In the face of the severe global climate crisis, the steel industry, as a significant source of carbon emissions, is undergoing a profound transformational challenge. In 2023, the European Union and the British government successively announced the Carbon Border Adjustment Mechanism (CBAM), covering industries such as steel, hydrogen, and electricity. Simultaneously, the successful ignition of China Baowu’s first set of a million-ton hydrogen-based vertical furnace revealed that the Chinese steel industry, driven by both internal dynamics for low-carbon development and external pressure from carbon tariffs, is advancing towards a green and low-carbon future.
On May 17, 2023, the European Council approved the Carbon Border Adjustment Mechanism (CBAM), which is set to officially impose “carbon tariffs” starting in 2026. This marks the entry of the world’s first “carbon tariffs” into a substantive implementation phase. On December 18, the British government also announced the implementation of its version of CBAM, starting from 2027. The preliminary categories of products covered include aluminum, cement, ceramics, fertilizers, glass, hydrogen, and steel.
On December 23, 2023, China Baowu successfully ignited its first set of a million-ton hydrogen-based vertical furnace, marking a significant breakthrough in Baowu Group’s low-carbon transformation. This event also signifies that China’s steel industry, represented by Baowu, has embarked on a new chapter exploring zero-carbon and green transformational development. In fact, by 2026 when the EU officially imposes carbon tariffs, the carbon emission intensity of China’s exported steel products may not necessarily be higher than those of similar products in the EU. Taking Baosteel as an example, its carbon emission intensity is lower than that of European companies like ArcelorMittal and ThyssenKrupp. Therefore, the carbon tariffs paid by Baosteel for exporting steel products to Europe are lower than those of companies like ArcelorMittal, making them more competitive.
In the short term, the implementation of carbon tariffs will only affect China’s export of approximately 4 million tons of steel to the EU and the UK. However, in the long term, countries such as the United States and Japan-Korea are also likely to propose carbon tariffs when conditions are ripe. At that time, it will affect exports of over 10 million tons of steel products, involving an amount of up to 15 billion US dollars. Therefore, China’s steel industry needs to be prepared to deal with larger-scale carbon tariffs in the future.
The implementation of carbon tariffs will bring certain pressure to China’s steel exports, but it also provides an important opportunity for the development of China’s hydrogen-based direct reduction technology. As a low-carbon and environmentally friendly ironmaking process, hydrogen-based direct reduction can significantly reduce carbon emissions in the steel production process, meeting the requirements of carbon tariffs. Currently, China has less than 2 million tons of hydrogen-based direct reduction capacity, and it is estimated that by 2034, supported by carbon costs, the capacity will exceed 10 million tons.
Although China has nearly 100 million tons of electric furnace steel production, there are not many enterprises that are currently competitive and capable of developing low-carbon technologies. While the northwest region has abundant solar and wind resources, its deep inland location is not conducive to enhancing international competitiveness. Therefore, it is recommended that enterprises adopt a development model of coastal electric furnace steel combined with offshore wind power. This approach can achieve complementarity and synergy between new energy and the steel industry. Coastal areas have abundant wind energy resources, which can provide stable green electricity supply for electric furnace steel production. Additionally, it can further develop seawater electrolysis for hydrogen production, realizing green hydrogen metallurgy, effectively reducing carbon emissions, and promoting green and low-carbon development.
With the advancement of the “Belt and Road” cooperation initiative, Chinese steel companies have rapidly accelerated their pace of “going global” in recent years, with overseas steel projects focusing on Southeast Asia, the Middle East, Africa, and Eastern Europe progressing rapidly. The regional imbalances in the global steel industry’s development align well with China’s entry into a period of reducing output, forming an effective complement. Planning international green and low-carbon steel production capacity not only integrates and efficiently utilizes global resources but also expands the scale and influence of the international steel market through global product configuration. This is of great significance for resolving trade frictions, promoting the development of enterprises, and facilitating the transformation and upgrading of China’s steel industry.