Options for Financing a Large-scale CCUS Demonstration Project in China’s Steel Sector

The steel sector emits approximately 5% of global anthropogenic greenhouse gas emissions. Since 2011, China’s steel plants have contributed approximately half of global steel production (World Steel Association, 2015). Carbon Capture, Utilisation and Storage (CCUS) is a technically viable way to decarbonise steel plants with minor modifications to existing processes. However, it is costly, and there is a lack of sufficient incentives to finance CCUS in the steel sector at large scale. This paper reviews the economic incentives that have driven investments in large-scale integrated CCUS projects (LSIPs) internationally, and, in the absence of any LSIPs in China, investments in CCUS pilot projects in that country, finding that: • Climate policies and carbon pricing are currently not the main drivers for LSIPs: 13 out of 17 operational projects are driven mainly by the opportunity to use the captured carbon dioxide for enhanced oil recovery (EOR); and • Pilot projects in China demonstrate a broader range of drivers, from EOR to technological learning and social responsibility. Based on a review of 17 Chinese steel plants representing 15% of Chinese and 7% of global steel production, of which 13 are considered to be retrofittable with mature amine separation technologies to capture blast furnace emissions, it is calculated that 74 million tonnes of carbon dioxide per annum (34% of these plants’ total emissions) could be avoided at a total cost of around CNY26 billion (USD4 billion). If EOR opportunities at seven plants within a reasonable distance of onshore oil fields are exploited, the cost could be reduced by approximately 18% to CNY21.7 billion. The paper also identifies potential sources of finance for CCUS in China’s steel sector and analyses their feasibility based on preliminary feedback from government and industry stakeholders, leading to the following conclusions: • Carbon pricing through emissions trading is not likely to be the main driver for CCUS in China in the near future; • Combining different financial sources such as R&D grants, international and multilateral donor support and steel firms’ own capital is required to enable large-scale CCUS demonstration projects in the steel sector in China; and • A possible alternative approach to incentivising investment in an early CCUS demonstration project could be to develop a scheme for certifying CCUS steel production as zero-carbon, which could create some niche market demand.