Abstract This paper explores how manufacturing firms' offshoring decisions respond to changes in the domestic price of carbon. Empirical studies find limited effects of carbon pricing policies on firms' offshoring levels, contrary to expectations. To explain this, I build and estimate a structural model of firms' offshoring behavior that decomposes the total offshoring response into different margins of adjustment. A higher carbon price increases offshoring through substitution toward foreign varieties and reduces offshoring through a negative scale effect. I quantify these margins using Swedish data and find that the negative scale effect slightly dominates for the average firm. The aggregate impact on manufacturing imports and production depends on whether carbon pricing is combined with border adjustments. Without border adjustments, the share of imports embedded in domestic production increases considerably. With border adjustments, this increase is reversed, but the negative impact on output is amplified. This result highlights a key policy tradeoff: while border adjustments protect against offshoring, they can also harm domestic production by increasing the cost of foreign inputs.