Carbon leakage
Topic: Environment and Sustainable Development · NCERT: Beyond NCERT
Meaning
Carbon leakage happens when strict climate rules in one country push polluting production to countries with weaker rules. Emissions fall in the strict country but rise elsewhere. The global total may therefore not fall at all. That is why rich countries worry that their own climate policies could be undone by imports from countries with laxer rules.
Example
Suppose EU steel makers must pay a high carbon price. Steel production may move to countries without such a price, and the EU may then import that steel. To prevent this, the EU introduced the Carbon Border Adjustment Mechanism (CBAM). CBAM is a charge on the carbon embodied in imports of steel, aluminium, cement, fertiliser, electricity and hydrogen. Its transitional phase began in October 2023 and its definitive phase begins in 2026. India calls CBAM unilateral and against CBDR, the principle that rich countries should carry a bigger climate burden.
Don't confuse with
- Pollution haven hypothesis: the broader idea that dirty industry of all kinds moves to countries with laxer environmental rules. Carbon leakage is the same concern applied specifically to climate policy and emissions.
Related concepts
- Internalisation of externalities
- Carbon pricing
- Green tax
- Social cost of carbon
- Internal carbon price
- Fossil fuel subsidies
- Cap-and-trade
- Carbon market
- Compliance carbon market
- Voluntary carbon market