China’s steel sector invests US$100 billion in coal-fired plants despite overcapacity, carbon promises: climate research
- Provincial governments have approved a massive amount of new emissions-intensive steel plants, says a climate think tank’s report
- Higher costs and a lack of regulations make steel firms reluctant to invest in a cleaner steel-production method, according to CREA
China’s steel sector has invested around US$100 billion in new coal-based iron and steel capacity since 2021, despite overcapacity, low profitability and China’s commitments to reduce carbon emissions, according to a climate think tank.
Steel firms received approvals from provincial governments to build a massive amount of new coal-based capacity between 2021 and the first half of 2023, including 119.8 million tonnes per annum (Mtpa) of blast furnaces (BFs) and 76.6 Mtpa of basic-oxygen furnaces (BOFs), according to a report released by the Helsinki-based Centre for Research on Energy and Clean Air (CREA) on Tuesday.
By the time these plants are fully operational around 2025, their carbon emissions will be roughly equal to the entire emissions of the Netherlands, which emitted over 140 million tonnes of greenhouse gases in 2021, according to CREA.
“China’s crude steel output has declined since 2021 due to output control by the government and the decline in downstream demand,” said the report, by analysts Shen Xinyi and Lauri Myllyvirta. “However, new investments in iron and steelmaking capacity have so far not adjusted to the new reality.
“There is an urgent need to align investments in new production capacity in the steel sector with the goal of peaking and reducing CO2 emissions before 2025.”
Around 90 per cent of crude steel in China is made using the emission-intensive BF-BOF method, where coal is burned in BFs to extract oxygen from iron ore, and then iron and scrap are turned into steel in BOFs.
An alternative method using electric-arc furnaces (EAFs) emits just 10 to 20 per cent of the carbon dioxide produced in the BF-BOF process, according to a report by Global Energy Monitor (GEM) last month.
Yet CREA found that the BF-BOF method continues to dominate in China’s new plants, with BFs accounting for about 99 per cent of the new ironmaking capacity and BOFs accounting for 70 per cent of the new steelmaking capacity approved from 2017 to 2023.
Global steel transition from coal to put US$554 billion of assets at risk
The steel sector’s total profits have fallen to historically low levels, according to CREA, with the sector as a whole turning loss-making in the 12 months to March 2023 and thereafter.
Ironically, government requirements to improve the steel sector’s energy efficiency are the main driver for the surge in new plants, as steel firms race to replace antiquated facilities, according to Shen. In addition, air pollution rules in some cities, such as Beijing and Tianjin, have forced some steelmakers to halt production there and build new plants in localities where regulations are more lax.
No ‘silver bullet’ for green steel production, needs multiple solutions: report
Meanwhile, higher costs and unclear standards make steel firms relatively reluctant to invest in EAF plants, said Shen. New proposed EAF projects totalled 52.5 Mtpa from 2021 to the first half of this year, according to CREA.
“Regulations and demand-side requirements can play a crucial role in driving the transition to cleaner steel production,” Shen said. “By imposing emissions reduction targets, providing financial support, and creating market incentives, governments can compel steelmakers to change their production methods and invest in decarbonisation technologies.”
China accounted for around half of the existing global coal-based capacity and 60 per cent of carbon emissions from the steel sector in 2022. It is estimated that China has 146 Mpta BF-BOF steel capacity under development, second only to India which at 153 Mtpa is the world’s largest developer of new coal-based capacity, according GEM.
