( China Dialogue ) – What happens in China’s steel plants matters for the global climate. After power generation, the steel sector is the second largest contributor to China’s emissions, accounting for roughly 17% annually. China produces more than half of all global steel, and over 60% of carbon emissions from steel.

Recent Chinese policy has set out a series of quantitative targets for steel’s decarbonisation, supported by several emissions-saving measures. But these will not be enough to put the sector on a pathway consistent with limiting global average temperature rise to 1.5C.

The scale of the challenge facing Chinese and global steelmakers is considerable. A recent report by climate change think tank E3G and the Pacific Northwest National Laboratory has unpacked the global and regional implications of a 1.5C-compatible transformation pathway for steel decarbonisation, showing that Chinese steel emissions need to be cut in half by 2030 to keep this goal alive. However, Chinese authorities have recently pushed back the sector’s emissions target, now aiming to peak emissions from steel production “by 2030”, rather than 2025, as its industry association had originally indicated in March 2021.

A faster transition is vital, and efforts from the Chinese steel sector to explore demand-side approaches, accelerate the shift to cleaner technologies and engage in international initiatives will need to be intensified. This would also offer China the opportunity to remain competitive in future green steel markets, engage in global efforts to shape standards for industrial decarbonisation, and become a leader in greening the global steel sector.

Current policy goes in the right direction, but too slowly

For a 1.5C-consistent pathway, China’s steel sector needs to peak emissions as soon as possible, cutting emissions by about half by 2030, and by 99% in 2050, according to our report’s findings.

The latest guidance for the sector to peak emissions before 2030 therefore falls far short. In contrast, key steel-producing companies Baowu Steel, HBIS and Baotou Steel, which together account for 17% of China’s total production, have put forward more ambitious targets. They aim to peak emissions well before 2025, to significantly reduce emissions by 2030, and become net-zero by 2050. The China Iron and Steel Association (CISA) also backed a leaked draft earlier last year that proposed a peaking target by 2025 and emissions reductions of 30% by 2030.

These signals from the industry show that a faster transition is possible. The government should make full use of all policy tools available to promote a sectoral pathway with more ambitious targets, including demand-side levers such as steel recycling and improvements in the efficiency of raw material usage. It should also pursue measures to ramp up the replacement of existing steel capacity with “net zero ready” technologies for production.

Capturing the full potential of demand-side levers

Demand-side levers could play a major role in China’s steel transition. Our report finds that the adoption of a suite of material-efficiency measures, alongside a scaling up of steel recycling, has the potential to halve emissions from the steel sector in 2050, compared to 2020 levels.

Instead of producing primary steel, steel scrap can be recycled to produce new steel in electric arc furnaces (EAF), which do not require any coking coal or iron ore as inputs. Our modelling found that scrap-based steel production in EAFs results in around 85% less emissions than traditional primary production in blast furnaces. By increasing scrap-based EAF production to 56%, China could reduce steel emissions by 39% on 2020 levels come 2050.

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Meanwhile, material efficiency improvements could reduce global steel emissions by 21% in 2050. These include measures such as lifetime extension, optimised design and post-use recycling of steel-intensive products and buildings. In China, we find that material efficiency improvements alone can bring production levels down, requiring 19% less steel to be produced in 2050.

Capturing the full potential of demand-side levers will require concerted policy efforts to curb primary steel production, to incentivise recycling, improve collection and sorting of steel scrap, and to extend the lifetime of steel-intensive assets. The recent government “guiding opinion” for the sector showed progress in promoting increases in recycling, setting a target for steel scrap use to increase to 300 million tonnes, up from 260 million tonnes in 2020.

Building out infrastructure with low-emission technologies

To move the steel asset base towards cleaner production, new and low-carbon technologies will be needed. Ninety-two percent of steel in China is currently produced via blast and basic oxygen furnaces (BF-BOF) – coal-based units in which metallurgical coal acts as both a source of heat and of carbon in the ironmaking process. As a result, the steel sector is responsible for more than 30% of total coal use in China and has been the main source of growth in demand for coal.

Under a 1.5C scenario, only 10% of China’s steel can be produced using BF-BOF units by 2050, and these furnaces would also need to be equipped with carbon capture and storage technologies. By 2050, most blast furnace production should be replaced by scrap-based electric arc furnaces in combination with green hydrogen-based production of direct reduced iron (DRI).

Scrap-based EAFs increase secondary production and recycling, lowering emissions from primary steel production and increasing the flexibility to meet fluctuating demand. In hydrogen-based DRI production, conventional fossil fuels are replaced by hydrogen derived from renewable energy sources, producing close to no emissions. A number of hydrogen DRI pilots have been announced over the last year in China, and companies project that hydrogen-based net-zero steel could be commercially available as early as 2025. To achieve the necessary level of emissions reductions, it is crucial that both the electricity and hydrogen used come from renewable sources, to facilitate a phase-out of unabated coal in the steel sector before 2050.

China’s target to increase the share of EAF steel output to more than 15% by 2025, as set out in the recent guiding opinion document, is broadly in line with a 1.5C scenario, but there are currently no targets for the sector’s long-term trajectory. While hydrogen-based DRI production is still in its infancy in most of the world, the first industrial-scale hydrogen-based DRI plant, built by Chinese steel producer HBIS, is expected to start operating in the city of Zhangjiakou this year.

The recent guidance also aims to expand the long-standing steel capacity swap policy to encourage the elimination of plants with low efficiency and high energy consumption. As part of the swap policy, for every new furnace approved by local governments, an equivalent or additional amount of old and inefficient blast furnaces need to be phased out.

