carbon leakage, definition of

The theory that policy measures designed to reduce CO2 emissions in one country or region will result in an increase in emissions in another country as carbon intensive firms relocate to areas with less demanding environmental regulations.

For example, it is feared that steel plants and other heavy industries faced with planned carbon pricing regulations in the US may move their operations to countries such as China or India that do not have carbon pricing schemes in an attempt to avoid increased costs.

As a result, carbon emissions could simply "leak" from one country to another, resulting in no net reduction in emissions.

The Kyoto Protocol and the EU Emissions Trading Scheme have both been accused of causing carbon leakage, although there is little solid evidence as yet of firms relocating solely as a result of carbon regulations.

One of the primary drivers for a global agreement to tackle climate change is the hope that an international deal would remove the risk of carbon leakage by establishing comparable carbon regulations for all countries.

• Europe Launches a Carbon Tax Attack Against the US Economy
  This new carbon tax is a slap in the face for every non-EU nation which has contributed to Europe's attempts to contain Russia.
• Federal Judge Blocks Enforcement of California Low Carbon Fuel Standard
  Last week, Judge Lawrence O’Neill of the U.S. District Court in Fresno issued a preliminary injunction blocking enforcement of California’s Low Carbon Fuel Standard (LCFS), a regulation requiring a 10% reduction in the carbon content of motor...
• ‘Imported’ Emissions Offset Kyoto Protocol CO2 Reductions
  Has the EU met its emission reduction targets under the Kyoto Protocol? Not if emissions associated with goods Europe imports from Asia are taken into account...