India's Green Steel Taxonomy Framework (2024): From Classification To Compliance In Public Procurement

1. Introduction

In December 2024, the Ministry of Steel introduced the Green Steel Taxonomy Framework (GSTF), India's first comprehensive system for defining, verifying, and classifying "green" steel based on emission thresholds of crude steel. Reports from the Economic Times confirm that this framework will underpin a nationwide procurement mandate effective from FY 2027–28. Such measures align with India's Nationally Determined Contributions (NDCs) under the Paris Agreement, which commit India to a 45 % reduction in emission intensity of GDP by 2030. Given that steel and cement together contribute nearly one-third of India's industrial emissions, embedding low-carbon standards in public contracts directly advances the country's climate objectives.

According to a 2024 report by the International Institute for Sustainable Development (IISD), demand from government projects could account for nearly 20% of India's total steel consumption by 2028. If procurement criteria are aligned with decarbonization goals, this demand could catalyse an entire ecosystem of cleaner production and supply chains.

However, the same report highlights a critical trade-off. Green-certified steel currently carries a cost premium of 8–12% compared to conventional production. Unless tender frameworks explicitly recognize this cost differential, procurement officials may face difficulty reconciling environmental goals with fiscal responsibility.

The taxamony is not merely a climate policy but a regulatory architecture, signalling that environmental performance will now determine contractual eligibility in public procurement. For ministries, PSUs, and contractors, this is not a distant reform but a fast-approaching compliance obligation.

2. Key Features of the Green Steel Taxonomy Framework

The GSTF establishes a five-tier certification system based on verified emission intensity, measured in tonnes of CO₂ per tonne of crude steel (tCO₂/tcs). The classification is reviewed every three years and audited through the NISST.

The taxonomy also mandates a third-party MRV; Measurement, Reporting and Verification mechanism conducted by accredited verifiers recognised by NISST . Producers must submit an annualGreen Steel Declaration Form specifying production volumes, energy mix, and verified emission intensity. Data integrity is assured through randomised audits and digital reporting integration with the Steel Data Portal maintained by the Ministry. Non-compliance or misrepresentation invites penalties under the Environment (Protection) Act, 1986, and can result in suspension of green certification.²

From a legal-governance standpoint, the taxonomy does more than categorise, it creates a compliance interface between environmental law, industrial licensing, and public-procurement obligations. Once the 2027–28 mandate comes into effect, adherence to a minimum "3-Star" standard will likely become a pre-qualification criterion in central and PSU tenders. Consequently, the taxonomy's technical parameters will acquire normative force in contract law, shaping tender eligibility, bid evaluation, and performance audits.

Table: Comparison of India vs EU vs Japan Green Procurement Frameworks

India's approach is presently more administrative than statutory, but similar legal codification, potentially through amendments to the General Finance Rule (GFR) or a dedicated sustainability procurement rule may be necessary for enforceability.

3. Legal and Regulatory Implications for Public Procurement

The integration of the GSTF into procurement law will redefine how contracts are drafted, evaluated, and enforced.

3.1 Contractual Eligibility and Tender Design

The taxonomy now provides thepre-qualification condition for green certification. Tender authorities must ensure non-arbitrary application and adequate transition time. Ambiguities in criteria or inconsistent verification could invite judicial review. Failure to specify clear criteria risks constitutional challenge under Article 14 (equality before law) or section 10 of GRF (Right to fair compensation). Tender exclusions based on undefined "green rating" could invite judicial scrutiny unless justified by a transparent rationale.

To prevent such challenges, procurement notices should:

• Cite the latest taxonomy notification directly,
• Specify verification documentation, and
• Allow a transition phase for suppliers undergoing certification/ improvement plans.

This approach aligns environmental selection withadministrative fairness, reducing legal risk while maintaining policy integrity.

3.2 Bid Evaluation and Cost Justification

Green steel currently carries an8–12% price premium over conventional material (IISD, 2024). Procurement agencies must therefore record reasoned justifications demonstrating why bids using certified steel meet the "value for money" test under Rule 173(iii) of the GFR and the lifecycle costing and emission-reduction metrics should be incorporated into evaluation notes and tender justifications.

Such documentation will be vital during CAG audits or parliamentary scrutiny, where deviations from the lowest-price principle require evidentiary support. The CAG has indicated that it will assess whether ministries have recorded adequate reasoning for such cost decisions.

3.3 Transition of Existing Contracts

Large EPC and PPP contracts already underway may require realignment with the taxonomy. Amendments can be structured through Green Variation Clauses, defining cost-sharing for compliance upgrades and authorising extensions where emission targets necessitate equipment retrofits.

