Carbon Leakage Risk and Mitigation

Carbon leakage risk refers to the potential for greenhouse gas emissions to increase in one country as a result of stringent climate policies in another. This occurs when companies relocate production to regions with less rigorous environmental regulations, thereby undermining global emission reduction efforts. Carbon leakage can lead to economic disadvantages for countries implementing strong climate measures and can reduce the overall effectiveness of international climate policies. Mitigation strategies for carbon leakage include implementing border carbon adjustments (BCAs), which impose tariffs on imported goods based on their carbon content, leveling the playing field between domestic and foreign producers. Other approaches involve providing targeted support or exemptions for vulnerable industries, enhancing international cooperation to harmonize climate policies, and investing in low-carbon technology innovation to improve competitiveness. Monitoring and reporting mechanisms are also crucial to assess leakage risks accurately and adapt policies accordingly. Effective mitigation of carbon leakage is essential to ensure that climate action leads to genuine global emissions reductions without shifting the environmental burden across borders.