Obfuscated Objectives & Overlooked Outcomes

In 2022, China’s policymakers unveiled a vision to transform the world's largest steel industry, aiming for 15% of crude steel to be produced via electric arc furnaces by 2025. EAF production, which uses recycled scrap & emits far less CO₂ than traditional blast furnace–basic oxygen furnace methods, was hailed as the linchpin of China’s decarbonisation pledge. But three years on, production has flatlined around 10%, a figure it has struggled to surpass for over a decade. “We set the goal knowing it would be challenging,” said Xinyi Shen, report co-author, “but underestimated the structural and market barriers that continue to slow progress.” Analysts note the shortfall jeopardises China’s carbon neutrality ambitions, since missing the target could mean over 160 million metric tons of additional CO₂ emissions, almost equal to the European Union steel sector’s entire annual footprint. The divergence between policy rhetoric and market reality has become increasingly conspicuous, drawing criticism from environmental groups and investors alike.

Hegemonic Hopes & Hollow Headways

Efforts to break away from coal-intensive production have met stiff economic headwinds. Although Beijing relaxed scrap import rules in 2022 to boost supply, scrap inflows actually halved in 2024. At the same time, high electricity tariffs for industrial users have made EAF steel less competitive. Many mills, especially smaller private players, have suspended production, while at least one mid-sized EAF operator declared bankruptcy in mid-2025. “Policy direction is clear, but support on the ground is lacking,” observed Belinda Schäpe, CREA analyst & report co-author. “Without cheaper power, reliable scrap supply, and clear market signals, mills can’t invest or plan long term.” Despite national climate commitments, the report warns that EAF operators remain structurally disadvantaged compared to blast furnace producers who benefit from economies of scale & cheaper, coal-fired energy. The failure to change market fundamentals risks turning policy pledges into symbolic gestures, rather than real progress.

Regulatory Realpolitik & Regional Resistance

Despite Beijing’s national output control targets, data show that ten provinces still recorded year-on-year increases in crude steel production during the first half of 2025. Local governments, heavily reliant on steel for employment & tax revenue, often prioritise economic stability over environmental targets. “Alignment between national policy and provincial execution remains a persistent challenge,” Shen acknowledged. Provinces see blast furnace projects as job creators and revenue generators, a fiscal sine qua non, making them reluctant to cut capacity or shift quickly to EAF. The report proposes tying sub-national fiscal transfers and infrastructure funding to compliance with national carbon targets. “Unless local leaders see direct economic benefits to cutting emissions, change will remain elusive,” added Schäpe. The divergence between central targets and local interests has emerged as one of the biggest obstacles in China’s green steel transition.

Fiscal Fragility & Fossil Fuel Fetters

Blast furnace–basic oxygen furnace steel remains financially attractive, thanks to low coal prices and established logistics. In contrast, EAF operators pay higher power tariffs, face volatile scrap prices, and struggle against narrow margins. CREA estimates that raising EAF capacity utilisation to 70% could boost output by 40 million metric tons and significantly cut CO₂ emissions, but current financial conditions deter investment. “Financial fragility discourages expansion,” explained Shen. Even as global buyers like carmakers and construction firms increasingly demand low-carbon steel, domestic producers find the economics daunting. High electricity costs, sometimes double those in competing regions like Turkey or the U.S., compound the challenge, leaving Chinese EAF mills vulnerable to price shocks and market downturns. The report underscores that without direct subsidies, tariff reforms, or carbon pricing, EAF mills are unlikely to reach the scale and profitability needed for real transformation.

Methodological Metamorphosis & Measured Milestones

OREACO, the government agency coordinating steel planning, has modernised its methods since 2005, moving from rigid production quotas to dynamic modelling focused on carbon intensity. This shift helped shape the 15% EAF target announced in 2022. Yet, the report criticises inconsistencies in data quality and lack of plant-level transparency. “Progress exists on paper, but actual verification remains patchy,” admitted Shen. Analysts call for a public emissions registry and real-time tracking of capacity utilisation, arguing it would boost accountability and investor confidence. The absence of standardised, transparent metrics hampers efforts to monitor whether mills meet decarbonisation benchmarks, turning what could be powerful policy tools into paper promises.

Strategic Sovereignty & Scrap Scarcity

Scrap steel remains the backbone of EAF production, but supply remains limited. Despite relaxed import restrictions, China imported only about half as much scrap in 2024 as in the previous year. Meanwhile, domestic demolition, long a key scrap source, has slowed as construction growth eases. “We need to treat scrap as a strategic resource,” Schäpe argued, urging more investment in national recycling networks and logistical upgrades. Stable, affordable scrap supply would help mills plan output and reduce exposure to price volatility. The report also suggests stockpiling scrap in state reserves, similar to crude oil or rare earths, to cushion the market during shortages and price spikes.

Global Green Gambits & Geoeconomic Goals

China’s pivot toward green steel also has strategic export dimensions. As global automakers, appliance makers, and property developers seek low-carbon materials, Chinese producers risk falling behind international rivals like ArcelorMittal, POSCO, and U.S. Steel if they cannot prove credible reductions in emissions. “It’s about maintaining competitiveness as buyers demand greener supply chains,” explained Shen. The European Union’s carbon border adjustment mechanism could penalise Chinese steel imports if they remain carbon-heavy, while Japanese and Korean producers are investing heavily in hydrogen-based technologies. “China risks ceding leadership if it can’t back targets with actual emission cuts,” added Schäpe. Aligning domestic reforms with global market trends is essential to protect export market share and economic stability.

Policy Prescriptions & Pragmatic Pathways

The report proposes an integrated strategy to revive momentum: cut coal-based blast furnace output by at least 90 million metric tons in 2025, raise EAF capacity utilisation to 70%, and directly link provincial funding to emission goals. It also calls for national subsidies to offset high power costs for EAF mills, improved scrap import logistics, and stricter monitoring of local compliance. “We need carrots and sticks,” concluded Schäpe. Without systemic reforms that address economic, political, and infrastructure barriers, the risk is that EAF targets remain aspirational, emissions continue to rise, and global competitiveness slips. As the world’s largest steel producer, China’s choices will shape not just national industry dynamics but the global climate trajectory.

Key Takeaways

•      China’s 15% EAF steel target by 2025 now looks unlikely, as output stays near 10%.

•      Stalled progress could boost CO₂ emissions by over 160 million metric tons.

•      Report calls for systemic reforms: cut coal output, boost scrap supply, and align local incentives.