Industrial sector in China, particularly steel, may have paved the way for the method of decreasing carbon emissions in industries.

In a significant move towards a greener future, China's National Development and Reform Commission (NDRC) has announced funding of up to RMB 100 million (USD 13.8 million) for emission reduction projects across sectors, including steel and data centers.

The steel industry, traditionally reliant on coal, is gradually transitioning towards greener technologies such as Electric Arc Furnaces (EAF) and hydrogen. Major steelmakers like Baowu, Hesteel, and Ansteel are investing in EAFs for power generation, a move that can reduce direct CO2 emissions by up to 75% compared to the traditional blast furnace process.

The viability of EAF-based steel production is contingent on the availability of high-quality scrap steel and the cost and availability of renewable energy inputs. In the absence of high-quality scrap, lower-quality scrap can be mixed with Direct Reduced Iron (DRI) to enhance the quality of steel produced via EAF. DRI is produced by directly reducing iron ore using reducing gasses like carbon monoxide and hydrogen derived from natural gas.

China aims to have 15% of its crude steel production from EAFs by 2025, up from the current 10%. Deriving hydrogen from renewable energy sources such as wind and solar instead of natural gas is touted as a promising way of eliminating fossil fuel use in steel production. China is already undertaking green hydrogen-based steelmaking pilot projects, led by companies like Baowu and Ansteel.

However, the rapid expansion of these green initiatives is a cause for concern for the National Energy Administration. Inadequate investment in energy storage and grid interconnections has led to solar farms being forced to disconnect, causing an 8% decline in power generated from the average solar panel in 2024 compared to 2023.

The State Council's 2024-25 carbon reduction emission plan aims to reduce carbon dioxide emissions by 3.9% for every unit of GDP over the next year, accounting for a total of about 260 million tons of carbon dioxide over the next two years. The State Council has also called for "eliminating" coal-powered facilities by 2025, but other highly pollutive industries such as cement and petrochemicals should also transition away from coal towards greener technologies.

Despite these efforts, China increased its coal capacity for the fifth consecutive year in 2023, reaching 408 gigawatts, more than double the capacity driven by the rest of the world, which stood at 170 GW. Sinopec expects China's coal sector to stop growing by 2025, with renewable sources projected to overtake coal as the country's dominant energy source by 2045.

In addition to domestic initiatives, China's steel industry is focusing on the development of green steel products and forming international partnerships to reduce emissions across the value chain. Baowu, for instance, signed a five-year partnership with mining giant BHP in 2020 to collaborate on efforts to reduce greenhouse gas emissions throughout the steel industry value chain.

While progress is being made, it is important to note that companies primarily working on pilot projects for green hydrogen-based steel production are primarily based in Europe and Germany, such as ThyssenKrupp Steel, Salzgitter, and ArcelorMittal.

As China continues to navigate this transition, it remains committed to reducing its carbon footprint and leading the way in the global shift towards sustainable steel production.

Industrial sector in China, particularly steel, may have paved the way for the method of decreasing carbon emissions in industries.