Tangshan Iron and Steel Group Co, or Tangsteel, signed a cooperation framework agreement on Thursday with the US industrial service company Harsco Corp to produce ethanol from converted coal gas, the latest effort by Chinese steel mills to reduce carbon emissions while boosting earnings.

The two partners will jointly invest and build a project with an annual output of 30,000 metric tons of ethanol, with a daily consumption of 650,000 cubic meters of converted coal gas, according to the Chinese steel company.

The total investment will be $70 million, said Geoff Raisbeck, vice-president of operational excellence at Harsco Metals & Minerals. However, he said the share distribution for each company is uncertain.

Yu Yong, president of Tangsteel, said: "Through eliminating obsolete steelmaking capacity and strengthening management, the company has made some progress in cutting carbon emissions, However, above that level, the company needs high technology to improve its efficiency."

The steelmaking process will produce converted coal gas that can be reused for power generation. However, its profitability is much less than from producing ethanol.

Ethanol can be mixed with gasoline to be used as fuel for transportation, which can halve carbon emissions.

The Chinese government has been encouraging companies to produce ethanol with other materials rather than food.

As a result, Tangsteel initiated the cooperation, which is the first time for biotechnology to be used in the steel industry, according to the company.

In December, Baosteel Group, the nation's largest listed steelmaker, announced the National Development and Reform Commission had approved a similar project that makes ethanol with coal gas produced during steelmaking.

Construction of the project is expected to start this year, and it is due to become operational in 2014 with an annual production capacity of 1 million to 2 million tons of ethanol provided that all the converted coal gas produced during manufacturing by the group is used in the project.

China's steel production accounts for about half of the global total. If the technology can be applied to more steel mills in China, it will contribute greatly to carbon emission reduction and improving the environment, industrial analysts said.