The Chinese Steel Industry: Three Pathways to Green Steel

Introduction

On February 6, the China Meteorological Association (CMA) published the 2022 China Climate Bulletin (中国气候公报) (China Climate Bulletin, February 7). The annual report provides an overall analysis of China’s climate conditions and tracks significant meteorological disasters and major climate events from the previous year (CMA, February 24). The newly released China Climate Bulletin noted that the country recorded its second-highest annual mean temperature in history last year. In fact, last year’s spring, summer and autumn temperatures were the highest since record keeping began (China Climate Bulletin, February 7). During the press conference for the release of the bulletin, Jia Xiaolong, deputy director of China’s National Climate Center, stressed the importance of remaining alert to those “low probability, high impact” (小概率, 高影响) climate events, such as the heat wave that hit China in 2013, driving temperatures above 104 degrees Fahrenheit in at least 40 cities and counties (China News Service, February 7; Sohu, July 30, 2013).

No plausible path to mitigating global climate change exists without China, the world’s largest carbon emitter, greatly reducing its carbon footprint. Among China’s major GDP drivers, few play a more critical role in the country’s decarbonization efforts than the steel sector (International Energy Agency, September 13, 2021). The steel industry is second only to power generation in terms of its carbon footprint, generating about 17 percent of China’s annual emissions (China Dialogue, May 23, 2022). In fact, the state-owned conglomerate China Baowu Steel Group (中国宝武),which is the world’s largest steel producer, put more CO2 into the atmosphere in 2020 than Pakistan (Jiemian, August 21, 2020). [1]

Three Paths to Reducing the Carbon Emissions From China’s Steel Industry

Three main options exist for Chinese steel producers to clean up their business practices. First, they could try to replace traditional, coal-based blast furnaces with electric arc furnaces (EAF), which utilize renewable electricity and high-quality steel scrap, thereby making them more environmentally friendly. [2] The challenge of this approach, however, is that the more prevalent this method of production becomes, the higher the demand will be for high-quality scrap steel, which is only available in certain regions, thereby driving up the costs of steel production. A second option would be to install carbon-capture equipment at existing steel plants. [3] Ideally, this technology could allow steelmakers to continue running their plants without significantly affecting the climate— a business-as-usual approach, albeit with some additional costs. However, carbon-capture projects at steel plants are still in the pilot stage and it will take continued investment to drive down the cost of this technology and make it a viable large-scale solution to bringing down carbon emissions in China’s steel industry. The final pathway to green steel is the adoption of green hydrogen-based technologies. To be sure, green hydrogen remains a nascent industry and its production depends on a reliable renewable power supply. As a result, in order for this approach to be successful, a continuous decline in energy prices is required. Consequently, if green hydrogen can be produced on an industrial scale, it can play a crucial role in lowering the steel industry’s CO2 emissions.

That is precisely what the Chinese steelmakers have been aiming to achieve. Of China’s six leading producers, which dominate the global steel market, half have already begun to invest in hydrogen technologies in an effort to decarbonize production. For instance, on February 15, 2022, Baowu began the construction of a new, green hydrogen-fueled electric arc furnace in Zhanjiang, Guangdong province (SteelOrbis, February 24, 2022; GLCMI Alliance, November 18, 2022). The project is scheduled to be completed by the end of this year and will be Baowu’s first zero-carbon electric arc furnace. Additionally, in November 2021, the company unveiled the Global Low-Carbon Metallurgical Innovation (GLCMI) Alliance (全球低碳冶金创新联盟) and a fund that will invest $5.5 million annually in low-carbon metallurgy research, including hydrogen-related projects (GLCMI Alliance, November 18, 2021). The alliance is a force to be reckoned with, comprising 60 members from 15 countries, including steel companies such as ArcelorMittal and Shougang Group, as well as mining companies such as BHP Group and Rio Tinto Group. Furthermore, last year, Ansteel Group, another prominent steelmaker in China, announced a technological breakthrough in using a green hydrogen-based process to produce steel, potentially giving the company a new valuable intellectual property from which it could profit for years to come (Anshan Municipal Government, September 29, 2022). HBIS Group, another Chinese steel conglomerate, has started construction on the world’s first hydrogen metallurgy demonstration project in Zhangjiakou, the hydrogen pilot city in Hebei province (HBIS Group, May 12, 2021).

Bumps on the Road to a Green Future?  

Despite these ongoing developments, the road ahead for China to achieve green steel is more likely to be treacherous than smooth. To begin with, hydrogen-based technologies and steel production remain immature and costly. Indeed, successfully developing these technologies to the point that they become cost-effective will require a high level of continued investment in order to scale up both the supply and demand sides of the business. On the other hand, however, experts have estimated that, by turning to hydrogen, China could save nearly $2 trillion between 2020 and 2060 compared to using other clean energy solutions to achieve industrial carbon neutrality (Nature, October 6, 2022). In addition, renewable electricity costs are decreasing, further diminishing the costs of green hydrogen production and enhancing its potential to scale up. Nevertheless, government support, both at the central and the local levels, will be the key to maintaining this trend. To that end, Chinese President Xi Jinping’s goals for China to hit peak carbon emissions in 2030 and reach carbon neutrality in 2060 can potentially bring about two spillover effects (National Development and Reform Commission, November 11, 2021). Firstly, these benchmarks can create political pressure that helps to sustain fiscal support for future green hydrogen experimentation. Secondly, as a result, Chinese steelmakers will feel more comfortable tolerating high risk when making investments in promising but uncertain applications of hydrogen energy technology. Ultimately, due to their immense size, the pathways through which Chinese steelmakers achieve green production will have profound implications for how China manages the transition to a low-carbon economy. Indeed, the pace at which China’s steel industry works towards achieving carbon neutrality over the coming decades will be critical in the global fight against climate change.

Chin Hsueh is a Master of Science in Foreign Service candidate at Georgetown University. He previously served as a policy analyst at the Kuomintang’s Department of International Affairs and as a corporate affairs intern at the US-Taiwan Business Council.

Notes

[1] See “The Chinese Companies Polluting the World More Than Entire Nations,” Bloomberg, October 24, 2021.

[2] Christian Hoffmann, Michel Van Hoey and Benedikt Zeumer, “Decarbonization challenge for steel,” McKinsey & Company, June 3, 2020.

[3] Steven Vercammen, “Steel,” McKinsey Quarterly, August 1, 2022.