China's Steel Industry: A 15% Capacity Cut is Essential for 2025 Climate Goals

China's steel industry, the world's largest, faces a significant challenge in meeting its 2025 climate goals. To achieve a 15% reduction in steel capacity, the country must implement a combination of policy reforms, technological advancements, and international cooperation. This article explores the measures China should take to meet its ambitious targets and the role international cooperation plays in supporting the transition.

Policy Reforms and Technological Advancements

To reduce steel capacity by 15% by 2025, China should focus on the following policy reforms and technological advancements:

1. Capacity Swap Mechanism Reforms: China should reform its capacity swap mechanism to ensure that new capacity additions are truly offset by the closure of old capacity. Currently, the mechanism allows for net capacity growth, which has led to an increase in overall capacity. By tightening the rules and ensuring a genuine 1:1 swap, China can effectively reduce its steel capacity (Source: Bloomberg, April 10, 2023).
2. Government-Mandated Output Cuts: The National Development and Reform Commission (NDRC) should enforce output cuts on major steel mills to help reduce overall production. This measure is crucial, as mills are reluctant to cut production voluntarily due to competition for market share (Source: S&P Global Commodity Insights, April 10, 2023).
3. Promote High-Value-Added Products: Encourage steel mills to shift their production focus towards high-value-added products, such as advanced steel plates and silicon steel. This shift can help improve profitability and reduce the need for overall capacity (Source: S&P Global Ratings, March 2025).
4. Strengthen Environmental Policies: Implement stricter environmental regulations to drive out weaker steel players and benefit survivors. This can help reduce overall capacity while improving the industry's environmental performance (Source: S&P Global Ratings, March 2025).
5. Infrastructure Investment and Demand Management: Increase investment in infrastructure projects to boost steel demand and help absorb excess capacity. Additionally, manage demand by promoting energy-efficient steel products and encouraging the use of recycled steel (Source: S&P Global Ratings, March 2025).

International Cooperation and Incentives for Low-Carbon Technologies

International cooperation plays a crucial role in supporting China's steel industry transition towards low-carbon technologies. By collaborating with other countries, China can learn from their experiences, share best practices, and access advanced technologies to accelerate its decarbonization efforts. Here are some ways international cooperation can support China's steel industry transition and incentives to encourage investment in low-carbon technologies:

1. Technology transfer and collaboration: International cooperation can facilitate the transfer of low-carbon technologies from developed countries to China. For instance, European steelmakers have been investing in and developing low-carbon technologies like hydrogen-based steelmaking. Collaborating with these companies can help Chinese steelmakers adopt and adapt these technologies to their needs (Carson, 2023).
2. Policy alignment and harmonization: Harmonizing policies with international partners can create a more favorable environment for investment in low-carbon technologies. For example, aligning China's carbon border adjustment mechanism with the EU's can encourage investment in green steel production (Le Grix de la Salle, 2024).
3. Joint research and development: Collaborative research and development projects can help China and its international partners advance low-carbon technologies. For instance, the EU-China Low Carbon Technology Partnership Platform can facilitate joint projects in areas like carbon capture and storage (CCS) and green hydrogen (European Commission, 2021).
4. Incentives for investment in low-carbon technologies: To encourage investment in low-carbon technologies, China can offer incentives such as:
* Subsidies and tax breaks: Providing financial incentives for steelmakers to invest in low-carbon technologies can help offset the higher upfront costs (Xu, 2020).
* Green finance: Facilitating access to green finance, such as green bonds and low-interest loans, can help steelmakers fund their transition to low-carbon technologies (Li, 2023).
* Carbon trading: Implementing a carbon trading system can create a market for emissions allowances, providing an additional revenue stream for steelmakers that reduce their emissions (He, 2023).
* Regulatory support: Streamlining regulations and providing clear guidance on the transition to low-carbon technologies can help steelmakers navigate the process and make informed decisions (CISA, 2023).

By leveraging international cooperation and offering incentives for investment in low-carbon technologies, China can accelerate its steel industry's transition towards a more sustainable and low-carbon future. This will not only help China meet its climate goals but also contribute to global efforts to combat climate change.

References:
- Carson, J. (2023). Interview at the Shanghai Climate Week. Global Times.
- Le Grix de la Salle, A. (2024). ArcelorMitt