Carbon leakage

Unlike permanence, which we covered previously, carbon leakage is not a tenet of the Integrity Council for the Voluntary Carbon Market’s (IC-VCM) Core Carbon Principles. It is, nonetheless, a subsection of the Principles’ Robust quantification. Therefore, understanding what leakage implies is important.  

What is leakage? 

Essentially, leakage occurs when a carbon reduction project has displaced a carbon-intensive activity into another jurisdiction or geographical region. 

The IPCC defines carbon leakage ‘as the increase in CO2 emissions outside the countries taking domestic mitigation action, divided by the reduction in the emissions of these countries.’ 

Under the IC-VCM, lower carbon leakage reflects a higher quality carbon offset.  

Carbon leakage can also refer to the displacement of emitting activities to a neighbouring area once an offsetting project is implemented. For example, banning deforestation within a project’s boundaries in a country with generally lax land use laws may simply result in loggers moving elsewhere. The environmental and climatic damage would still be taking place despite the project’s existence.  

The risk of leakage can be mitigated by strengthening project design. This may involve engaging with the wider community around a project to offer alternative, sustainable livelihoods. Additionally, developers conservatively quantifying emission reductions and removals and making appropriate adjustments for estimated leakage can mitigate the risks involved.  

What is the impact of leakage? 

The resulting impact of leakage is that emissions might increase outside of the project’s boundaries.  

This is problematic when businesses or sectors of the developed world move their operations. Generally, operations tend to be displaced to countries without carbon constraints or pricing. This results in an increase of emissions in the receiving country, preserving the quotas set for the source country. There is therefore a risk of poorly executed projects perpetuating inequality between countries. 

The greatest concern is that leakage ultimately delays decarbonisation, because no net carbon reduction or removal is taking place. 

This issue can be compared to relocation of consumer goods manufacturing to less developed countries, like China or Bangladesh. As industries chasing smaller production costs move factories abroad, their emissions are not accounted for in the country where goods are actually consumed. Instead, emissions in the manufacturing countries skyrocket.  

Plannet Zero and leakage 

In an effort to prevent leakage, Plannet Zero works closely with project developers. We ensure that our credits are of high quality by running a tight due diligence on all projects we work with. This means, projects have undergone verification by a standard and a third party. Through this process, baseline calculations and alternative emission scenarios are verified. Additionally, in an effort to promote fairness and transparency, we cap our margins at 15%. This means that 85% of the revenue is directed to project developers, ensuring that funding is going where it is needed.  

Edited by Tiffany Cheung