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Ali Hasanbeigi 1 , Hongyou Lu 2 , Nan Zhou 2 1 Global Efficiency Intelligence 2 Lawrence Berkeley National Laboratory Net-Zero Roadmap for China’s Steel Industry March 2023 1 Net-Zero Roadmap for China’s Steel Industry The author would like to thank Dr. Yang Fuqiang, Dr. Chen Jiong, and Zhu Hong of Peking University, Dr. Chen Yu of the China Steel Development Research Institute, Dr. Zhang Chunxia of the Chinese Society of Metals, Dr. Li Bing of the Metallurgical Planning Institute, Dr. Zhang Qi of the Northeastern University, and Dr. Li Xiuping of the China Iron and Steel Research Institute, Chan Yang of European Climate Foundation, Lynn Price of Lawrence Berkeley National Laboratory, Chris Bataille of Columbia University, and Navdeep Bhadbhade of Global Efficiency Intelligence for their valuable input on this study and/or their insightful comments on the earlier version of this document. Acknowledgements Lawrence Berkeley National Laboratory LBNL and Global Efficiency Intelligence, LLC GEI have provided the information in this publication for informational purposes only. Although great care has been taken to maintain the accuracy of the information collected and presented, GEI and LBNL do not make any express or implied warranty concerning such information and does not assume any responsibility for consequences that may arise from the use of the material. Any estimates contained in the publication reflect our current analyses and expectations based on available data and information. Any reference to a specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not constitute or imply an endorsement, recommendation, or favoring by GEI or LBNL. This manuscript has been co-authored by Lawrence Berkeley National Laboratory under Contract No. DE-AC02-05CH11231 with the U.S. Department of Energy. The U.S. Government retains, and the publisher, by accepting the article for publication, acknowledges that the U.S. Government retains a non-exclusive, paid-up, irrevocable, worldwide license to publish or reproduce the published form of this manuscript or allow others to do so for U.S. Government purposes. Recommended citation Hasanbeigi, A., Lu, H., Zhou, N. 2023. Net-Zero Roadmap for Chinese Steel Industry. Lawrence Berkeley National Laboratory, and Global Efficiency Intelligence. LBNL-2001506 https//eta.lbl.gov https//www.globalefficiencyintel.com Disclaimer 2 Net-Zero Roadmap for China’s Steel Industry Iron and steel manufacturing is one of the most energy-intensive industries worldwide, accounting for around 7 of global greenhouse gas GHG emissions and 11 of global carbon dioxide CO 2 emissions. In 2021, China accounted for 53 of global steel production. The Chinese steel industry produced 1,033 million tonnes Mt of crude steel in 2021, of which 89.4 was produced by primary steelmaking plants using blast furnace-basic oxygen furnace BF-BOF and 10.6 was produced by the electric arc furnace EAF production route. China has pledged to peak its CO 2 emissions before 2030 and achieve carbon neutrality before 2060. China’s steel industry is expected to peak its CO 2 emissions before 2030. This peak in steel industry CO 2 emissions is mainly driven by the peaking of domestic steel demand. Steel production in China has one of the highest carbon intensities in the world because the majority of steel is produced by the energy-and carbon-intensive BF-BOF steelmaking process. The goal of this study is to develop a roadmap for deep decarbonization of the Chinese steel industry. We analyzed the current status of the Chinese steel industry and developed scenarios for 2050 to assess different decarbonization pathways that can substantially reduce the CO 2 emissions of the steel industry in China. We included five major decarbonization pillars in our analysis 1 demand reduction, 2 energy efficiency, 3 fuel switching, electrification, and grid decarbonization, 4 technology shift to low-carbon steelmaking, 5 carbon capture, utilization, and storage CCUS. Our analysis to 2050 shows that under a business-as-usual BAU scenario, due to steel demand reduction, moderate energy efficiency improvement, technology shift primarily to the EAF production route, and decarbonization of the grid, annual CO 2 emissions will decrease by 54 between 2020 and 2050. Chinese steel production drops 23 in the same period under the BAU scenario Figure ES1. The Net-Zero scenario has the largest reduction in annual CO 2 emissions in the steel industry, as it includes a more ambitious contribution of demand reduction, energy efficiency measures, fuel switching, technology shift to low-carbon