Earlier this year, a group of Chinese automakers and steelmakers gathered in Shanghai to chart a new path for their industries. They pledged to work together to cut the carbon emissions generated by steel production.
Their goal is to speed up automakers’ large-scale use of what they call “low-carbon” steel, and ultimately drive the green transition for China’s manufacturing industries, according to a joint declaration signed by companies from both sectors, alongside key industry associations and research institutes.
The statement echoes a direction laid out in China’s 15 th Five Year Plan, the overarching economic blueprint passed by legislators on 12 March in Beijing. In the next five years, the plan said, the country must spur cuts to carbon emissions in “key sectors”. China’s steel industry will likely be counted as it is the world’s largest by production and the country’s second largest emitter.
Chinese automakers are still taking baby steps towards using green steel . But the auto industry can actually serve as a spearhead in the national effort to cut emissions from China’s steel industry, according to Shen Xinyi, a researcher focusing on steel at the Centre for Research on Energy and Clean Air, a think-tank based in Helsinki.
A key reason is that carmakers are more capable of absorbing price hikes of raw materials because their products can fetch larger profits, Shen explains. This basically gives the sector an advantage in creating a market for green steel ahead of other industries, such as construction, she adds.
New trade rules are also adding external pressure for automakers to make the switch so as to build their competitiveness globally, according to Bonnie Zuo, China engagement lead at Transition Asia, a think-tank based in Hong Kong.
She highlights the European Union’s Carbon Border Adjustment Mechanism (CBAM), which puts a price on carbon-intensive imports of products such as steel, and which entered into force this January. The EU has proposed to extend its coverage downstream, bringing some steel car parts under CBAM from the beginning of 2028, potentially subjecting foreign-based carmakers to this carbon tax.
Seeking standards together
The joint declaration was signed by five Chinese car companies, one parts manufacturer and nine steelmakers. They include popular electric vehicle manufacturers, including Li Auto, Nio and Xiaomi, as well as steelmaking giants, such as Baowu, Ansteel and Shougang Steel.
The document was signed voluntarily and has three goals. One is to find out how the auto and steel industries define “low-carbon” steel and work towards aligning their standards – the foundation that will allow them to report their carbon emissions more accurately.
A lack of a clear standard for low-carbon steel is a big obstacle that prevents Chinese automakers from buying the product, Zuo says.
The absence of such standards will make it harder for automakers to calculate carbon emissions throughout the lifecycles of their cars. It will also prevent them from branding their cars as being “low carbon”, she notes.
“Green steel will not attract automakers whatsoever if they cannot do either of those things,” she adds. A steel furnace at a plant belonging to Jiangsu Shagang Group, one of the steelmakers to have signed the joint agreement with carmakers (Image: Cynthia Lee / Alamy) There are also different terms used to describe steel produced in more sustainable and climate-friendly ways, such as “green steel”, “low-carbon steel”, “net-zero steel” and “renewable steel” – demonstrated by the variations among researchers’ comments and reference materials for this report.
These terms are related but not identical, according to Shen, and there are not yet internationally agreed definitions that clearly distinguish them.
“Clear standards are the foundation of any market,” she says. “Once green steel, low-carbon steel and other similar terms are clearly defined, then it will become much easier for automakers to invest in it and buy it.”
Beyond cooperation in the domestic context, the China Iron and Steel Association (CISA), the industry body which convened the joint statement in January, also signed a partnership in late 2025 with the global nonprofit Responsible Steel, pledging to collaborate on international frameworks for emissions measurement and classification that could support trade in low-emissions steels.
‘Chicken and egg’ dilemma
The declaration also aims to establish an understanding that there are economic benefits for carmakers to use low-carbon steel – and, more importantly, to help carmakers afford the additional cost or “premium”.
From green steel to renewable hydrogen, many emerging green materials are struggling to take off due to a chicken-and-egg problem: there is no firm demand for these products because they are more expensive than existing – albeit more polluting – options. That discourages manufacturers from making them, essentially creating a vicious cycle.
From the automakers’ perspective, before making any decisions they need to understand clearly how the green steel premium will affect their production costs and how policy and markets may change, Zuo explains.
Currently, the most mature method for making low-carbon virgin steel uses iron processed with green hydrogen and electrified furnaces. When and if the technology is available at scale in China, each tonne of steel would imply a cost up to USD 225 per tonne more than steel produced in conventional, coal-fired blast furnaces, according to a 2024 analysis by Transition Asia. The projection takes into consideration all aspects of steel production, from capital investments to energy costs, including green hydrogen. Recommended Since a car is normally built with around 0.9 tonnes of steel, using green steel made in this way would increase its production cost by up to USD 203, roughly 1% of the price of an average car in China, the report said. Projects to produce such green-hydrogen-fed iron and steel, however, are for now largely at the pilot stage or small scale in China.
The recent joint declaration does not require participating automakers to commit to buying low-carbon steel immediately, according to a source close to the matter. But it does require them to “engage, contribute and participate in a shared process” aimed at making “low-carbon” a commercially viable product, the source said. It also aims to build a platform to make it easier for steelmakers and carmakers to collaborate with each other.
Shen agrees that the declaration is about promoting collaboration along the steel supply chain rather than mandating any action towards buying green steel. But it lays the groundwork for a real market by attempting to address the core problems, she says.
Uphill battle
Although Chinese carmakers are leading the world in making electric vehicles, adopting green steel has proven to be an uphill battle so far.
They have fallen behind their EU, US and Korean rivals in the switch, according to a ranking published by Lead the Charge, a global network of climate, human rights and investor groups monitoring automakers’ progress on socio-environmental issues.
Chinese car companies face intense pressure to control their production costs so as to stay ahead in a price war, and that may have prevented them from buying more expensive steel, says Xing Lei, an independent analyst of the Chinese auto industry. An immature supply chain for green steel is another factor behind their slow action, he adds. Recommended For many, promises by automakers to buy green steel will be significant for growing a meaningful market. “This gives certainty to green steel suppliers that they will have customers in the future,” says Franziska Grüning, raw materials policy officer at Transport & Environment, a Brussels-based nonprofit and a member of Lead the Charge.
“This is something that we still don’t see yet from Chinese companies,” Grüning says.
Out of the four Chinese automakers assessed, BYD, GAC and SAIC have taken little action, the ranking shows. The company that stands out is Hangzhou-based Geely.
“Geely discloses the share of renewable steel in one model, which makes Geely one of only two carmakers [in the ranking] that offer this level of transparency,” Grüning says. The other is the German company Mercedes-Benz.
Geely required its direct suppliers to ensure that recycled steel would account for 20% of their respective annual steel usage by 2025, according to its 2024 environmental, social and governance report. The company also revealed that four of its models were built partly using recycled steel and gave the percentage in each case.
Recycled steel typically means steel derived from scrap rather than produced from scratch. It skips the most carbon-intensive step of steelmaking, which is turning iron ore into pig iron, usually using coal. As such it generates much lower emissions than the conventional coal-based method, Shen says.
Researchers also agree that government policy, such as subsidies , can support car companies to take the first step.
Steel typically makes up 65% of a car’s weight, so it is important that automakers buy green steel, according to Grüning.
Auto manufacturing is currently also looked to as a key driver of steel demand amid the continued slowdown in China’s construction sector, so more ambitious action from carmakers could be a significant signal for green steel development . “What we want to see, at the end of the day, is green steel or low carbon steel in a vehicle,” Grüning adds.
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