Why Jharkhand's small steelmakers risk missing the green bus — despite India's decarbonisation drive
The report — Financing the MSME Transition in Jharkhand's Steel Sector — paints a stark picture. Jharkhand's steel sector emits nearly 3.9 million tonnes of carbon dioxide every year, largely from coal-based direct reduced iron (DRI) units and older induction furnaces. These MSMEs, critical to local employment and supply chains, currently have no viable path to decarbonise, with limited access to finance, technology or government incentives.
India's steel output touched 150 million tonnes in 2024 and is expected to jump to 255 million tonnes by 2030. While large players like Tata Steel and JSW Steel are ramping up investments — JSW has committed ₹86,000 crore to cut its emission intensity to 1.95 tonnes CO₂ per tonne of crude steel by 2030 — the MSME segment is falling behind.
'Steel is one of the most energy and emissions intensive industrial subsectors. Without targeted support, MSMEs risk being excluded from India's low-carbon transition, threatening jobs and deepening regional disparities,' said Labanya Prakash Jena, co-author of the report and Sustainable Finance Consultant at IEEFA.
In Jharkhand, MSMEs account for 3.6 MT per annum of coal-based DRI capacity, operating alongside 19 MT of hot metal production by larger integrated steel producers like Tata Steel and SAIL. Despite the state's strong steel legacy, most small units are stuck with outdated technologies and cannot easily transition to low-emission alternatives like green hydrogen or electric arc furnaces.
The report notes that most MSMEs still treat energy efficiency and renewable energy as 'non-core' investments, with long payback periods and unclear returns. Even Energy Service Companies (ESCOs), which could support these transitions, face their own challenges — from weak balance sheets to lack of access to working capital.
To address this financing gap, IEEFA has proposed the creation of a Green Financing Facility for Just Transition (GFF-JT) in Jharkhand. This would be a dedicated project preparation facility designed to help MSMEs and ESCOs access early-stage capital for feasibility studies, financial structuring, and legal support — essentially enabling them to structure bankable green projects that public and private investors can fund.
'By providing early-stage funding for essential services such as technical and commercial feasibility studies, financial structuring, GFF-JT can help advance economically viable projects to a stage that allows public and private investment,' said Shantanu Srivastava, Sustainable Finance and Climate Risk Lead at IEEFA.
The proposed facility would be anchored by the Government of Jharkhand, supported by donor agencies, public finance institutions and philanthropies. It could also integrate with existing government schemes such as SIDBI's Green Finance programme, the MSE-GIFT scheme, and the Rooftop Solar Subsidy.
The report outlines three practical ways in which MSMEs can reduce emissions: improving energy efficiency, adopting renewable energy, and switching to material-efficient practices. Energy efficiency alone could reduce coal use by up to 25 per cent and increase productivity by 20 per cent. Rooftop solar and open-access power procurement could also help cut costs and emissions.
The report also warns that without support, India's green steel journey could deepen inequality within the sector. While Tata and JSW adopt low-carbon technologies, smaller firms risk becoming uncompetitive or shutting down entirely — impacting jobs, supply chains, and regional economies. IEEFA recommends that the GFF-JT be eventually expanded to other key steel-producing states like Odisha, Chhattisgarh and West Bengal, where similar challenges exist.
For Jharkhand's steel MSMEs, the report signals a crucial turning point. Without a dedicated financing mechanism, the green transition could bypass the very workers and entrepreneurs who have kept the state's steel furnaces running for decades.>
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