International Carbon Leakage Research Articles

Carbon Leakage Concept after Carbon Pricing & Green Deal Policies

As part of the European Green Deal, EU nations are required to decrease their carbon emissions by 55% by 2030 and reach carbon neutrality by 2050. The EU's emissions trading system is the cornerstone of this goal. In theory, rising carbon prices may cause carbon leakage, or the transfer of economic activity and related emissions from high-carbon economies to low-carbon economies. Losing market share to rivals in international rivalry might result in short-term international carbon leakage. In the long term, it can be accomplished by moving domestic businesses abroad. To date, a variety of tools, including offsets and free allowances granted under the ETS, have been used to support the carbon leakage risk of high-risk industries. This paper develops an international technique, the EU Emissions Trading Scheme (ETS) Phase IV consultation, to produce a sector-level risk assessment of carbon leakage in Türkiye. This methodology combines emissions intensity and trading intensity, two important indicators for assessing carbon leakage risk. Although the former is commonly employed as a measure of a company's exposure to carbon costs, the latter indicates its ability to pass on costs to customers without losing market share. According to the carbon risk study carried out in Türkiye for the aluminium, cement, paper, fertilizer, iron-steel, and ceramics sectors, cement has the highest risk, while paper carries the lowest risk

Ageing society in developed countries challenges carbon mitigation

Populations in developed countries are ageing. However, the impact of senior citizens’ consumption on global carbon mitigation is poorly understood. Here we find that senior citizens have played a leading role in driving up GHG emissions in the past decade and are on the way to becoming the largest contributor. Considering the greenhouse gas footprint of household consumption across age groups in 32 developed countries, the senior contribution to national total consumption-based emissions increased from 25.2% to 32.7% between 2005 and 2015. Seniors in the United States and Australia have the highest per capita footprint, twice the Western average. The trend is mainly due to changes in expenditure patterns of seniors. The increasing carbon footprint of senior citizens will probably drive domestic production yet have limited effects on international carbon leakage. The demographic change poses more challenges in local mitigation and calls for deeper public mitigation efforts.

Climate mitigation by dairy intensification depends on intensive use of spared grassland.

Milk and beef production cause 9% of global greenhouse gas (GHG) emissions. Previous life cycle assessment (LCA) studies have shown that dairy intensification reduces the carbon footprint of milk by increasing animal productivity and feed conversion efficiency. None of these studies simultaneously evaluated indirect GHG effects incurred via teleconnections with expansion of feed crop production and replacement suckler-beef production. We applied consequential LCA to incorporate these effects into GHG mitigation calculations for intensification scenarios among grazing-based dairy farms in an industrialized country (UK), in which milk production shifts from average to intensive farm typologies, involving higher milk yields per cow and more maize and concentrate feed in cattle diets. Attributional LCA indicated a reduction of up to 0.10kg CO2 e kg-1 milk following intensification, reflecting improved feed conversion efficiency. However, consequential LCA indicated that land use change associated with increased demand for maize and concentrate feed, plus additional suckler-beef production to replace reduced dairy-beef output, significantly increased GHG emissions following intensification. International displacement of replacement suckler-beef production to the "global beef frontier" in Brazil resulted in small GHG savings for the UK GHG inventory, but contributed to a net increase in international GHG emissions equivalent to 0.63kg CO2 e kg-1 milk. Use of spared dairy grassland for intensive beef production can lead to net GHG mitigation by replacing extensive beef production, enabling afforestation on larger areas of lower quality grassland, or by avoiding expansion of international (Brazilian) beef production. We recommend that LCA boundaries are expanded when evaluating livestock intensification pathways, to avoid potentially misleading conclusions being drawn from "snapshot" carbon footprints. We conclude that dairy intensification in industrialized countries can lead to significant international carbon leakage, and only achieves GHG mitigation when spared dairy grassland is used to intensify beef production, freeing up larger areas for afforestation.

Fuel Efficiency Improvements: Feedback Mechanisms and Distributional Effects in the Oil Market

We study the interactions between fuel efficiency improvements in the transport sector and the oil market, where the efficiency improvements are policy-induced in certain regions of the world. We are especially interested in feedback mechanisms of fuel efficiency such as the rebound effect, carbon leakage and the “green paradox”, but also the distributional effects for oil producers. An intertemporal numerical model of the international oil market is introduced, where OPEC-Core producers have market power. We find that the rebound effect has a noticeable effect on the transport sector, with the magnitude depending on the oil demand elasticity. In the benchmark simulations, we calculate that almost half of the energy savings may be lost to a direct rebound effect and an additional 10% to oil price adjustments. In addition, there is substantial intersectoral leakage to other sectors through lower oil prices in the regions that introduce the policy. There is a small green paradox effect in the sense that oil consumption increases initially when the fuel efficiency measures are gradually implemented. Finally, international carbon leakage will be significant if policies are not implemented in all regions; we estimate leakage rates of 35% or higher when only major consuming regions implement fuel economy policies. Non-OPEC producers will to a larger degree than OPEC producers cut back on its oil supply as a response to fuel efficiency policies due to high production costs.

