is staring at a rabbit hole. A deep rabbit hole. A hole that is spouting words such as 'decarbonisation', 'green hydrogen', 'fossil fuel', 'CBAM'...

Manufacturers—especially those in the MSME sector—and policymakers have to tread carefully as the transition to green energy gathers pace across the globe.

Take for instance, the European Union's (EU's) Carbon Border Adjustment Mechanism (CBAM) which is reshaping global trade. Effective from January 1, CBAM is a tax on carbon-intensive imports such as steel, cement and aluminium among other products at the border equivalent to the embedded carbon emission during production.

The steel sector illustrates the scale of the challenge. According to analytics firm S&P Global Commodities at Sea data, India exported about 6.9mn metric tonnes of steel products in 2024, with over 60% exports headed to Europe. This heavy dependence on EU markets poses a financial risk to Indian companies as Indian steel is predominantly produced through the blast-furnace route, which is a highly carbon-intensive production process.

Industrial decarbonisation, therefore, is no longer just a climate imperative for India but is also a competitiveness imperative. “In a world where major economies are imposing carbon-linked trade measures, there is little scope for reversal. 'Dirty steel', aluminium and other high-emission products will face growing resistance,” says Abhishek Saxena, former public policy expert at government think tank Niti Aayog.

However, shifting to cleaner technologies will not be plain sailing for these companies as it remains constrained due to various challenges. According to the Teri-Outlook Business survey among sustainability leaders, technology-readiness gaps, policy uncertainty, limited access to green finance and lack of green demand remain the biggest challenge for companies to decarbonise. This is most visible in hard-to-abate sectors like cement, steel and aluminium.