A Green Steel Decade for China

China dominates the global steel production industry, accounting for over 50% of the world's total capacity. Globally, steel production contributes 7-9% of global emissions; but in China it’s responsible for 15% of the country's total carbon emissions. 

Hebei, China’s largest steel-producing province, has credible guidelines for financing steel decarbonisation. 

In December 2023, China’s Hebei Province issued its Guidelines for Transition Finance in the Iron and Steel Industry. As the first subnational regulatory framework of its kind in China, the Hebei guidelines outline core principles, identify eligible technologies, and emphasise the need for robust supply chain collaboration across the steel sector, marking a key milestone in setting credible and sector-specific transition guidance. 

Decarbonisation ambition directs investment flows and creates financing opportunities. 

To support steel transition, Climate Bonds Initiative (CBI) and Transition Asia jointly produced a new report Financing the Decarbonisation of China’s Steel Sector: Insights from the transition finance pilot and market progress.   

The report analysis indicates that the steel sector will need at least USD18bn in CAPEX over the next five years from 2026 to 2030. Approximately 14% of this investment will support the transition from BF-BOF to scrap-based EAF, while 41% will be allocated to H₂-DRI-EAF development. This investment is expected to boost China’s H₂-DRI-EAF capacity by about 3 million tons per year, reaching a total of 15 million tons by 2030. 

Despite China’s low electrolyser costs, Hydrogen production makes up 41% of the CAPEX needed and the high cost of hydrogen remains a critical bottleneck. 

The market responds quickly to guidelines and reacted swiftly to Hebei’s introduction of transition finance standards, underscoring the pivotal role that well-defined guidelines play in catalysing capital flows.  

In 2024, the first year following the release of the steel transition guidelines, banks in Hebei province alone provided USD2.8bn in steel transition loans, while Chinese issuers raised USD3bn through 12 steel-related GSS+ bonds; both making significant contributions to annual financing efforts.  

In addition to debt instruments, equity financing is expected to play a critical role, particularly in supporting emerging hydrogen technologies. Furthermore, anticipated incentives from both central and regional governments should further stimulate market participation, channelling substantial financial flows toward the steel sector’s decarbonisation initiatives. 

Recommendations 

The report finds that transition finance is key to funding China’s steel sector decarbonisation over the next five years. To meet the Paris Agreement and China’s 2030 carbon peak and 2060 carbon neutrality targets, focus should be on deep decarbonisation paths like hydrogen DRI-EAF, scrap-EAF, and aligning BF-BOF production with emissions goals. 

The report advises: 

1. Regulators to offer targeted incentives and strengthen policy frameworks based on proven, feasible technologies. This includes supporting green steel uptake through hydrogen DRI investment, green procurement, and enhanced scrap recycling.
2. Financial institutions to expand and diversify financing instruments. Scaling up traditional tools like loans and bonds for scrap-EAF, and developing innovative solutions such as equity and insurance to meet diverse transition needs and manage risks.
3. Steel companies to proactively seek transition finance using existing frameworks (e.g. CBI Steel standards, PBoC taxonomy, Hebei guidelines), implement transition plans,and pursue green offtake agreements alongside strengthening carbon management. 

What’s next? 

In April 2025, Hebei Province launched its 2025 version of Guidelines for Transition Finance in the Iron and Steel Industry. 

The updated version expanded the scope to include scrap steel processing companies. The guidelines also provide templates for corporate transition plans and information disclosure. The new version aims to enhance the easiness, efficiency, and standardisation of steel transition guidelines implementation.  

Looking forward, the Hebei Branch of the People's Bank of China will actively promote the implementation and guide financial institutions to innovate transition finance products and services for the steel industry. 

‘Til next time!