SINGAPORE- China approved no new coal-based steel projects in the first half of 2024, researchers said on Thursday, accelerating its shift towards green production as it prepares for the impact of a new carbon levy on exports to Europe.
Local governments approved 7.1 million metric tons of new steelmaking capacity from January to June, but all of it was for cleaner scrap-based electric arc furnace (EAF) projects, rather than coal-intensive blast furnaces, said the Centre for Research on Energy and Clean Air (CREA).
China’s efforts to cut production and recycle more scrap via EAF could reduce CO2 emissions from the steel industry by 200 million tons by 2026, equal to the entire emissions of the EU steel sector, CREA said.
China’s steel industry, by far the world’s biggest, is under growing pressure to decarbonize. It is expected to join China’s own emissions trading scheme this year, and exports to Europe will be subject to the Carbon Border Adjustment Mechanism (CBAM) starting from next year, which could make them 11 percent more expensive by 2030.
“Chinese steelmakers targeting the EU market will need to take action to reduce the carbon intensity of their products in order to maintain competitiveness,” said Xinyi Shen, the report’s co-author.
Europe introduced CBAM in order to tackle the problem of “carbon leakage”, which allows businesses to avoid carbon costs by sourcing products from countries with weaker climate compliance. Starting from 2026, importers of steel, fertiliser, cement and chemicals will pay levies based on the carbon footprint of the products they buy.
Researchers at China’s Institute for Global Decarbonization Progress (iGDP) said last week that China’s steel industry could face up to 5.9 billion yuan ($811.09 million) in total CBAM levies by 2030, depending on how much it cuts emissions.
Traditional blast furnace steel could face levies of around 250 yuan per ton by 2030, but scrap-based EAF would not yet face any additional charge, it said.
Meanwhile, China generated 53 percent of its electricity from coal in May, a record low, while a record high of 44 percent came from non-fossil fuel sources, indicating its carbon emissions may have peaked last year if the trend continues, according to a new analysis.
Coal’s share was down from 60 percent in May 2023, according to the analysis by Lauri Myllyvirta, senior fellow at Asia Society Policy Institute, for specialist publication Carbon Brief.
Solar rose to 12 percent of power generation in May and wind to 11 percent as China added large amounts of new capacity. Hydropower at 15 percent , nuclear with 5 percent and biomass at 2 percent made up the rest of the non-fossil fuel based power.
