Hydrogen-based direct reduced iron (H₂-DRI) is crucial for decarbonizing the steel sector but is limited by the availability of renewable energy. Here, we propose H₂-DRI deployment schemes in China’s steel sector at moderate and aggressive scales, incorporating three renewable energy sources with a resolution of 1 km × 1 km across 570 steel units. Results indicate that 52.6–55.8% of China’s current steel units lack sufficient renewable energy supply for H₂-DRI deployment due to uneven distribution of these energy sources. Renewable energy can fulfill 97-100% of hydrogen demand at the moderate scale, whereas the aggressive scale requires supplemented fossil fuels accounting for one-third to one-half. H₂-DRI can decarbonize steel production to 0.15–0.91 t CO₂ t^-1 steel at the moderate scale, but the emissions would raise by up to over sixfold at the aggressive scale. Furthermore, H₂-DRI fueled by solar and wind energy exhibits poorer economic and water usage performance at the aggressive scale. We highlight the necessity of avoiding excessive H₂-DRI deployment and recommend prioritizing its implementation in steel units located in regions with abundant solar and wind sources nearby.