Effects of CO₂ Emissions Trading on Steel Scrap Recycling: A Simulation Analysis Using a Computable General Equilibrium Model

Abstract

This study aims to examine whether the absolute amount of steel scrap used in Japan increases under an emissions trading scheme using an economic simulation model known as the computable general equilibrium model.
This study’s computable general equilibrium model is a single-country, multi-sector model. An important feature of our model is that the iron and steel manufacturing sector is disaggregated in detail. The disaggregation is based on differences in production methods and types of steel products.
In our simulation, although demand for electric arc furnace steel products in Japan increases in response to the implementation of emissions trading because of their low carbon intensity, the absolute amount of steel scrap used decreases. This is because the price substitution effect between electric arc furnace steel products and blast furnace–basic oxygen furnace steel products is dominated by the economic scale effect stemming from the negative economic impacts of emissions trading.