Scrap availability limits how quickly global steel production can decarbonize. This paper shows that a border carbon adjustment can eliminate classic import carbon leakage but triggers resource shuffling: as regulated regions demand more of the cleaner, scrap-based steel, unregulated regions shift towards dirtier one. I develop a dynamic trade model with three steel production routes and endogenous scrap generation from depreciating product stocks. When one region implements an ambitious climate policy, it drives domestic consumption towards clean steel; however, this regulated region absorbs a disproportionate share of scrap supply, driving up scrap prices and forcing the unregulated region into dirty consumption.
Topics: Energy economics