Is green hydrogen China’s answer to steel mill carbon emissions?

Major steelmakers are adopting green hydrogen, setting up expensive experiments and pilot facilities
However, to scale up its production and use, government support will be crucial

Chin Hsueh

Published: 10:00pm, 26 Feb 2023

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Last year was China’s second-hottest year on average, according to the country’s annual climate bulletin released earlier this month. Average temperatures last spring, summer and autumn were the highest since records began.

Releasing the report, National Climate Centre deputy director Jia Xiaolong stressed the importance of remaining alert to “low-probability, high-impact” climate events – such as the 2013 heatwave that pushed temperatures above 40 degrees Celsius in at least 40 Chinese cities and counties.

There is no plausible path to mitigating climate change without China, the world’s largest carbon emitter, reducing its carbon footprint. And among China’s major economic drivers, few play a more critical role in the country’s decarbonisation efforts than its steel sector.

Steelmaking contributes around 17 per cent of China’s annual emissions, second only to power generation. Baowu Steel Group alone – the world’s largest steel producer – put more carbon dioxide into the atmosphere than Pakistan in 2020.

There are three main options for China’s steelmakers to clean up their businesses. First, they could replace traditional, coal-based blast furnaces with electric arc furnaces (EAFs), which use high-quality steel scrap and can run on renewable electricity, making it a more environmentally friendly undertaking.

The challenge for steelmakers, however, is that the more prevalent this method of production becomes, the higher the demand for high-quality scrap, which is only available in certain regions to begin with, driving up the cost of steel production.

A second option is to install equipment to capture carbon emissions at steel plants before they escape into the environment. This would ideally allow steelmakers to continue running their plants, a business-as-usual approach, just with the added costs of carbon capture. But carbon-capture technology is still at the pilot stage, and it will take continued investment to drive down the cost of the technology to make it a viable large-scale solution.

Carbon capture and storage equipment at Climeworks, a carbon removal start-up company, in Iceland. Photo: Facebook

The final pathway is the adoption of green hydrogen-based technologies. To be sure, green hydrogen remains a nascent industry dependent on renewable power – what makes the hydrogen produced “green” is that water is split into hydrogen and oxygen using renewable energy. Scaling up green hydrogen production requires renewable energy prices to keep on falling.

Yet, if green hydrogen can be produced on an industrial scale, it can play a crucial role in lowering the steel industry’s carbon emissions. And this is precisely what Chinese steelmakers hope to achieve.

Of China’s six world-leading steelmakers, half have started investing in green hydrogen technologies to decarbonise their production. Earlier this month, Baowu Steel began construction on a new, green-hydrogen-fuelled EAF in Zhanjiang, Guangdong province. The project is expected to be completed by the end of the year, and will be the steelmaker’s first zero-carbon furnace.

This comes after it unveiled in November 2021 a Global Low-Carbon Metallurgical Innovation Alliance and a fund to put US$5.5 million annually towards low-carbon metallurgy research, including on hydrogen. The alliance is a force to be reckoned with – it consists of more than 60 members from 15 countries, including steelmakers ArcelorMittal and Shougang Group, as well as miners BHP Group and Rio Tinto Group.

Last December, steelmaker HBIS Group completed the first phase of its hydrogen metallurgy demonstration project – a world first – in Zhangjiakou, the hydrogen energy pilot city in Hebei province. And last September, Ansteel Group, another prominent Chinese steelmaker, announced a technological breakthrough in using green hydrogen in the steelmaking process, a pioneering low-carbon technique from which Ansteel could potentially profit for years.

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The surprising hurdle slowing China’s switch to green energy

Yet despite these encouraging developments, the road ahead is likely to be treacherous. This is mainly because the technology of green-hydrogen-based steelmaking is still immature and costly. So high levels of investment are needed to scale up production and encourage adoption.

On the other hand, experts estimate that China could save nearly US$2 trillion between 2020 and 2060 by turning to green hydrogen instead of other clean energy solutions to achieve industrial carbon neutrality. The cost of renewable electricity is also falling, making it cheaper to produce green hydrogen – and enhancing the potential to scale it up.

That said, support from the Chinese government, both from the central and local authorities, will be crucial to sustaining the trend. Helpfully, President Xi Jinping has announced that China aims to hit peak carbon emissions in 2030 and reach carbon neutrality in 2060.

As China leads the way, a ‘hydrogen society’ may get closer to reality

The political pressure from these national goals will encourage financial support for more experiments in green hydrogen. And this is likely to make Chinese steelmakers feel more comfortable about tolerating the high risks of their investments in still-uncertain green hydrogen applications.

What is certain is that, given the sheer size of Chinese steelmakers, how they “green” their production will have profound implications for China’s transition to a low-carbon economy. And the pace of their decarbonisation over the coming decades will be critical to the global battle to arrest climate change.

Chin Hsueh is a Master of Science in Foreign Service candidate at Georgetown University. He previously served as a policy analyst at the Kuomintang’s Department of International Affairs and as a corporate affairs intern at the US-Taiwan Business Council

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