Spatial Schism Stymies Steel Sector’s Sustainable Shift

As the world’s largest steel producer, China accounts for 53.9% of global steel output, contributing more than 15% of its domestic CO₂ emissions. Decarbonizing this mammoth sector is critical for achieving both national and global climate goals. Hydrogen-based direct reduced iron (H₂-DRI) offers a compelling pathway, replacing coal as the reducing agent in steel production. The appeal lies in its promise of near-zero emissions, if the hydrogen is produced using renewable energy.

However, a study from Tsinghua University warns that over half of China’s steel units are geographically mismatched from the nation's richest solar and wind zones. Using a high-resolution 1 km × 1 km grid to map renewable energy supply against 570 steel units across 219 plants, the authors found that 52.6–55.8% of current facilities lack sufficient access to renewable power, rendering large-scale H₂-DRI adoption impractical without fossil fuel fallback.

Dislocated Deployment Dilutes Decarbonization Deliverables

Two deployment strategies were examined: a moderate retrofit of 149.6 million metric tons of steel and an aggressive scale-up covering 408 Mt. Under the moderate scenario, steel emissions drop to as low as 0.15 t CO₂/t steel, representing an 85–93% cut compared to conventional blast furnace-basic oxygen furnace pathways. But under aggressive deployment, emissions spike up to 1.33 t CO₂/t steel, a level comparable to natural gas-based DRI systems.

The problem? Hydrogen demand outpaces local renewable energy supply. In Hebei province alone, home to 25.6% of China’s steel production, solar energy can meet just 2.6% of the required hydrogen, wind 12.5%, and biomass 21.7%. As a result, steel plants must increasingly rely on gridded electricity or coal gasification-based hydrogen, both of which are carbon-intensive. The more widespread the rollout, the deeper the reliance on fossil-derived energy becomes.

Economic Extravagance Eclipses Environmental Efficiency

The economics of green steel vary dramatically by energy source and scale. In the solar-moderate scenario, the levelized cost of steel production is 5232.89 CNY ($719) per metric ton, 12.1% cheaper than BF-BOF when carbon costs are factored in. Similarly, wind-moderate schemes offer savings of 13.5%. However, the solar-aggressive scenario sees costs rise to 5732.59 CNY ($787), primarily due to increased reliance on expensive gridded electricity.

Biomass scenarios show an inverse trend: costs drop slightly at scale, from 6323.74 CNY ($869) in the moderate case to 5793.46 CNY ($796) in the aggressive one, due to economies of scale in biomass collection & processing. However, these costs are still higher than both wind and solar schemes, and remain above traditional steelmaking methods unless carbon pricing is substantially increased.

Water Woes Weigh on Windfall of Green Hydrogen

Beyond carbon and cost, water consumption emerges as a significant bottleneck. H₂-DRI is notably water-intensive due to both hydrogen electrolysis and renewable energy infrastructure. Solar-based systems are particularly problematic, requiring water for PV panel manufacturing, cleaning, and construction. The solar-moderate scenario consumes 853.90 million m³ of water, over three times the 230.76 million m³ needed in wind-moderate setups.

At aggressive scale, water use skyrockets: solar-aggressive schemes demand over 3 billion m³ of water, equivalent to the annual water consumption of Beijing. Many of China's top steel-producing provinces, including Hebei, Shanxi, and Liaoning, already face chronic water scarcity. Adding H₂-DRI deployment to the mix without regional water planning risks creating severe resource conflicts.

Provincial Prioritization Promotes Pragmatic Pathways

To maximize environmental benefits, researchers suggest regional prioritization. The ideal candidates for H₂-DRI deployment are steel units in areas with abundant renewables and ample water supply. Northern and western provinces such as Inner Mongolia, Shaanxi, and Ningxia boast high solar irradiance and low population density, making them suitable hubs for solar-powered steel. Wind-rich coastal areas like Jiangsu and Shandong are better positioned for wind-driven H₂-DRI units.

The biomass-powered scenario favors agricultural regions like Henan and Anhui, where crop residues are plentiful. However, biomass sourcing introduces logistical challenges, collection, transportation, and storage, that complicate cost efficiency. Therefore, the study proposes matching steel units with the most appropriate renewable energy source nearby instead of blanket retrofitting.

Fossil Fuel Fallback Frustrates Future Fortitude

Aggressive H₂-DRI deployment brings an unavoidable rise in fossil fuel supplementation. To meet hydrogen demand under this scenario, China would need to generate 805.93 GWh of gridded electricity and 11.48 million metric tons of coal-derived hydrogen, primarily for use in steel-heavy regions like Hebei. These fuels are carbon-heavy, with electricity emitting 0.581 kg CO₂/kWh and gasified coal hydrogen releasing 21.6 kg CO₂/kg H₂.

In effect, this undercuts the entire premise of H₂-DRI. While the technology remains carbon-lean in ideal settings, its benefits can rapidly erode when paired with dirty energy. The study urges decision-makers to refrain from over-scaling and instead focus on strategic, site-specific retrofitting to avoid "greenwashing" steel.

Carbon Credit Calculus Counters Cost Conundrums

Carbon pricing emerges as a potential savior. Under a projected 363 CNY ($50) per ton CO₂ carbon price, moderate H₂-DRI schemes using wind or solar can offer net cost savings of 12–13%. However, aggressive deployments still struggle to compete unless carbon prices double or higher subsidies are introduced.

Moreover, the integration of China's emission trading system into the steel sector will be critical. Currently, steel emissions are not fully covered by carbon markets. If included, H₂-DRI plants in resource-rich areas could generate carbon credits or enjoy favorable tariffs. Such incentives could bridge the cost gap between clean steel and its conventional counterpart.

Renewable Resource Realignment Required for Robust Results

In conclusion, the study dismantles the illusion that more is always better. Aggressively deploying H₂-DRI across all of China’s existing steel infrastructure could lead to higher carbon emissions, exorbitant costs, and intolerable water stress, a triad of unintended consequences. Instead, a deliberate, data-driven approach must guide H₂-DRI strategy.

Policymakers are urged to treat renewable availability, water capacity, carbon economics, and spatial data as interlinked variables. Retrofitting decisions must be tailored to each location, avoiding blanket policies. Only then can hydrogen truly become the herald of a green industrial revolution in China’s steel sector.

Key Takeaways

• Over 52% of China's steel plants lack access to sufficient renewable energy, risking fossil fuel fallback in hydrogen-based steelmaking.

• Moderate H₂-DRI deployment using solar or wind can cut steel emissions by up to 93% and reduce costs if carbon pricing is applied.

• Aggressive expansion strains water resources (up to 3 billion m³), increases reliance on coal-derived hydrogen, and may raise emissions.