Without such clauses, contractors may invoke force majeure or claim frustration under Sections 32 and 56 of theIndian Contract Act, 1872. Clarifying contractual language before FY 2027 will pre-empt disputes and delays.

4. Institutional and Market Challenges

While the GSTF has been lauded as a landmark in India's decarbonisation roadmap, its implementation poses intricate institutional, fiscal, and legal challenges. These issues are not limited to the steel producers themselves but extend deeply into the architecture of public procurement and industrial regulation.

4.1 Verification and Capacity Constraints

One of the first hurdles concerns verification infrastructure. The Framework mandates third-party audits under the supervision of the NISST. However, as of FY 2024–25, India has fewer than15 accredited laboratories capable of conducting full-scale emissions verification for integrated steel plants. This technical bottleneck risks creating acertification backlog, particularly for small and medium secondary producers that lack the capital to conduct comprehensive monitoring.

Comptroller and Auditor General, in its 2024 performance audit on industrial energy efficiency, highlighted the chronic shortage of skilled auditors and the absence of standardised verification protocols across states. Without administrative strengthening, the taxonomy's MRV mechanism may face procedural delays and legal contestation over certification validity.

4.2 Fiscal and Cost Pass-Through Risks

The taxonomy's emission thresholds necessitate a significant shift in process technologies—such as hydrogen-based direct reduction and electric arc furnaces using high scrap content. The IISD estimates that "green steel" production carries a cost premium of 8–12%over conventional routes. This cost pressure will inevitably cascade into public tenders, compelling contracting agencies to either absorb the additional expenditure or modify bid-evaluation criteria to account for lifecycle costing.

For PSUs executing infrastructure projects, this creates a fiscal conundrum. While compliance with green procurement mandates will be compulsory by FY 2027–28,budgetary frameworks under the Ministry of Finance still evaluate projects on the basis of upfront cost, not environmental externalities. Without a concurrent reform in financial appraisal norms, agencies may struggle to justify higher bid prices to audit authorities which is an issue reminiscent of earlier disputes under the Public Procurement (Preference to Make in India) Order, 2017.

4.3 Uneven Industry Readiness

India's steel industry currently produces approximately150 million tonnes per annum (MTPA), of which less than10%is hydrogen-ready or uses renewable power at scale.

Smaller electric-arc furnace operators, who collectively account for nearly 40% of secondary production, face difficulties in accessing green energy or acquiring certified scrap. This asymmetry could result in market concentration, where large integrated producers dominate green-certified supply. A rigid mandate risks excluding them from the supply chain, raising competition and equality concerns under Article 19(1)(g).

Furthermore, unlike the European Union, India's taxonomy currently does not provide a fiscal incentive or crediting mechanism to offset decarbonisation costs. This absence of transitional finance tools such as carbon contracts for difference or accelerated depreciation benefits could deter smaller producers from seeking certification, reducing market diversity and limiting the effectiveness of the mandate.

4.4 Administrative Coherence and Coordination

Finally, the taxonomy's effectiveness hinges on inter-ministerial coordination among the Ministry of Steel, the Ministry of Finance (Department of Expenditure), the Bureau of Energy Efficiency, and the Ministry of Environment, Forest and Climate Change. At present, institutional responsibilities remain fragmented. For instance, while NISST manages verification, procurement oversight falls under the General Financial Rules, and carbon reporting aligns with the Bureau of Energy Efficiency.

The lack of a central coordinating authority could result in overlapping compliance obligations and inconsistent enforcement. The experience of earlier sustainability frameworks such as the Renewable Purchase Obligations (RPOs) shows that regulatory fragmentation often leads to partial compliance and weak accountability. Establishing a dedicated Green Procurement Coordination Unit could ensure uniform circulars and avoid overlapping notifications. Without coordination, ministries may adopt inconsistent certification thresholds, increasing litigation risk.

5. Litigation and Compliance Risk

Legal disputes will likely arise as the taxonomy enters procurement law.

(a) Bid Disqualification and Judicial Review: Bidders excluded for not meeting certification requirements may challenge tender documents as arbitrary or discriminatory. Indian courts have generally upheld technical discretion (Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corp., 2016) provided criteria are objectively defined. Incorporating the GSTF directly in tender clauses would therefore shield decisions from arbitrariness claims.

(b) False or Revoked Certification: If a supplier's "green" certificate is later invalidated, the buyer may terminate for misrepresentation. Under Sections 73 and 75 of the Indian Contract Act, damages can be claimed. The Ministry of Law and Justice should prescribe model warranty clauses to allocate liability clearly between contractor and verifier.

(c) Force Majeure and Cost Recovery: Where material shortages or emission upgrades raise costs, contractors may seek relief under change-in-law provisions. A standard "Green Compliance Adjustment Clause" could pre-define when cost escalation or time extensions are permissible.