steel production, and CCUS. Under the Net-Zero scenario, total CO 2 emissions from the Chinese steel industry will decrease to about 78 MtCO 2 per year in 2050, a 96 reduction compared to the 2020 level. Figure ES1. Total annual CO 2 emission in the steel industry in China under various decarbonization scenarios, 2020-2050 Source this study Executive Summary - 500 1,000 1,500 2,000 2,500 2020 2030 2040 2050 CO 2 Emissions MtCO 2 /yr BAU Scenario Moderate Scenario Advanced Scenario Net-Zero scenario 3 Net-Zero Roadmap for China’s Steel Industry The contribution of each decarbonization pillar to the CO 2 emissions reductions in the Net-Ze- ro scenario for the steel industry in China in 2050 is shown in Figure ES2. In this scenario, the technology shift primarily to scrap-based EAF steel production makes the largest contribution to CO 2 emissions reduction, followed by demand reduction and fuel switching, electrification of heating, and electricity grid decarbonization. Figure ES2. Impact of CO 2 emissions reduction options in the Net-Zero Emissions scenario for the Chinese steel industry Source this study The Near Zero Emissions scenario is technologically achievable with the most commercially available technologies, such as scrap-EAF and direct reduced iron DRI-EAF, and near commercial technologies, such as hydrogen-DRI steelmaking. Achieving the results shown in the Net-Zero Emissions scenario requires unprecedented uptake of low-carbon technologies, ranging from aggressive energy efficiency improvements to large-scale adoption of commercialized decarbonization and low-carbon ironmaking technologies, switching to secondary steel manufacturing, and significantly increasing the use of lower-carbon fuel in China’s iron and steel industry. The primary goal, however, should be phasing out of carbon-intensive BF-BOF steelmaking. In the near term, we recommend the Chinese government to discourage the installation of any new blast furnaces BFs in China. There will be a substantial increase in domestic steel scrap availability in China, even in the near term by 2030, that could replace the need for the construction of new BFs. Instead, there will be a need to build new EAF steelmaking plants. The Chinese government can also discourage the relining of BFs as much as possible and encourage the installation of H 2 -DRI or H 2 -ready DRI plants to produce iron from iron ore. Relining BFs is a substantially capital-intensive investment that will extend BFs’ lifetime for another 15-plus years while keeping their carbon emissions almost at the same level. Relining BFs will result in stranded assets that are not in line with China’s carbon peak- ing and carbon neutrality goals. The capital cost to reline a BF could be even higher than the capital cost of building a new DRI plant. In addition, as China and the rest of the world build a few H 2 -DRI plants in the next few years and gain experience and confidence in this low-carbon ironmaking technology and as the price of green H 2 drops in the coming years with the large programs and incentives in place in China, the shift to H 2 -DRI could become even more attractive in the coming years than relining BFs, and it will certainly be a more climate-friendly investment. 2,103 450 319 398 736 110 12 78 2020 Demand Reduction Energy Efficiency Fuel Switching while improving steel products’ recycling system to increase scrap quality and availability. The Chinese government should be ahead of the companies by providing standards and policy guidance in terms of carbon emission standards for steel products and hydrogen applications in metallurgy. Steel companies, while continue pursuing decarbonization, need to consider implementing life-cycle emission standards as well as emission labels for their steel products. In the mid-term, the government should plan and guide the industry adjustments, especially in terms of phasing out blast furnaces and potentially relocating steel mills to match local renewable resources. The Chinese government can also leverage market forces and set up green public procurement GPP programs for steel to incentivize low-carbon steel production. Steel companies, in the mid-term, will face even higher pressure and competition to adopt low-carbon technologies. We recommend steel companies join an industry group or a public-private partnership to have access to the latest development in technologies H 2 DRI, CCUS, smart manufacturing, etc. and policies. We recommend steel companies develop pilots and demonstration programs to use, test, and further improve low-carbon iron and steelmak- ing technologies. We suggest that the Chinese government provide financial, regulatory, and policy support on technology innovation in the areas of investing in high-risk and high-return breakthrough technologies, developing tech-to-market programs and encouraging technology pilots, tests, and validation. 