Three Pathways to Green Steel in China
On February 6, 2023, the China Meteorological Association published the 2022 China Climate Bulletin, which analyzed China's climate conditions and tracked significant meteorological disasters and major climate events from the previous year. The report noted that China had recorded its second-highest annual mean temperature in history in 2022, with spring, summer, and autumn temperatures being the highest since record-keeping began. During the press conference, Mr. Jia Xiaolong, deputy director of China's National Climate Center, emphasized the importance of staying alert to low probability, high impact climate events, such as the heat wave that hit China in 2013, driving temperatures above 40 degree Celsius in at least 40 cities and counties.
Mitigating global climate change cannot be achieved without China, the world's largest carbon emitter, significantly reducing its carbon footprint. The steel sector, which is one of China's key GDP drivers, plays a crucial role in the country's decarbonization efforts. In terms of its carbon footprint, the steel industry is only second to power generation, accounting for around 17% of China's annual emissions. It is worth noting that China Baowu Steel, the world's largest steel producer and a state-owned conglomerate, emitted more CO2 in 2020 than Pakistan.
There are three main options available for Chinese steel producers to improve their environmental practices. The first option is to replace coal-based blast furnaces with electric arc furnaces. These furnaces use renewable electricity and high-quality steel scrap, making them more eco-friendly. However, this approach poses a challenge in terms of the availability of high quality scrap steel, which is only available in certain regions. As a result, the widespread adoption of electric arc furnaces may increase the cost of steel production.
The second option is to install carbon capture equipment at existing steel plants. While this approach allows steelmakers to continue operating their plants without significantly contributing to climate change, it comes with additional costs. Currently, carbon capture projects at steel plants are still in the pilot stage, and more investment is required to make this technology a viable large-scale solution.
The third and final pathway to greener steel production involves the adoption of green hydrogen-based technologies. Although the green hydrogen industry is still in its early stages, it holds great potential for reducing the steel industry's CO2 emissions. This approach relies on a reliable renewable power supply to produce green hydrogen, which may require a decline in energy prices for it to be produced on an industrial scale.
The adoption of greener technologies is crucial to reducing the carbon footprint of China's steel industry, which accounts for approximately 17% of the country's annual emissions. As the world's largest carbon emitter, China's commitment to green steel production is critical in the fight against climate change. China's leading steelmakers have been striving to achieve this goal, with half of the country's six major producers already investing in hydrogen technologies to decarbonize production. For example, on 15 February 2022, Baowu initiated the construction of a new green hydrogen fueled electric arc furnace in Zhanjiang, Guangdong Province. The project is expected to be completed by the end of 2023 and will be Baowu's first zero carbon electric arc furnace.
In November 2021, China Baowu launched the Global Low-Carbon Metallurgical Innovation Alliance and a fund that will invest $5.5 million annually in low-carbon metallurgy research, including hydrogen-related projects. The alliance is a formidable force, with 60 members from 15 countries, including steel companies such as ArcelorMittal, Tata Steel, thyssenkrupp, JSW Steel, Angang Steel, HBIS and Shagang Group, as well as mining companies like BHP, Rio Tinto, Vale, Fortescue Metals Group.
HBIS Group, China's second-largest steelmaker, commenced construction on the world's first hydrogen metallurgy demonstration project in Zhangjiakou, the hydrogen pilot city in Hebei Province in May 2021. This project is another significant step towards producing greener steel in China.
Moreover, in 2022, Ansteel Group, another prominent Chinese steelmaker, made a technological breakthrough in using a green hydrogen-based process to produce steel. This breakthrough has the potential to provide the company with valuable intellectual property for years to come, as well as help in reducing the steel industry's carbon footprint.
While China's steel industry has made progress towards adopting green technologies, there are still challenges that lie ahead. One of the main obstacles is the immaturity and high cost of hydrogen-based technologies and steel production. Scaling up these technologies to a point where they become cost-effective will require significant investment from both the supply and demand sides of the business. Despite this, experts estimate that China could save nearly $2 trillion between 2020 and 2060 by turning to hydrogen as a means to achieve industrial carbon neutrality. Furthermore, renewable electricity costs are declining, which will lower the costs of green hydrogen production and enhance its potential for scaling up. Nevertheless, government support, both at the central and local levels, will be crucial in sustaining this trend.
Chinese President Mr. Xi Jinping's ambitious goals for China to hit peak carbon emissions in 2030 and achieve carbon neutrality by 2060 have the potential to create two spillover effects that can support the transition towards green hydrogen experimentation in the country. Firstly, these benchmarks can generate political pressure that sustains fiscal support for future green hydrogen initiatives. Secondly, they can give Chinese steelmakers the confidence to invest in promising yet uncertain applications of hydrogen energy technology, despite the high risks involved.
Given their significant size, the path that Chinese steelmakers take to achieve green steel production will have far-reaching implications for how China manages the transition towards a low-carbon economy. The pace at which China's steel industry works towards carbon neutrality over the next few decades will be crucial in the global fight against climate change. To that end, continued government support at both the central and local levels will be key to ensuring the success of green hydrogen experimentation in the country.