Carbon leakage in energy/forest sectors and climate policy implications using meta-analysis

Abstract

Carbon leakage, a shift of carbon emissions from a region with emission constraint to unregulated areas, has been a great concern in energy-related industries and the forest sector. Carbon leakage may weaken the effectiveness of regional climate policies. This study aims to identify the drivers of carbon leakage and provide policy implications to mitigate carbon leakage using meta-regression. A total of 46 studies are collected, which provide 230 estimates of carbon leakage. Results show that (i) the forest sector has larger carbon leakage of 39.6%; (ii) substitution degree increases carbon leakage, but it is not statistically significant; (iii) contrary to popular belief, coalition size is not always negatively related to carbon leakage; (iv) local economic conditions are key drivers of carbon leakage; and (v) carbon leakage is overestimated in the forest sector by 41.42% when ignoring agricultural expansion through the land use change. Results also support the following policy implications: (i) the global agreement, which requires the participation of poorer regions and countries, may effectively reduce carbon leakage; (ii) a mature worldwide carbon trading market with relatively high carbon prices can attract more participants; and (iii) a long-term and integrated land-use planning will be an effective way to reduce carbon leakage caused by agricultural expansion.