What does China’s environment pledge mean for its massive steel sector?

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According to the Financial Times, China’s President Xi Jinping surprised the global community by announcing last month a hugely ambitious plan to improve China’s environment and make the country carbon-neutral by 2060.

In addition, he said the country’s emissions would peak before 2030.

But does this really mean anything? If it does, what impact will it have on the country’s massive steel industry? The steel industry, of course, is the source of a significant proportion of the country’s carbon emissions?

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China’s environment and emissions figures

Firstly, let’s look at the scale of the proposition.

China is the world’s largest emitter of greenhouse gases (such as carbon dioxide and methane).

Last year, China’s emissions accounted for roughly 27% of the global total. The country’s total accounted for more than the U.S., Europe and Japan combined, the Financial Times reported.

Furthermore, the country consumes more coal than the rest of the world put together. In addition, China continues to commission new coal power plants.

On the one hand, China also leads the world in the deployment of solar power, wind power and electric vehicles. Its energy-efficiency policies are ambitious and successful. Significantly, there are no known climate change deniers in the Chinese leadership.

But is the pledge meaningful?

It contrasts poorly with that made by almost 70 countries and the E.U. Those countries have already pledged to make their economies “net-zero” greenhouse gas emitters by mid-century, or 10 years earlier than China’s pledge.

And the 2030 peak emissions date is a rehash of a commitment made back in 2014, suggesting peak emissions could be reached well before 2030 and the authorities are simply back-sliding.

Difficult changes

The scale of the challenge vis-a-vis China’s environment and emissions is considerable.

More than 85% of China’s primary energy last year came from coal, oil, and natural gas, all of which produce carbon dioxide. This came despite massive investment in solar and wind.

“Carbon neutrality” requires an almost complete transition from those fuels to non-emitting sources, such as solar, wind, hydro, and nuclear power, the Financial Times observed. Furthermore, the transition requires CO2 from any remaining use of fossil fuels be captured and permanently stored – a technology that is far from economically viable in today’s market, or offset.

The future of China’s steel sector

The authorities might just be buying time.

China’s rapid industrialization, which has given rise to its huge steel industry, will slow in the decades ahead. In turn, the economy will evolve into a more mature model, just as America did in the last century.

The steel industry will have to adapt, to rationalize and reduce as the country’s GDP is driven by consumption that becomes less steel-intensive.

But change will come slowly. It is likely market economics will have as much impact as direct control from Beijing. Europe’s mooted plan to essentially carbon tax imports that do not meet its own environmental standards may force Chinese steelmakers to improve their emissions per ton. Chinese steelmakers would have to more rapidly switch to electric arc furnace steelmaking and to increase the uptake of DRI, HBI, and GPI with lower carbon emissions profiles by operators of Chinese blast furnaces. However, it is a debatable point as to whether this simply shifts emissions up the supply chain to HBI/GPI producers in Brazil and elsewhere; it certainly reduces carbon loading from the logistics chain.

Making the change toward greener Chinese environment

The switch or migration to EAF steel production is already underway. Recent debate around relaxing steel scrap imports is part of that process. However, it may also drive government support for steel recycling and use of domestically sourced scrap. At present, domestic scrap use is low.

However, Beijing is still authorizing the construction of coal-fired power stations. As such, that suggests it is not serious about substantial decarburization of the economy anytime soon.

As a long-term objective, it remains real and a guide for long-term planning. However, don’t expect such announcements to have any significant impact in the short term on major emitters like the steel industry or power generation.

Actions speak louder than words.

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