By anticipating such disputes through model tender templates, the government can safeguard against inconsistent tribunal interpretations and procedural delays.

To pre-empt litigation, the Ministry of Law and Justice should develop Model Tender Clauses defining:

• Documentation and audit protocols for emission verification;
• Procedures for disqualification or blacklisting;
• Mechanisms for cost pass-through due to regulatory change; and
• Remedies in case of false certification or audit failures.

Judicially, this may require the evolution of "technical rationality", a doctrine balancing administrative discretion with evidence-based environmental assessment. Specialised benches, akin to the National Green Tribunal's model, could interpret procurement disputes where sustainability metrics intersect with contract law.

5. Administrative Oversight and Audit

As the taxonomy transitions from framework to implementation, audit oversight becomes the key to its credibility. The CAG's Green Governance Audit Framework (2024)provides a roadmap for embedding sustainability parameters within financial propriety audits.

Post-implementation, the CAG will review:

• Whether procuring agencies complied with taxonomy standards;
• If higher bid costs were justified with lifecycle-benefit evidence; and
• Whether contractors adhered to declared emission intensities.

Failure to document such compliance may result in audit objections under Section 18of theCAG (Duties, Powers and Conditions of Service) Act, 1971. In effect, green procurement becomes a budgetary obligation and a standard against which government expenditure is tested.

Beyond audit, the CAG's oversight reinforces constitutional accountability under Article 266, ensuring that public funds disbursed for infrastructure align with India's commitments under the Paris Agreement and the NDCs.

6. Building an Institutional Framework

To operationalise the GSTF, India needs an integrated oversight mechanism. The proposed National Green Procurement Authority (NGPA), (MoF, 2025) could consolidate verification, compliance, and audit under one body, ensuring consistency across ministries.

Key functions could include:

• Maintaining a national registry of certified producers and auditors
• issuing model procurement templates referencing taxonomy criteria's
• Conducting random audits of procurement entities, and
• Coordinating with international carbon-intensity disclosure platforms.

Integrating taxonomy compliance into GeM workflows would allow electronic pre-qualification: non-certified bidders could be filtered out automatically, reducing bid protests and manual oversight.

Further, the NGPA could publish annual green procurement scorecards for ministries and PSUs, ranking them by the share of certified materials used in projects. Such transparency would embed accountability through public visibility, reinforcing India's global reputation as a credible climate leader.

7. The Way Forward

The Green Steel Taxonomy Framework is more than an industrial policy, it is anew form of a legal instrument in India's public sector. It bridges the gap between industrial policy and public procurement law, setting measurable benchmarks for accountability, transparency, and competitiveness.

Yet, for its potential to be realised, the following pathways must converge:

1. Legislative backing:Sustainability objectives should be codified under a Central Procurement (Sustainability) Act, providing statutory legitimacy and continuity beyond policy cycles.
2. Institutional strengthening:A centralised NGPA should integrate certification, procurement oversight, and digital audit trails.
3. Capacity building:Procurement officers must receive training in interpreting emission-based eligibility criteria.
4. Public transparency:The CAG should periodically publish data on the share of green-rated materials in central projects to enhance accountability.

If this GSTF is implemented with legal clarity, fiscal support, and institutional alignment, India can evolve toward a legally coherent green procurement regime hat aligns industrial growth with environmental responsibility.

REFERENCES

1. Act on Promotion of Procurement of Eco-Friendly Goods and Services by the state and other Entities (Act on Promoting Green Procurement) (2000)
2. Comptroller and Auditor General (CAG), Green Governance Audit Framework, 2024.
3. Department of Expenditure, Ministry of Finance,Manual for Procurement of Goods (Second Edition), 2024.
4. European Commission, EU Sustainable Finance Taxonomy Regulation (EU) 2020/852; Green Public Procurement Criteria for Construction Materials (2023).
5. International Institute for Sustainable Development (IISD), "Green Public Procurement in India: Progress, Challenges and Opportunities," December 2024.
6. Ministry of Finance, Concept Paper on Establishing a Green Procurement Authority, January 2025.
7. Ministry of Steel, Green Steel Taxonomy Framework – Press Release, December 2024.
8. Press Information Bureau (PIB), "Ministry of Steel Launches Green Steel Taxonomy Framework," December 2024.
9. The Energy and Resources Institute (TERI), "Charting Pathways for Green Steel Procurement in India," July 2024.
10. The Economic Times (2024). Green Steel Mandate in Works for Government Projects.
11. Union Budget 2024–25, Annexure on Green Growth Initiatives, Ministry of Finance.

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