As China commits to a carbon-neutral future by 2060, the country's steel industry will play an important role in reducing emissions by upgrading facilities, increasing the usage of steel scrap in steelmaking and adopting hydrogen-based technology, according to industry experts.

Steelmaking: China's largest energy consumer

Chinese President Xi Jinping pledged carbon neutrality in a speech at the United Nations General Assembly in September and said that the world's largest coal consumer and steelmaker expects its carbon dioxide emissions to peak before 2030 and cut it to net-zero by 2060.

Data from the Global Carbon Atlas, a carbon emissions monitoring platform supported by the BNP Paribas Foundation, showed that China has been the world's largest emitter of carbon dioxide emissions since 2006. Coal accounted for 57.7% of the country's energy mix in 2019 and is expected to remain as the main source until 2025.

The steel industry is one of the three largest sources of carbon dioxide, according to a McKinsey & Co. report. Official data shows that the steelmaking sector is the country's largest consumer of energy, while a 2019 report from the Ministry of Ecology and Environment said that the sector is also the largest industrial source of pollutants.

Due to the steel industry's huge production and heavy reliance on coal-fired energy, reducing carbon emissions in the sector is crucial for China to achieve its carbon-neutral goal, said Yin Ruiyu, a member of the Chinese Academy of Engineering and former vice minister of the Ministry of Metallurgical Industry, in an industry conference in November.

Li Xinchuang, chairman of government-backed think tank China Metallurgical Industry Planning and Research Institute, said in a Dec. 2 industry conference that large-scale economic stimulus will keep the country's steel production high in the short term.

China's steel production has been increasing since 2016 but has since then eliminated about 150 million tonnes of excess steel production capacity. Li sees a downward trend for steel production and consumption in China in the long term, dropping by 5% in 2025 from current levels, as the Chinese economy transitions from high-speed growth to high-quality growth.

Electric arc furnace, hydrogen-based technology to drive decarbonization

Li expects developing electric arc furnaces, or EAFs, will become one of the key policy incentives for the steel industry during the next five-year period. EAF steelmaking, which consumes scrap steel, is seen as an effective way to reduce emissions compared to blast furnaces, which use iron ore and coking coal as raw materials.

Alex Griffiths, principal analyst of steel and iron ore markets at Wood Mackenzie, also sees reusing scrap as the first logical step to reducing emissions. But to complement the industry's lower emission targets, scrap steel collection has to increase, Griffiths said.

Li said companies developing EAFs are facing challenges in cost control due to expensive electricity and high costs associated with scrap steel collection. These issues will be partially addressed by an increase in scrap resources expected in the next few years: by 2025, China's steel reserves will reach 12 billion tonnes and scrap steel resources will increase to 300 million tonnes, according to Li.

In addition to using more scrap steel, adopting hydrogen-based steelmaking technology will expedite the steel industry's carbon footprint reduction, said Wang Guoqing, research director of industry data provider Lange Steel Information Research Center in Beijing.

A World Steel Association report said HBIS Group, China Baowu Steel Group Corp. Ltd., Jiuquan Steel Company, Jianlong Group and Rizhao Steel Holding Group Co.Ltd. have announced plans to use hydrogen-based technology in steelmaking. But the report also pointed out that the existing hydrogen-making capacity in China, which is about 70 million tonnes per year, is not sufficient to support the steelmaking industry.

Current hydrogen prices also have to fall to offer a cost-competitive solution, according to Griffiths.

Ultra-low emission standards to continue

Wang said the country's ultra-low emission standards have laid the foundation for the steel industry's transition to a greener future, with steel mills across the country upgrading their facilities to meet the strict emission requirement.

The Ministry of Ecology and Environment said in 2019 that 60% of China's steel capacity needs to complete their facility upgrades by the end of 2020 and 80% of steel capacity should be upgraded by 2025. However, only about 30% of the capacity has completed the transformation to ultra-low emissions, state media China Central Television reported in November.

"Upgrading the facilities at steel mills to meet the ultra-low emission standards will continue to be a focus of the industry in the next few years as we now have a clearer goal to cut emissions," Wang said.