Industrial and terrestrial carbon leakage under climate policy fragmentation

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. However, there is another potential channel that has received little attention so far: the carbon leakage triggered by land-use change (‘terrestrial’ carbon leakage). In this article we use an integrated assessment model to explore these two forms of leakage in a situation where CO2 emissions in all sectors, including those from land-use change, are taxed equally. Our results show that under different fragmentation scenarios terrestrial carbon leakage may be the dominant type of leakage up to 2050. When participating regions tax land-use emissions, forest area expands partly by shifting food and bioenergy production to non-participating regions. This reduces forest area in non-participating regions and increases their land-use emissions.Policy relevancePreventing industrial carbon leakage has been an important aspect of climate policy design. One clear policy implication of our study is that anti-leakage policy measures should also be considered for land-use change sources.