Greenhouse-gas Emission Controls and International Carbon Leakage through Trade Liberalization

This paper studies greenhouse-gas (GHG) emission controls in the presence of carbon leakage through international firm relocation. The Kyoto Protocol requires developed countries to reduce GHG emissions by a certain amount. Comparing emission quotas with emission taxes, we show that taxes coupled with lower trade costs facilitate more firm relocations than quotas do, causing more international carbon leakage. Thus, if a country is concerned about global emissions, emission quotas would be adopted to mitigate the carbon leakage. Firm relocation entails a trade-off between trade liberalization and emission regulations. Emission regulations may be hampered by trade liberalization, and vice versa. JEL: F18, Q54

Greenhouse-Gas Emission Controls and Firm Locations in North–South Trade

This paper studies greenhouse-gas emission (GHG) controls in the presence of international carbon leakage through international firm relocation. In a new economic geography model with two countries (‘North’ and ‘South’), only North sets a target for GHG emissions. We compare the consequences of emission quotas and emission taxes under trade liberalization on location of two manufacturing sectors with different emission intensities and degrees of carbon leakage. With low trade costs, further trade liberalization increases global emissions by facilitating carbon leakage. Regulation by quotas leads to spatial sorting, resulting in less carbon leakage and less global emissions than regulation by taxes.

Land-use protection for climate change mitigation

A significant challenge for policies aiming to reduce carbon emissions from deforestation is the avoidance of international carbon leakage. Research now shows, however, that even globally implemented forest conservation schemes could allow another type of carbon leakage through cropland expansion into non-forested areas.

Consumption-based Carbon Emissions and International Carbon Leakage: An Analysis Based on the WIOD Database

The worldwide increase in consumption levels is a major cause of the dramatic rise in greenhouse gas (GHG) emissions. A thorough understanding of the dynamics of consumption-based carbon emissions and the factors influencing it would facilitate the design of climate policies. This article employs data in the multi-regional input-output tables and on sectoral carbon emissions from the World Input-Output Database (WIOD) to develop a multi-regional input-out (MRIO) model, setting up a consumption-based carbon emission accounting inventory and analyzing global consumption-based carbon emissions and the spillover effects of international carbon emissions. The results show that global consumption- based carbon emissions in 2009 were 28850 Mt, of which about 20 percent were embodied in international trade. A large part of these emissions derived from production in and exports from China and the region comprising Brazil, Russia, India, Indonesia, Australia and Turkey (BRIIAT), production and exports which were consumed in NAFTA and the Eurozone. If the factor of international trade is taken into consideration, the inter-regional gap in carbon emission intensity narrows, ranging from 2.4 t (BRIIAT) to 14.7 t (NAFTA) consumption-based emissions per capita. Whereas embodied imported carbon accounted for 33 percent and 17 percent in NAFTA and the Eurozone respectively, 29 percent of China’s carbon emissions were caused by the consumption of other countries. Therefore, setting up a consumption-based carbon emission accounting inventory has become increasingly important for international climate negotiations. Moreover, allocating responsibility for carbon emissions between the producer and the consumer will help change the existing mode of consumption and promote emission reduction.

Cattle feed or bioenergy? Consequential life cycle assessment of biogas feedstock options on dairy farms

AbstractOn‐farm anaerobic digestion (AD) of wastes and crops can potentially avoid greenhouse gas (GHG) emissions, but incurs extensive environmental effects via carbon and nitrogen cycles and substitution of multiple processes within and outside farm system boundaries. Farm models were combined with consequential life cycle assessment (CLCA) to assess plausible biogas and miscanthus heating pellet scenarios on dairy farms. On the large dairy farm, the introduction of slurry‐only AD led to reductions in global warming potential (GWP) and resource depletion burdens of 14% and 67%, respectively, but eutrophication and acidification burden increases of 9% and 10%, respectively, assuming open tank digestate storage. Marginal GWP burdens per Mg dry matter (DM) feedstock codigested with slurry ranged from –637 kg CO2e for food waste to +509 kg CO2e for maize. Codigestion of grass and maize led to increased imports of concentrate feed to the farm, negating the GWP benefits of grid electricity substitution. Attributing grass‐to‐arable land use change (LUC) to marginal wheat feed production led to net GWP burdens exceeding 900 kg CO2e Mg−1 maize DM codigested. Converting the medium‐sized dairy farm to a beef‐plus‐AD farm led to a minor reduction in GWP when grass‐to‐arable LUC was excluded, but a 38% GWP increase when such LUC was attributed to marginal maize and wheat feed required for intensive compensatory milk production. If marginal animal feed is derived from soybeans cultivated on recently converted cropland in South America, the net GWP burden increases to 4099 kg CO2e Mg−1 maize DM codigested – equivalent to 55 Mg CO2e yr−1 per hectare used for AD‐maize cultivation. We conclude that AD of slurry and food waste on dairy farms is an effective GHG mitigation option, but that the quantity of codigested crops should be strictly limited to avoid potentially large international carbon leakage via animal feed displacement.

