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China, home to the largest steel industry globally, plays a critical role in global decarbonization efforts. In a significant shift, China permitted no new coal-based steel projects in the first half of 2024, signaling a potential turning point driven by stringent decarbonization policies.
Decarbonization Progress
The Centre for Research on Energy and Clean Air (CREA) has been tracking China’s steel decarbonization with biannual reviews. While the 2023 H2 analysis showed stalled progress, the H1 2024 review reveals a notable change: for the first time since announcing its 'dual carbon goals' in September 2020, China did not approve any new coal-based steel-making projects.
Shift to Electric Arc Furnaces
Traditionally, China's steel sector has relied on coal-intensive blast furnace–basic oxygen furnaces (BF–BOFs), making it the second-largest CO2 emitter in the country. However, in H1 2024, only electric arc furnace (EAF) projects, which use recycled scrap steel, were approved. Provincial governments permitted 7.1 million tonnes per annum of new steel-making capacity, all EAFs, indicating a significant move away from coal-based steel production.
Key Findings
Policy Drivers
China’s state planner has emphasized reducing emissions in the steel sector for 2024-2025, aiming to cut 20 million tonnes of standard coal and 53 million tonnes of CO2 compared to 2023. The government has imposed strict restrictions on exports of high-energy, low-value steel products and mandated provincial plans to reduce steel production, particularly targeting BF–BOFs due to their high carbon intensity.
Supportive policies are being rolled out to expand domestic scrap steel supply, including taxation and financial aid. Additionally, the upcoming EU Carbon Border Adjustment Mechanism has accelerated the inclusion of the steel sector in China’s national Emission Trading Scheme, enhancing carbon accounting measures.
Looking Ahead
As China's steel demand peaks and more scrap becomes available, there is substantial potential to further reduce emissions by shifting away from coal-based production. This strategic shift represents a significant opportunity for emissions reduction in the next decade, aligning China’s steel industry with its climate targets and contributing to global efforts to mitigate climate change.
By prioritizing green technologies and stricter environmental regulations, China is setting the stage for a more sustainable future in steel production, with far-reaching implications for global decarbonization.