To achieve the long-term targets above, China will have to significantly accelerate its capacity shift towards scrap-based EAF and hydrogen DRI, which will require increased policy support and incentives. In particular, the government needs to issue clear policy guidance on a decarbonisation pathway that increases recycling and material efficiency in steel production, and accelerates the upgrading of China’s current production fleet to low-emission technologies.

International engagement as the needed impetus

The varying pace of industrial decarbonisation across different countries is likely to drive the development of trade measures to tackle “carbon leakage”. China will soon have to contend with the impacts of carbon levies such as the EU’s carbon border adjustment mechanism (CBAM). Chinese officials consider CBAM to be a protectionist measure and have repeatedly spoken out against it. But these measures can also offer China incentives to accelerate its domestic transition. For example, steel producers in China using lower carbon technologies such as hydrogen-based DRI could potentially profit from the CBAM . . .

Read the whole article at China Dialogue .

Belinda Schäpe works as a climate diplomacy researcher on EU–China relations in E3G’s London office.

Byford Tsang is a senior policy advisor on E3G’s climate diplomacy team, based in London. Tweets @byfordt

Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY NC ND) licence.

Australia is the world’s number one exporter of both iron ore and metallurgical coal, the key ingredients of traditional steel making. Together, these materials make up a very large part of Australia’s export income.

But as the world moves towards net-zero emissions by 2050, the conventional way of making steel, using coal to power a blast furnace, will come under question.

Iron and steel production, in total, account for close to 7% of the world’s greenhouse gas emissions. This is incompatible with a net-zero world economy, where residual emissions would need to be compensated through carbon dioxide uptake from the atmosphere. The mature technology of coal-fired blast furnaces currently dominates the steel industry, generating 90% of its emissions.

For years, decarbonising steel production has been seen as particularly challenging. But now, alternatives to the centuries-old practice of using coal to produce iron and steel are emerging. Researchers have been working on a number of new pathways to make steel with little or no emissions. The most promising process relying on the use of hydrogen.

Our new research shows the steel industry can develop and implement green steel production processes to contribute to the great decarbonisation effort needed. For Australia, this presents an enormous new opportunity to future-proof and expand our steel industry as the world acts on climate change.

How can we produce green steel?

To eliminate emissions from this sector, several things are needed. First, we must use steel efficiently in well-designed structures. Second, we must recover and recycle steel after use. Thirdly, we must find the best and most scalable processes to reduce and eventually eliminate the emissions produced when making new steel.

In Australia, there have been several recent efforts to improve steel production processes. Rio Tinto developed the HIsarna technology, which can cut emissions by up to 80% – as long as the carbon is captured and stored. Other emission reduction technologies have also been developed here, such as dry slag granulation, polymer injection technology and charcoal-based reduction. However these technologies cannot scale up to decarbonise all steel produced globally.

Are there other options? Yes. We’re beginning to see real world trials of advanced green steel technologies which can make emissions-free steel.

These techniques rely on hydrogen to strip oxygen molecules from iron ore to produce metallic iron. Frontrunners include hydrogen shaft furnaces like HYBRIT and fluidised-bed systems such as HYFOR. Both of these processes are undergoing testing in Europe.

We could even see the direct electrolysis of steel, using electric currents to strip off the oxygen, and avoid the need for hydrogen.

How quickly do we need green steel?

Australia has recently pledged a 2050 net-zero target.
Over the last two years, many of Australia’s major trading partners also made ambitious emission reduction pledges, including major iron ore buyers China, Japan and South Korea.

So how can the steel industry help? We examine five different decarbonisation scenarios in our recent paper. We found the only scenario compatible with keeping global warming to under 2℃ includes the aggressive development and adoption of green steel technologies.

This would mean ending the use of blast furnaces by 2060, maximising recycling of steel, as well as some transitional use of gas in direct-reduced iron making. Under this zero-carbon scenario, green steel technologies would take over by 2060.

In creating our scenarios, we relied only on existing technologies, rather than promising but still unproven technologies such as direct air capture and storage of carbon dioxide.

Here’s how Australia could benefit

Australia need not lose from the transition away from metallurgical coal.

More than 95% of all our iron ore comes from Western Australia’s Pilbara region, which also happens to have excellent solar resources. Our modelling suggests we could produce electricity from solar panels almost a third cheaper than some overseas industrial hubs.

So Australia could be well positioned to become a green steel producer, adding significant value to our exports.

The Pilbara could become a region where iron ore is mined, smelted into iron and possibly into steel without producing carbon dioxide, and shipped overseas. We could export intermediate products, such as pellets or hot-briquetted iron, or perhaps even finished steel.

Even if no green steel industrial operations develop in Australia, we will come up against a world shifting away from metallurgical coal.

Not only that, but we’ll have to make sure future green steel technologies can use Australian ores, or we risk losing market share. That’s because other major exporters have iron ores with different purity and chemistry, and it’s not clear yet how green steel processes will drive demand for different ores. It looks likely that low emissions steel will require high grade ore, but this is still an evolving area of research.

Change is coming, like it or not. We need good policies in place now to ensure Australia can keep its major role in the global iron and steel supply chain.

We’ll need local research and development, international partnerships with leading technology producing and steel-consuming nations and government backing for the major investments required to establish a green iron or steel industry in Australia.

The world is changing rapidly. If we want to grasp the major opportunity presented by green steel, we must act now to explore the benefits of having iron ore mines, solar resources and ports close to each other.

John Pye, Associate Professor, School of Engineering, ANU, Australian National University; Alireza Rahbari, Research fellow, School of Engineering, ANU, Australian National University; Emma Aisbett, Fellow, Australian National University; Frank Jotzo, Professor, Crawford School of Public Policy and Head of Energy, Institute for Climate Energy and Disaster Solutions, Australian National University, and Zsuzsanna Csereklyei, Senior Lecturer in Economics, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.