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China suggests slower steel decarbonization, but retreat on national climate goals seen unlikely

16 February 2022 Max Tingyao Lin

China's decision to set a later-than-expected deadline for steelmakers to reach peak CO2 emissions has raised concerns over the country's decarbonization progress. But the apparent backtracking is unlikely to signal a retreat on Beijing's overall climate commitments, according to experts.

Last year, state-run media reported China planned to achieve peak emissions from the country's steel sector by 2025 and aim for a 30% reduction from the peak level by 2030, citing a draft policy document.

The targets were supported by China Iron and Steel Association, the country's largest trade body.

But the Ministry of Industry and Information Technology, the National Development and Reform Commission (NDRC), and the Ministry of Ecology and Environment said in a joint industry guideline 7 February that Chinese steelmakers would only be required to reach peak CO2 emissions by 2030, without establishing caps for their energy intensity and total energy consumption. A detailed roadmap is expected to be released later this year.

"Peaking in 2025 was a target supported by the steel industry and is crucial if China is to achieve its climate target," thinktank E3G's Climate Diplomacy Researcher Belinda Schäpe told Net-Zero Business Daily. "The latest announcement can be seen as a set-back as the government lacks the confidence to put forward an ambitious peaking target for the steel industry."

China, the world's largest GHG emitter and steel producer, has aimed to reach nationwide peak CO2 emissions by 2030 and carbon neutrality by 2060.

But Chinese officials have lately stressed that the country needs to pursue energy and supply chain security amid decarbonization efforts, with a slowing economy and the recent power crisis.

"The central government wanted to 'correct campaign-style decarbonization' and pointed out that traditional energy should phase out on the basis of secure and reliable new energy," said Kevin Mo, principal of consultancy innovative Green Development Program. "As one of the primary energy users and carbon emitters, it is no surprise that the Chinese steel sector's peak year was moved to 2030."

Moreover, Beijing could be seeking to ease near-term inflation worries by giving Chinese steelmakers more time to decarbonize their operations, according to Mo.

"Steel is the major raw material for many industries… There remain a lot of economic uncertainties given the pandemic situation. China doesn't want to see a price hike of steel and related products," he said.

Slow progress

The more optimistic estimates suggest Chinese steelmakers' emissions might have peaked already. IHS Markit data shows GHG emissions from China's iron and steel sector reached 775 million metric tons (mt) in 2021, 6% of the national total. The figure is preliminary and could be revised upwards, but it is flat on 2020 levels and lower than the all-time high of 804 million mt in 2019.

The development comes as Beijing imposes output curbs on steel plants amid overcapacity concerns. According to China's National Bureau of Statistics, the country's crude steel production fell to 1.03 billion mt in 2021 from a record high of 1.06 billion mt in 2020.

While Chinese steelmakers have a realistic chance of peaking their emissions by 2030, experts are seeing strong challenges for them to push for deep decarbonization—even though a low-carbon steel sector would be essential for China to achieve carbon neutrality by 2060.

"Reducing capacity is probably the easiest way to cut significant carbon emissions due to overcapacity, but only high-quality transformation can ensure sustainability and competitiveness," Mo said. "To peak emissions doesn't get the job done. Carbon neutrality is the ultimate goal for the sector."

Most Chinese steel plants use integrated, blast furnace-basic oxygen furnaces (BF/BOF), which are fired with coal, so their carbon intensity tend to be higher than their foreign rivals that produce from recycled scrap and use electric arc furnaces (EAF). E3G estimates that 77% of steel output in China comes from coal-based blast furnaces.

Industry participants said Chinese steelmakers need to make heavy investments in renewable energy, low-carbon hydrogen, EAFs, and carbon capture technology to fully decarbonize. Frank Zhong, deputy director general of the World Steel Association, said more than $3 trillion may be required for the sector's decarbonization between 2022 and 2050.

For now, state-owned majors China Baowu Steel, HBIS Group, Ansteel Group, and Baotou Steel have all aimed for carbon neutrality by 2050 and promised to invest in low-emission projects. HBIS has even eyed peak emissions by 2022 and Baowu by 2023. But smaller players are not yet making similar efforts.

While seeing high spending on research and development of low-carbon steelmaking, thinktank Agora Energiwende's advisors said China's steel sector as a whole is not ambitious enough in decarbonization. "China has made mixed progress in decarbonizing its steel industry," they told Net-Zero Business Daily in an email.

James Stevenson, executive director for coal, metals, and mining at IHS Markit, said the growth of EAF-based production in China will be constrained by scrap and power availability. Hydrogen-fueled facilities adopting the direct reduced iron method will only expand slowly after the 2030s, when sufficient low-carbon hydrogen is available, he added.

"Growth in both does imply a smaller market share for BF/BOF steel production, so the emissions intensity of the sector will be steadily declining," Stevenson said. "[But] decarbonizing China's steel sector will be a long and slow process."

A retreat?

After the three government departments published the joint guideline, the CSI New Energy Index—which track renewable stocks in mainland China—saw a brief dip amid investors' worries over China's overall decarbonization ambitions.

"The new announcement risks weakening other industries' ambition to contribute to a more ambitious carbon peak," said Liu Qian, senior climate and energy campaigner at Greenpeace East Asia. "The steel industry, as one of the most energy-intensive sectors, should be the focus of carbon peaking policy. Shifting its target from 2025 to 2030 may [prompt] other industries to bide time with a wait-and-see mentality."

Observers said there remain some bright spots in China's recent policy announcements. In the joint guideline, the government said at least 15% of Chinese steelmaking capacity should be based on EAFs and 80% should complete "super-low-emission" retrofits by 2025. Chinese steel plants also need to cut water and energy usage per mt of production by 2025.

In a policy document published 11 February, the NDRC said 17 energy-intensive industries—including steel—need to enhance their energy efficiency levels, fleshing out an earlier commitment. It requires 15%-50% of the capacity owners in those industries to meet higher efficiency standards by 2025. For the steelmaking sector, 30% will need to play such a leading role.

Liu said it's too early to tell whether China is cooling down on decarbonization. "We haven't seen any clear information directly contradicting [the country's] 2030 carbon peak target. Relevant industries still need to contribute to this overall 2030 target."

Agora Energiwende suggested the steel sector's later-than-expected deadline for peak emissions does not necessary affect China's decarbonization goal, but that it would impose higher pressure on other sectors to cut emissions.

"Since the steel manufacturing industry is not aiming at early peaking, such type of policy movement is expected to negatively impact China's willingness to further upgrade its climate ambition," its analysts said.

Posted 16 February 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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