Decarbon Dissonance & Fiscal Disjunctions: A Sector Struggles for Solvency

China’s colossal steel industry, a cornerstone of its industrial economy, is under increasing pressure to decarbonize. Yet as international climate regulations intensify, particularly the European Union’s Carbon Border Adjustment Mechanism, the industry finds itself hamstrung not by technology, but by financing. Greenpeace East Asia has underscored this fiscal mismatch in a new blog, arguing that traditional green finance does not meet the needs of high-emission industries like steel, which require specialized “transition finance” tools to make sustainability a feasible pursuit.

Mammoth Mandates & Meagre Margins: The Paradox of Progress

In May 2024, Beijing released its “Special Action Plan for Energy Conservation & Carbon Reduction in the Steel Industry”, setting bold 2025 goals: increase electric arc furnace steel production to 15% of total output, improve energy efficiency across 30% of capacity, also slash carbon dioxide emissions by 53 million metric tons. However, these ambitions are outpaced by financial limitations. The China Iron and Steel Association reported a meagre 0.71% average net profit margin in 2024, too thin to absorb the costs of innovation, equipment upgrades, or alternative fuels like H₂.

Tariff Terrors & Trade Tensions: The CBAM Catalyst

From 2026, the EU’s CBAM will begin imposing tariffs on imports from carbon-intensive sectors like steel. For Chinese steelmakers, this could translate to an annual burden of $200 million–$400 million, pushing up costs by 4%–6%. These looming levies have accelerated the urgency of emissions reduction. Yet without adequate funding mechanisms tailored for high-emission sectors, steelmakers may struggle to survive, let alone compete globally under new carbon-cost conditions.

Fragmented Frameworks & Fiscal Fuzziness: Transition Finance’s Shortcomings

Transition finance, unlike green finance, is designed for high-emission, high-energy industries seeking to evolve toward cleaner operations. Yet its application in China remains fragmented. By early 2025, China had issued 22 disparate regional standards. International entities such as the Climate Bonds Initiative & banks like Standard Chartered follow their own definitions, resulting in incompatibility, confusion, & increased costs for identifying credible transition projects. The absence of national transition finance standards continues to stymie effective implementation.

Bond Barriers & Bureaucratic Bottlenecks: Uneven Access & Institutional Inertia

Despite potential, transition finance tools such as transition bonds are largely underutilized. Cumulative issuance of green bonds reached ¥4.16 trillion by 2024, while transition bonds lagged far behind at only ¥215.42 billion, just 5.18% of the green bond total. Most of these are issued by large, state-owned enterprises that can afford high debt ratios. Meanwhile, small- and medium-sized enterprises, which constitute a large share of China's steel sector, face structural hurdles like elevated debt-to-equity ratios and lack of access to equity financing.

Incentive Imperatives & Institutional Innovation: Making Finance Feasible

One of the key gaps lies in the lack of fiscal incentives. Transition finance remains significantly more expensive than green finance due to the absence of carbon-reduction support tools or targeted subsidies from central authorities. There is also a shortage of innovative financial instruments, such as carbon-linked insurance or performance-based equity investments, which could reduce risks for both banks & businesses. Without these tools, transition finance remains economically unattractive, especially to risk-averse private or foreign investors.

Corporate Confusion & Carbon Clarity: The Standardization Struggle

A lack of definitive standards for transition pathways has led to widespread uncertainty. According to a 2022 survey by PwC & the United Nations Development Programme, only 30.3% of Chinese companies had set clear carbon targets. The absence of unified transition definitions makes it difficult for businesses to establish measurable decarbonization objectives. This vagueness also fuels fears of “greenwashing” and “fake transition,” undermining trust in transition finance and discouraging responsible investment.

Synergistic Standards & Systemic Support: What’s Needed Next

Experts argue that national standards for transition finance are urgently needed to legitimize, streamline & scale the financial tools required for China’s green transition. This should involve close coordination among government agencies, banks, businesses, and research institutions. Additionally, integrating carbon performance incentives, like interest rate rebates for verified reductions in CO₂, could enhance both adoption and impact. As China moves toward its 2060 carbon neutrality goal, transition finance must evolve from peripheral to pivotal, especially for heavy industries like steel.

Key Takeaways

• China’s steel sector faces financial barriers to decarbonization, lacking support from green finance due to its high-emissions profile.

• Transition finance, which suits high-pollution industries, remains underdeveloped, fragmented & underutilized, with only ¥215.42 billion in bonds issued by end of 2024.

• The absence of unified national standards and incentive mechanisms hampers progress, making it difficult for steelmakers to meet looming climate targets & EU carbon tariffs.