5 Net-Zero Roadmap for China’s Steel Industry Executive Summary 2 1. Introduction 6 2. China’s steel industry production and trade 8 3. Global steel industry’s CO 2 emissions 10 4. The profile of energy use and emissions in China’s steel industry 11 4.1. Energy use in China’s steel industry 11 4.2. Benchmarking energy and CO 2 emissions intensities of the Chinese steel industry 11 5. Net-zero roadmap for the steel industry in China 16 5.1. Decarbonization scenarios 16 5.2. Decarbonization pathways for the Chinese steel industry 16 6. Impact of decarbonization pillars on China’s steel industry 19 6.1. Demand reduction 19 6.2. Energy efficiency 22 6.3. Fuel switching, electrification, and grid decarbonization 24 6.4. Technology shift to low-carbon steel production technologies 26 6.5. Carbon capture, utilization, and storage 40 7. Action plan and recommendations 47 References 53 Appendices 60 Table of Contents 6 Net-Zero Roadmap for China’s Steel Industry Iron and steel manufacturing is one of the most energy-intensive industries worldwide. The use of coal as the primary fuel for iron and steel production globally means that iron and steel production has among the highest carbon dioxide CO 2 emissions of any industry. The iron and steel industry accounts for around a quarter of greenhouse gas GHG emissions from the global manufacturing sector IEA 2019. The world’s steel demand is projected to increase from 1,951 million tonnes Mt in 2021 to up to 2,500 Mt in 2050 IEA 2020a. While in 2021, China accounted for 53 of global steel production, India will lead in terms of production growth in the future. Africa and the Middle East are the other two regions with the highest projected growth rate in steel production by 2050 IEA 2019. This projected increase in steel consumption and production will drive a significant increase in the industry’s absolute energy use and CO 2 emissions in the absence of substantial efforts to decarbonize the iron and steel industry. China has pledged to peak its CO 2 emissions before 2030 and achieve carbon neutrality before 2060. China’s steel industry is expected to peak its CO 2 emissions before 2030 MIIT 2022. The government aims to improve comprehensive energy intensity by 2 from 2020 to 2025 and implement Energy Efficiency “Top Runners” programs in the steel industry China Government Website 2022. The industry is also expected to increase the share of electric arc furnaces EAFs from the current 10.6 to 15 by 2025 and 20 by 2030. In addition, the production of any new iron and steelmaking capacity is strictly limited. “Or- derly” development of secondary steelmaking is encouraged through a preferential capacity swap policy to replace old primary steelmaking with scrap-based EAF steelmaking. The government also supports the development of hydrogen-based steelmaking MIIT 2022. China launched its national Emissions Trading System in July 2021. Currently, it only covers the power sector Tan, 2022, but the steel industry is expected to join soon, with government support for the development of a life-cycle carbon emissions data management system China Government Website 2022. Figure 1 shows a simplified flow diagram of steel production using blast furnace - basic oxygen furnace BF-BOF, direct reduced iron-electric arc furnace DRI-EAF, and scrap-EAF production routes. Iron ore is chemically reduced to produce steel by one of these three process routes BF-BOF, smelting reduction, or direct reduction. Steel is also produced by the direct melting of scrap in an EAF. BF-BOF and EAF production routes are the most common today. In 2021, the BF-BOF production route accounted for approximately 71 of the crude steel manufactured worldwide, and EAF production accounted for approximately 29 worldsteel 2022. In China, almost 90 of steel is produced by BF-BOF primary steelmaking route. Introduction 1 There are emerging technologies that aim to reduce energy use and emissions from the steel industry, such as the ones described in IEA 2020a and Hasanbeigi et al. 2013. For example, hydrogen DRI-based EAF H 2 -DRI EAF steelmaking, where hydrogen H 2 is produced by electrolysis using renewable electricity, is one of the key deep decarbonization technologies that is being piloted SAAB 2021 and is being seriously considered by both industry and policymakers. This and other emerging technologies are discussed in more detail later in this report.