Last year, Hebei province mobilised over CNY 20 billion (USD 2.8 billion) in “transition loans” to support steel companies to reduce their carbon emissions, finds a new report jointly released by the Climate Bonds Initiative (CBI) and Transition Asia.
Steelmaking is a major carbon emitter, contributes 7-9% of the world’s carbon emissions. China produces over half of the world’s steel, with Hebei its largest steelmaking province.
The new loans revealed by the report follow Hebei’s release in late 2023 of the first dedicated subnational policy guidance on steel decarbonisation in China.
The Guidance for Transition Finance in the Iron and Steel Industry lists 176 technologies approved for transition finance, following a similar approach to China’s green bond catalogue. It asks steel companies to make clear transition plans which include carbon-cutting targets for 2025, 2030 and 2060. And it encourages support for downstream industries like carmakers, such as banks offering them cheaper loans when they use low-emission steel.
Most of the Hebei steel transition loans in 2024 offered interest rate discounts ranging from 0.05% to 1.5%, found a survey of news sources conducted by the report authors, who had to contend with limited public disclosure from companies.
The bond market has played a small role so far, but one major deal took place in October 2024, when the Bank of China issued the world’s first steel transition bonds from a financial institution in global markets. These bonds raised EUR 300 million (USD 346 million) for projects in Hebei that focus on lower-carbon steel-making technologies like electric arc furnaces (EAFs), which can use recycled steel as a feedstock.
While Hebei may offer a useful policy example, the decarbonisation of China’s steel industry remains a significant challenge. According to the new report, the industry will require about USD 18 billion in capital investment to align with the global net-zero pathway for primary steel production, and to meet domestic deployment targets for EAFs and other cleaner technologies like direct reduction of iron – which allows iron to be made using gas rather than coke.
“The rapid uptake of transition financing in China’s steel sector highlights the power of clear, credible guidance to mobilise capital at scale,” Xie Wenhong, head of the China Programme at CBI told Dialogue Earth. “As the world’s largest steel producer, China has a unique opportunity – and responsibility – to lead the global shift toward low-carbon steel.”
Read Dialogue Earth’s previous report on the challenges of decarbonising China’s steel industry.