China's decarbonization goals get boost from Baowu's carbon reduction plans

The world's largest steelmaker Baowu Group recently rolled out a roadmap to reduce carbon emissions per metric ton of crude steel by 30% from 2020 to 2035, and achieve carbon neutrality by 2050, setting a tone for China's steel industry at a time of intensified efforts to meet national decarbonization goals.

The country is vowing to become carbon neutral by 2060, but it wants to hit peak carbon emissions much earlier, by 2030. To achieve these goals, plans have been laid out by several energy-intensive industries. China's steel industry accounts for around 15%-20% of national carbon emissions annually.

For the future survival of every steelmaker, owning green power plants such as wind or solar power will be the key, Baosteel, a Baowu unit, had said in a statement released on its official social media account in late-November.

To achieve carbon neutrality by the entire steel industry, giant steelmakers like Baowu would still focus on blast furnace and converter routes, while smaller mills, especially long steel makers, were expected to gradually shift to electric arc furnaces through capacity swaps, an industry source in eastern China told S&P Global Platts.

Eventually 50% of China's total crude steel capacity would be EAFs, which consume mainly scrap, the source said. According to Platts Analytics, EAF steelmaking capacity currently account for 15% of China's total steel capacity.

As green power becomes crucial for steel industry to reach carbon neutrality goals, places home to abundant wind or solar power, such as western China or coastal areas, will be favorable locations for the new EAF mills, he said.

Meanwhile, some other sources said despite all iron and steel making technology of low carbon or zero carbon emissions, the steel industry would still need to buy carbon emissions quota in the carbon trading market to reach carbon neutrality.

According to Baowu, if China's carbon prices increase to Eur60/mt ($71/mt) and carbon trading is extensively imposed in the steel industry, Chinese producers could see a sharp 40% rise in production costs for hot-rolled coil.

The EU Carbon Emission Allowance, or CEA was increased to Eur76.74/mt on Dec. 1.

Currently, China's daily weighted average price of a CEA under its national carbon market was around Yuan 42.85/mtCO2e (approximately $6.70/mtCO2e) late-November.

Steel production costs would show a steep upward trend in the future, whether it was for mills to pay for carbon emissions or adopt low-carbon or zero-carbon technology, some sources said.

In tandem, end-users will be encouraged to consume more high strength steel products, which in return will reduce overall steel consumption and production.

According to Baosteel, using high strength hot rolled coil to build highway guardrail will reduce steel consumption from 5 million mt/year to 3.35 million mt/year, reducing carbon emissions by 3.465 million mt/year.

Baowu on move

Baowu said its EAF steel output accounted only 6.5% of its total crude steel output of 115 million mt in 2020, which is why decarbonizing blast furnace and converter routes was so crucial to the company.

Baowu has been working on hydrogen-rich blast furnace technology and pure hydrogen furnace technology, while developing technologies which could eventually boost scrap consumption to 50% in converters.

The company has terminated plans to build the fourth and fifth blast furnaces at Zhanjiang steelworks in southern China's Guangdong province.

Instead, the company will build its first hydrogen furnace, with an EAF as downstream steelmaking process, at Zhanjiang, using natural gas, wind and solar power to generate green hydrogen.

Meanwhile, Baowu is also planning to build an EAF steel mill together with its own solar plant in western China's Xinjiang.