Making two parallel land-use sector debates meet: Carbon leakage and indirect land-use change

Several land-based policy options are discussed within the current quest for feasible climate change mitigation options, among them the creation and conservation of forest carbon sinks through mechanisms such as Reducing Emissions from Deforestation and Forest Degradation also called REDD+ and the substitution of fossil fuels through biofuels, as legislated in the EU Renewable Energy Directive. While those two policy processes face several methodological challenges, there is one issue that both processes encounter: the displacement of land use and the related emissions, which is referred to as carbon leakage in the context of emissions accounting, and indirect land-use change also called ILUC within the bioenergy realm. The debates surrounding carbon leakage and indirect land-use change issues run in parallel but are rather isolated from each other, without much interaction. This paper analyzes the similarities and differences as well as common challenges within these parallel debates by the use of peer-reviewed articles and reports, with a focus on approaches to address and methods to quantify emissions at national and international scale. The aim is to assess the potential to use synergies and learn from the two debates to optimize climate benefits. The results show that the similarities are many, while the differences between carbon leakage and ILUC are found in the actual commodity at stake and to some degree in the policy forum in which the debate is taken. The geographical scale, actors and parties involved also play a role. Both processes operate under the same theoretical assumption and face the same problem of lacking methods to quantify the emissions caused by international displacement. The approach to international displacement is one of the main differences; while US and EU biofuel policymakers acknowledge uncertainties in ILUC accounting but strive to reduce them, the United Nations Framework Convention on Climate Change excludes accounting for international carbon leakage. Potential explanations behind these differences lie in the liability issue and the underlying accounting principles of producer responsibility for carbon leakage and consumer responsibility for ILUC. This is also reflected on the level of lobby activities, where ILUC has reached greater public and policy interest than carbon leakage. Finally, a possible way forward for international leakage accounting in future climate treaties could be the adoption of accounting methods taking a consumer perspective, to be used alongside the existing set-up, which could improve climate integrity of land-based policies.

Consumption-based accounting of CO 2 emissions

CO(2) emissions from the burning of fossil fuels are the primary cause of global warming. Much attention has been focused on the CO(2) directly emitted by each country, but relatively little attention has been paid to the amount of emissions associated with the consumption of goods and services in each country. Consumption-based accounting of CO(2) emissions differs from traditional, production-based inventories because of imports and exports of goods and services that, either directly or indirectly, involve CO(2) emissions. Here, using the latest available data, we present a global consumption-based CO(2) emissions inventory and calculations of associated consumption-based energy and carbon intensities. We find that, in 2004, 23% of global CO(2) emissions, or 6.2 gigatonnes CO(2), were traded internationally, primarily as exports from China and other emerging markets to consumers in developed countries. In some wealthy countries, including Switzerland, Sweden, Austria, the United Kingdom, and France, >30% of consumption-based emissions were imported, with net imports to many Europeans of >4 tons CO(2) per person in 2004. Net import of emissions to the United States in the same year was somewhat less: 10.8% of total consumption-based emissions and 2.4 tons CO(2) per person. In contrast, 22.5% of the emissions produced in China in 2004 were exported, on net, to consumers elsewhere. Consumption-based accounting of CO(2) emissions demonstrates the potential for international carbon leakage. Sharing responsibility for emissions among producers and consumers could facilitate international agreement on global climate policy that is now hindered by concerns over the regional and historical inequity of emissions.

Unilateral Climate Policy, Asymmetric Backstop Adoption, and Carbon Leakage in a Two-Region Hotelling Model

We study backstop adoption and carbon dioxide emission paths in a two-region model with unilateral climate policy and non-renewable resource consumption. The regions have an equal endowment of the internationally tradable resource and a backstop technology. We first study the case of a unilateral stock constraint (e.g. a 450 ppmv carbon dioxide concentration target), and show that the non-abating region makes the final switch to the backstop before the abating region does, though the latter region has two disjoint phases of backstop use if its marginal cost is sufficiently low. Furthermore, we show that the abating region has an inverse N-shaped emission path, with growing emissions in the period for which the ceiling is binding. In addition, there is a phase in which this region has a positive carbon price, but higher emissions than the non-abating region. With a global intertemporal carbon budget instead of a stock constraint, the order of definite backstop adoption is reversed and the abating region’s emissions are always lower. We also show that unilateral climate policy does not lead to international carbon leakage.