Steel industry carbon reduction path

The need for a carbon-neutral transition in China's steel industry

The iron and steel industry is the pillar industry of China's industry, accounting for about 5% of China's GDP. The steel industry involves a wide range of industries, high industrial correlation, and large consumption, and plays an important role in economic construction, social development, and employment stability. China's steel industry is also pivotal in the world, steel production accounts for half of the world's total output. However, at present, China's steel industry is still dominated by long processes with high carbon emission intensity, and crude steel production capacity accounts for about 90%. Under the dual pressure of carbon neutrality commitment and capacity reduction, China's steel industry is facing severe challenges.

At present, China's steel industry accounts for about 15% of China's total carbon emissions, making it the manufacturing industry with the highest carbon emissions.  According to McKinsey estimates, if the global average temperature rise by the end of this century does not exceed 1.5 ° C, by 2050, China's steel industry must reduce emissions by nearly 100%, which is a very challenging goal, the need to promote zero-carbon transformation from steel consumption, production, technology, supply and other related fields.

China's steel industry carbon neutral transition path

Taking into account cost, technology maturity and resource availability, we believe that reducing demand, improving energy efficiency, and accelerating technologies such as scrap reuse, carbon capture, utilization and storage (CCUS), and hydrogen direct reduction steelmaking (H2-DRI-EAF) are important drivers for carbon neutrality in China's steel industry. Accordingly, we mapped the emission reduction path of China's steel industry from 2020 to 2030 and 2050 (see Figure 1).

The demand reduction in the conventional scenario (A) is projected to contribute about 35% of CO2 reductions by 2050. The factors that affect the apparent demand for steel come from three aspects: new demand, replacement demand and inventory changes. With urbanization and construction slowing (see Figure 2), new steel demand will be lower than in previous years. In addition, the improvement of material efficiency in the construction industry (such as the use of high-strength steel) and the breakthrough of new alternative materials will further reduce the replacement demand for steel. With the further deepening of domestic supply-side reform and destocking, the reduction of high inventory in steel enterprises will also bring about a decline in apparent demand. Looking to the future, if the steel industry is included in China's carbon price system (including carbon charges, taxes, emissions trading, etc.), it will likely promote further decline in steel demand. At the same time, with the acceleration of the international carbon price system such as the EU Emissions Trading System (EU ETS), China's steel exports will face greater challenges, but it will also bring new market opportunities to "mild steel iron products". Coupled with the healthy development of domestic steel production capacity and vigorously control, China's steel production capacity will maintain the situation of domestic demand and export. It is worth noting

The current path analysis depends heavily on changes in demand, which means that the pace of the carbon-neutral transition will accelerate (or slow) dramatically depending on demand. If companies are pursuing sustainable green growth, they should be best prepared for a carbon-neutral transition.

Energy efficiency improvement (B) is a no-regret move towards technological maturity, with the potential to reduce CO2 emissions by about 180 million tonnes by 2050; It is expected to contribute 15% of the industrywide CO2 reduction by 2050. There are three main drivers of energy efficiency change:

First, capacity upgrading and replacement

We estimate that about 20 million tons of carbon reduction potential by 2030 will come from the natural upgrading of small blast-converter (annual capacity <10 million tons) to large blast-converter (annual capacity >20 million tons), covering a total capacity of about 250 million tons.

The second is operational excellence

Steel companies continue to strive for operational excellence, and the steel industry has achieved a 7.5% improvement in energy efficiency over the past decade by continuously improving standards, raising the level of standardized operations, and breaking down key indicators, linking operational capabilities to performance, and improving operational processes. Benchmarking the best energy efficiency level in the industry, it is expected that the energy efficiency improvement can reach 10%-15% in the next 30 years;

Third, the optimization of raw materials

Due to carbon emission reduction, enterprises give priority to the use of high-quality raw materials in iron ore, coke, flux and other categories, so as to reduce the carbon emission intensity of long-term steel production.