Carbon leakage

Carbon leakage a concept to quantify an increase in greenhouse gas emissions in one country as a result of an emissions reduction by a second country with stricter climate change mitigation policies. Carbon leakage is one type of spill-over effect. Spill-over effects can be positive or negative; for example, emission reductions policy might lead to technological developments that aid reductions outside of the policy area. Carbon leakage is defined as "the increase in emissions outside the countries taking domestic mitigation action divided by the reduction in the emissions of these countries." It is expressed as a percentage, and can be greater or less than 100%. There is no consensus over the magnitude of long-term leakage effects. 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. The issue of carbon leakage can be interpreted from the perspective of the reliance of society on coal, oil, and "backstop" (less polluting) technologies, e.g., biomass. This is based on the theory of nonrenewable resources. The potential emissions from coal, oil and gas is limited by the supply of these nonrenewable resources. To a first approximation, the total emissions from oil and gas is fixed, and the total load of carbon in the atmosphere is primarily determined by coal usage. A policy that sets a carbon tax only in developed countries might lead to leakage of emissions to developing countries. However, a negative leakage (i.e.