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China’s expansion of coal-powered steel mills accelerated sharply in the first half of 2021, exposing the government’s reluctance to sacrifice industry-fuelled growth to achieve its climate goals.

Analysis of Chinese government approvals by the Centre for Research on Energy and Clean Air, a Finland-based advocacy group, found that 18 steelmaking blast furnaces and 43 coal-fired power plants were announced in the first half of this year. 

As steel prices surged, 35m tonnes of coal-dependent ironmaking capacity was announced in the first half of 2021, more than in all of 2020, CREA found.

If built, the combined coal and steel projects would emit about 150m tonnes of carbon dioxide per year, equivalent to the total emissions of the Netherlands.

The increase in blast furnace approval suggested that the “steelmakers haven’t gotten the memo yet” on carbon emission reduction, Lauri Myllyvirta, lead analyst at CREA, said. The sector will probably miss a 2020 target of limiting output in 2021 to the same level as last year.

Because steelmaking is the second-largest source of China’s carbon emissions, “I don’t see the maths for getting to carbon peak by 2030 without a 30 per cent reduction from steel”. The most plausible way for that to happen, he said, was by reducing output.

President Xi Jinping has pledged that China will reach peak CO2 emissions by 2030 and achieve net-zero emissions by 2060. But climate activists are concerned that this ambition is not reflected as clear targets in authoritative economic planning documents.

In a sign of the leadership’s caution towards restraining polluting industries, the Communist party’s Politburo this month warned against “campaign-style” efforts by local governments to reduce emissions.

Steel prices plummeted after it was announced that Tangshan, a big steel producing hub 180km east of Beijing, was expected to reduce limits on output.

The curbs on production were imposed this year after industrial pollution overshadowed the annual meeting of China’s national legislature in March.

Separate analysis by Greenpeace released this month showed that the majority of government-directed stimulus after coronavirus lockdowns was directed towards traditional infrastructure projects, which are a big driver of pollution.

Up to 90 per cent of Covid-19 relief national bonds went towards general infrastructure, while 60 per cent of new municipal bonds were spent on infrastructure such as construction, compared with 15 per cent on green, sustainable or low-carbon projects, Greenpeace analysis of disclosures found.

A summer of widespread power rationing caused by surging demand has added to Beijing’s hesitance to cut back on coal-fired generators, after local governments in manufacturing hubs such as Guangdong ordered factories to reduce operating hours to avoid shortages.

In recent weeks, the worst relapse of coronavirus cases, caused by the rapid spread of the Delta variant, since the virus first emerged in Wuhan has also started to weigh on growth.

“With the latest outbreak now threatening setbacks for the economy, we can expect more construction stimulus to offset that,” Myllyvirta said. “The conundrum of growth versus emissions goals is not going away as soon as we had hoped.”

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