Subsidizing Green Steel Procurement to Drive Carbon Reduction and Cost Savings in China’s Automotive Industry
Hong Kong, 5 September 2023 – Transition Asia, a Hong Kong-based non-profit think tank that focuses on driving 1.5oC-aligned corporate climate action, today published a research report on the integration of green steel into China’s decarbonisation strategy for the automotive industry. Leveraging publicly accessible data from Geely Automobile Holdings, a leading Chinese automaker, along with Transition Asia’s proprietary Green Steel Premium (GSP) Model, the study aims to uncover potential cost advantages linked to adopting green steel. This analysis is particularly relevant given the rising trend of new electric vehicle (NEV) development in China.
Shifting from internal combustion engine (ICE) vehicles to battery electric vehicles (BEVs) is the most effective decarbonisation strategy in the auto industry. At this stage, in terms of the full life cycle carbon emissions of a vehicle, the average emissions level of an ICE is 39.7 tons of CO2, while a BEV is 22.4 tons, which means that 17.3 tons of CO2 (43.6%) are expected to be reduced if an auto company replaces one ICE with a BEV. However, shifting to BEVs also means much higher expenditures for auto companies because the production cost of BEVs is currently 45% higher than ICE. This unsubsidised cost difference is still expected to be 9% higher in 2030.
Examining Geely Automobile as a case study, Transition Asia examined the effect of green steel procurement on the automaker’s decarbonisation effectiveness focusing on vehicle carbon intensity to reach Geely Automobile’s 2025 carbon reduction target. By integrating green steel into their supply chain, Transition Asia’s analysis indicates that the auto sector can achieve emissions reductions in a more cost-efficient manner by utilising green steel. Based on Transition Asia’s study into GSPs, the China-specific decarbonisation cost ($/tCO2) for scrap-electric arc furnace (EAF) and green hydrogen DRI-EAF in 2023 is around $75 and $89, respectively, whereas the unit decarbonisation cost of shifting to BEVs in 2023 exceeds $350. Before 2030, the unit decarbonisation cost of green steel procurement is projected to be at least 50% lower than shifting from ICE and Plug-in hybrid vehicles (PHEVs) to BEVs.
For the full report, visit the Transition Asia website.