Domestic climate policy for the Indian steel sector

The problem of creating an appropriate domestic sectoral climate policy by emerging economy governments is examined through the case study of India's iron and steel sector. Unique circumstances and patterns exist in different sectors of emerging economies so a single international policy may be unable to reconcile subtle yet important country-specific drivers. Shortcomings in the form of distortions could arise if policies are designed with a short time horizon. A fully integrated, long-term and well-planned domestic policy is required. The emergence of a strong domestic carbon price to guide sector expansion is identified as a key feature for such a framework. Additional support through international cooperation would help to gain the necessary political support while stabilizing the policy environment and facilitating substantial sectoral abatement. Policy relevance: Fuel savings and emissions reductions in India's steel sector can be delivered firstly by improving energy efficiency in existing and new plants, secondly by shifting to efficient production processes, and thirdly by using steel more efficiently as a component or by substituting low-carbon alternatives. The CDM only supports energy savings and emissions reductions from efficiency improvements in the production process, but cannot target the other two opportunities. Domestic policies, including improved product standards and carbon pricing, can create broader benefits for the Indian economy and global climate. However, to achieve domestic support for these measures, international cooperation and coordination are necessary. A key question is how support can be structured without providing subsidies for the production of a carbon-intensive commodity.