The steel industry is one of the largest producers of greenhouse gases and is responsible for nearly 7-9 percent of global carbon dioxide (CO₂) emissions, primarily due to its extensive application of fossil fuels like coal in conventional blast furnaces. As global warming intensifies, economies worldwide are confronted with the necessity to decarbonize and align with international climate regulations, for instance, negotiations in COP 26 conference to limit the rise in the global temperature to 1.5 degrees Celsius. Green steel has thus emerged as a revolutionary solution for industrial decarbonization, offering a cleaner option to conventional steel manufacturing. Unlike traditional steel, which is produced using coal, green steel is produced using processes that avoid or minimize carbon emissions by utilizing renewable energy sources such as green hydrogen powered by clean electricity. By investing in green hydrogen production, Nepal can be a front-runner in South Asia's clean energy transition, reducing its dependence on fossil fuel imports and enabling a circular economy.

Conventional vs green steel

Over the last two fiscal years, Nepal’s coal imports have risen to meet growing industrial demand, led by steel production. Coal imports during FY 2023-24 totaled about 1.17m tons, from 1.09m in FY 2022-23. From an environmental perspective, 2.83m tons of carbon dioxide was emitted by the coal imports in FY 2023-24. Moreover, conventional steelmaking is a significant source of greenhouse gas emissions—releasing up to 1.8 to 2.9 tons of CO₂ per tonne of steel by employing the conventional blast furnace–basic oxygen furnace (BF-BOF) route. At the same time, electric arc furnace steel (to which the Nepali industry is increasingly shifting) yields around 0.6 tons of CO₂ per ton, especially using scrap or sponge iron. Green steel, manufactured from green hydrogen as a reducing agent rather than coal, is almost carbon neutral. It is reported that around 50 kg of hydrogen is required to produce 1 tonne of steel. Nonetheless, green steel production is initially very costly due to the high price of green hydrogen and renewable infrastructure. 

Import trends

​Nepal has approximately 83 registered iron and steel industries, with 54 specializing in Thermo-Mechanically Treated (TMT) bar manufacturing. The country’s steel melting capacity has significantly increased over recent years, crossing 2m tonnes per annum. In FY 2023-24, Nepal’s total steel and iron market was estimated to be more than $1.12bn and is expected to increase in the upcoming years. Nepal obtains 80 percent of its necessary raw iron materials from India through imports that include MS billets, steel sheets and MS wire. Steel melting capacities in Nepal have grown beyond 2m tons per year during the last few years. In fiscal year 2023-24, Nepal’s sponge iron imports increased by 55 percent year-on-year, reaching a total of around 800,000 tonnes, from 500,000 tonnes in FY 2022-23. Moreover, the total import of iron and steel for FY 2023-24 was reported to be around 1.8m tonnes, and that for FY 2022-23 was reported to be around 1.6m tonnes, highlighting the importance of steel industries in Nepal. 

Nepal’s iron ore reserves

Nepal is aggressively upgrading its iron ore mining capacity to increase local steel production and reduce reliance on costly imports. Nepal has around 10 major iron ore deposits and several minor occurrences across the country, with a total estimated reserve of approximately 208m tonnes, which is expected to be sufficient to meet the country’s steel demand for the next 100 years. Thosey in Ramechhap district is believed to be the oldest iron and steel ore deposit discovered in Nepal with the mine being established in 1893 at Ekan Phedi which was later relocated to Thosey. 

Some of the most extensive reserves lie in the Jhumlabang deposits of Rukum East and the Dhaubadi reserves in Nawalparasi East. Jhumlabang is the biggest iron ore deposit that contains around 200m tonnes of hematite ore in 100 hectares, and Dhaubadi has around 99m tonnes in the same hectare. Moreover, Dhaubadi Iron Company Limited has sent iron ore samples from the Dhaubadi deposit in Nawalparasi to China for a detailed analysis. 

Preliminary results indicate that producing sponge iron is the most feasible option based on the ore’s composition. Currently, the company is in the process of preparing a detailed project report (DPR) to move forward with commercial production. Other deposits at Thoshe (Ramechhap), Labdi Khola (Tanahun), Jirbang and Chitwan provide more chances to boost national production. To utilize these resources, the government has initiated mining development projects at the Jhumlabang and Dhaubadi sites. Major companies like Jagdamba Steels, Jay Ambe Steel, Narayani Ispat and Sarbottam Steel have contributed to this growth through substantial investments. 

A technological impediment

Nepal faces a severe technological barrier since it needs modern reduction systems based on hydrogen together with advanced electrolyzers to produce green hydrogen for steelmaking. The technologies possess substantial capital requirements along with specialized expertise that Nepal currently does not possess. The steel sector of Nepal depends heavily on blast furnace technology, which requires coal as a reduction agent to operate. 

Moving toward green steel operations demands extensive facility upgrades, which both require enormous funding and take a significant amount of time. The government must provide full-scale policy backing for the transition through green hydrogen production subsidies or tax breaks along with R&D funding and industrial regulatory standards that encourage sustainable practices in the industrial sector. Progress in clean energy and industrial decarbonization will face delays because of insufficient permanent policies. Private investors face challenges securing investments for green steel projects as they are reluctant to fund long-term initiatives that depend on unproven new technologies. 

The path ahead

The potential exists for Nepal to establish itself as a sustainable steel production leader through hydropower resource utilization together with its local iron ore reserves. Nepal can reduce its carbon footprint and establish a circular economy by confronting these barriers, decreasing its need for imported coal and iron ore. 

​According to the white paper, Nepal’s estimated installed hydropower capacity is expected to be 28,500 MW by 2035, while the peak demand only reaches 7,581 MW, leaving a surplus of around 21,000 MW. Without proper planning, more than half of the surplus electricity could go waste, which would create a loss of more than Rs 5trn per year. However, if only 10,000 MW of surplus electricity were used, it could generate 1500 kilo tonnes of green hydrogen annually, which could in turn generate around 30m tonnes of green steel, which is well above the expected steel demands. Moreover, 30m tonnes of green steel could generate a yearly revenue of Rs 22.5trn. Producing 30m tonnes of steel using conventional processes would mean consumption of 23m tonnes of coal and release of more than 50 million tonnes of CO2 in the atmosphere. Hence, by strategically utilizing its surplus hydropower and iron ore, Nepal has a unique opportunity to lead in green steel production, significantly reducing carbon emissions and generating substantial revenue.