China Adds Steel Decarbonisation Pathways to Transition Finance Catalogue
Beijing's taxonomy expansion covers hydrogen-based DRI and scrap-EAF routes, shifting which steel capacity can access state-backed financing.
China's central bank and financial regulators expanded the country's transition finance catalogue on Thursday (2026-09-17) to cover steel decarbonisation, including hydrogen-based direct reduced iron and scrap-based electric arc furnace routes, Bloomberg reported. The update extends a framework that had previously focused more narrowly on clean energy generation and transport, bringing distinct steelmaking pathways into a financing architecture that channels capital through banks, bond markets and state-backed funds. Coal-based blast furnace routes remain permitted but are increasingly bracketed as legacy assets.5
China produces roughly half the world's steel, so the financing tilt determines which capacity gets built, retired or retrofitted over the next decade. The coal ETF fell 1.07% to $25.82 on the session ending 2026-09-17. Newcastle thermal coal for physical delivery was last indicated at $139.05/t as of 2026-09-17. Premium hard coking coal, not listed in the current price set, would be the first to feel any acceleration in scrap and hydrogen-based capacity, though that shift plays out over years rather than quarters.5
The inclusion of hydrogen follows patterns visible elsewhere in China's industrial policy. State-owned oil majors have been accelerating their pivot toward renewable energy and integrated green energy models under the dual carbon goals, China Daily reported on 2026-05-20, and those groups carry balance sheets large enough to absorb early-stage hydrogen project risk. Policy-backed financing lowers the effective hurdle rate for projects that would otherwise struggle against grey hydrogen produced from coal or gas.2
Steel is a harder case than power generation. Europe's green steel experience is instructive: even with a technological head start, the continent risks losing electrolyser manufacturing to China because there is not enough domestic demand to justify the cost, Pegemanyfar at Quest One warned in May 2026 (2026-05-07). If Chinese steelmakers adopt hydrogen-based DRI at scale, they would pull electrolyser supply chains further east and accelerate cost declines that European producers have struggled to match.1
Yet the transition finance labelling will not automatically retire a single blast furnace. China's coal five-year plan did not set a specific government-endorsed year for coal consumption peaking during 2026-2030, and it did not set a concrete target for coal production, Carbon Brief reported on 2026-08-20. The finance catalogue signals intent and provides a capital channel, but production targets and provincial economic dependency on coal remain the binding constraints.5
Scrap-based steelmaking may prove the more immediately disruptive pathway. Electric arc furnace capacity consumes significantly less energy and emits substantially less CO2 than the blast furnace route. Financing scrap collection networks and EAF construction is cheaper per tonne of abated carbon than hydrogen DRI, which requires new plants, hydrogen supply infrastructure and ore pellet quality upgrades. If the catalogue prioritises scrap, met coal demand could peak earlier than hydrogen scenarios imply.4
The US offers a cautionary reference point for hydrogen steel ambitions. Cleveland-Cliffs, which received a $500 million Biden-era grant to install hydrogen-ready technology, now says it will use the funding to upgrade a coal-fuelled blast furnace in southern Ohio, Canary Media reported on 2026-09-03. US Steel is investing nearly $2 billion to build a direct-reduced-iron plant at its Big River Steel site in Arkansas, where four electric arc furnaces already melt scrap. The Arkansas project shows DRI can work when paired with existing EAF capacity and competitive gas supply; the Ohio reversal shows how quickly hydrogen plans are redirected when costs favour other routes.4
China's broader competitive position in energy manufacturing complicates any assumption that Beijing's transition finance will simply channel dollars toward imported equipment. Dr James Jackson at the University of Manchester, co-author of a report on China-UK energy relations, told Energy Voice on 2026-08-20 that people confuse the UK's leadership in offshore wind generation with a leadership position in manufacturing, which belongs to China. The same pattern could apply to hydrogen electrolysers and DRI equipment if Chinese steel adopts the technologies at scale, concentrating supply chain advantage domestically.3
The catalogue's practical effect depends on how lenders interpret eligibility criteria. Bloomberg's report did not specify the relative weighting between hydrogen DRI and scrap-based EAF, or the full list of qualifying technologies. If hydrogen DRI receives higher priority, capital could flow toward more expensive and slower-to-deploy projects. If scrap routes are favoured, the impact on seaborne met coal demand arrives sooner. Coal traders pricing Newcastle physical at $139.05/t as of 2026-09-17 are not yet discounting any structural shift; the market will treat expanded transition finance as a long-dated headwind until specific financing quotas or interest-rate subsidies materialise for individual steel projects in the months ahead.5,4