Industrial and terrestrial carbon leakage under climate policy fragmentation
Keywords: Climate change, Energy, Carbon leakage, Industrial carbon leakage, Terrestrial carbon leakage, bio-energy
Author(s): Mikel González-Eguino, Iñigo Capellán-Pérez, Iñaki Arto, Alberto Ansuategi and Anil Markandya
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One of the main concerns in international climate negotiations is policy fragmentation, which could increase
the carbon emissions of non-participating countries. Until very recently the carbon leakage literature has
focused mainly on "industrial" carbon leakage through various channels, such as the induced changes in the
prices of fossil fuels. But there is another potential channel that has received little attention so far: the carbon
leakage triggered by land use changes, referred to as "terrestrial" carbon leakage. This paper explores the
magnitudes of these two forms of leakage in a situation where CO2 emissions in all sectors, including from land
use change, are taxed equally. We explore the implications of different fragmentation scenarios using the
GCAM integrated assessment model. Our results show that total carbon leakage is at its highest when the
biggest developing regions do not participate, but its rate decreases with the size of the coalition. We also show
that under different fragmentation scenarios terrestrial carbon leakage may be the dominant type of leakage up
to 2050, due to deforestation in non-participating regions. The implications of shifting food and bioenergy
production to non-participating regions are also analyzed.