Carbon leakage

Carbon leakage occurs when there is an increase in carbon dioxide emissions by some countries as a reaction to an emission reduction by countries with a strict climate policy.

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Carbon leakage may occur for a number of reasons:

• if the emissions policy of a country raises local costs, then another country with a more relaxed policy may have a trading advantage. If demand for these goods remains the same, production may move offshore to the cheaper country with lower standards, and global emissions will not be reduced.
• if environmental policies in one country add a premium to certain fuels or commodities, then the demand may decline and their price may fall. Countries that do not place a premium on those items may then take up the demand and use the same supply, negating any benefit.

Carbon leakage does not necessarily imply that the increased emissions are from competing companies; climate policies may have the effect of causing companies to relocate its production to countries without a climate policy in order to take advantage of the economic benefits.

Current schemes

Carbon leakage has been cited as an impediment to the effective reduction of carbon dioxide emissions through the Kyoto Protocol. This is because the 37 developed Annex I countries are the only parties to have agreed to cap their industrial emissions^[1] and there is no visibility of the carbon footprint of their imports.

Recent studies suggest that nearly a quarter of China's CO2 emissions are as a result of its production of goods for export, primarily to the USA but also to Europe^[2], suggesting that the current focus on emission policies within national schemes may be misplaced, and question whether responsibility for emissions should rest with the producer or the consumer. It has also been argued that developed countries have a responsibility for the historical legacy of pollution which obliges them to act first, whilst allowing other developing countries with a low intensity of emissions per person to find methods of raising their economies and standard of living in a sustainable way. Kyoto's Clean Development Mechanism was designed as a way of funding the technology transfer needed for such sustainable development.

Cognisant of the problem of leakage, the recent North American emissions schemes such as the Regional Greenhouse Gas Initiative and the Western Climate Initiative are looking at ways of measuring and equalising the price of energy 'imports' that enter their trading region^[3].

See also

• Carbon tax
• Emissions trading
• Carbon shifting

Notes

1. ^ BBC News 19 December 2005 Trade can 'export' CO2 emissions
2. ^ Tao Wang & Jim Watson: Who Owns China's Carbon Emissions? Tyndall Centre Briefing Note No. 23 October 2007
3. ^ RGGI Imports and Emissions Leakage Working Group