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INDUSTRIAL AND TERRESTRIAL CARBON LEAKAGE
UNDER CLIMATE POLICY FRAGMENTATION
Mikel González-Eguino (BC3)
together with Capellán-Pérez, I. (UPV), Arto, I. (BC3), Ansuategi A. (UPV)
and Markandya, A. (BC3)
October 23, 2015
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OUTLINE
 Introduction
 Model
 Scenarios
 Results
 Conclusions

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1. Introduction
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 Fragmented climate policy -> carbon leakage (Böhringer et al. 2012)
 Carbon leakage: carbon regulation/price in some countries could increase the
carbon emissions of non-participatory countries.
 Main channels: change in the price of fossil fuels (“industrial carbon leakage”,
Calvin et al. 2009) and changes in competitiveness (Rutherford et al 1995).
 However, there is another channel has received little attention: the carbon
leakage triggered by land use changes or “terrestrial carbon leakage” (TCL)
 Literature on TCL: Wise et al. (2009), Calvin et al. (2010, 2014) and Kuik (2014)
 No previous study has analyzed the “industrial” (ICL) and “terrestrial” (TCL)
channel in combination (Otto et al. 2015). We explore these two forms of
leakage when emissions from both sources are taxed identically.

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2. Model:
 Global Change Assessment Model (GCAM): an Integrated Assessment
model that links the world’s energy, agriculture and land use systems with
a climate model.
• GCAM was one of the four models chosen by IPCC to create one of the main
scenario (RCP 4.5) for the IPCC’s AR5 (Thomson et al. 2011).
• GCAM model can track not only fossil fuel and industrial emissions but also
terrestrial emissions associated to land use change.
• GCAM contains detailed representations of technology options for each of its
economic components with technology choice determined by market
probabilistic competition (Clarke and Edmonds 1993).
 More info: http://wiki.umd.edu/gcam/

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3. Scenarios (1/3): spatial fragmentation
Scenarios
Scenario Participating Regions
REF None
FR1 EU-27
FR2 EU-27 + US
FR3 Developed
FR4 Developed + China
FR5 Developed + BASIC
FR6 All, except Africa, Russia, Middle East
BASIC (Brazil, South Africa, India and China) group was
formed by an agreement on 28 November 2009.
Share of the global total CO2 emissions by
scenario, 2050

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3. Scenarios (2/3): temporal fragmentation
 First Time Period:
• Developed countries follow EU: reduce emissions by 80% in 2050.
• Developing countries follow China: peak emissions in 2030.
 Second Time Period:
• Common but differentiated convergence approach.
• Developed and developing countries converge towards an equal per-
capita emissions levels in 2100 [0.5 tons of CO2-eq to meet the 2 C
target].

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4. Scenarios (3/3): emissions per capita (tCO2pc)

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Africa, Russia and ME Africa, Russia and ME
Africa, Russia and ME
Africa, Russia and MEAfrica, Russia and MEAfrica, Russia and ME
5. Results: carbon leakage: (GtCO2, cumulative 2010-2050, wrt REF)

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5. Results: global carbon leakage (GtCO2)
 The relation between leakage (in absolute terms) and the size of the
coalition implementing the climate regime shows an inverted-U shape.
 Terrestrial carbon leakage is relevant for the period 2020-2050, but
industrial carbon leakage dominates once the carbon storage potential of
afforestation is fully exploited.
Global carbon leakage (GtCO2) for 2020-2050 (left) and 2020-2100 (right)
0
20
40
60
80
100
FR1 FR2 FR3 FR4 FR5 FR6
CO2Emisions(GtCO2)
Industrial Terrestrial
0
50
100
150
200
250
300
350
400
FR1 FR2 FR3 FR4 FR5 FR6
CO2Emisions(GtCO2)
Industrial Terrestrial

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5. Results: carbon leakage rate (%)
 Carbon leakage rate: % of the reduction shifted to non-participants.
 Total carbon leakage rate decreases with the size of the coalition from 24%
in FR1 to 5% in FR6.
 Industrial carbon leakage rate is below 30%, but terrestrial is much larger.
Cumulative carbon leakage rate (%) 2020-2100
0%
20%
40%
60%
80%
100%
FR1 FR2 FR3 FR4 FR5 FR6
LeakageRate(%)
Industrial Terrestrial Total

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5. Results: energy system
 The main channel for ICL is the change on fossil fuel prices, which decrease
with the increasing size of coalition.
Global Fossil Fuel Price Index,2050 (2010=100)
Global Energy Mix, 2050 (EJ/y)

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5. Results: global land-use change
 There is an incentive also to trade products from land with low carbon
density (e.g. crop land) for products from land with high carbon density
(e.g. forest) as CO2 from land has now a market price.
Evolution of Global Forest Area (Mkm2)

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5. Results: regional land-use change
 However, there will be also an incentive for deforestation in non-
participant regions.
Africa, Russia and ME
Evolution of Regional Forest Area (Mkm2 wrt to REF)

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5. Results: side-effects on the price of food
 There is a important trade-off to pay from afforestation: an important
increase in the price of food.
 The highest increases in prices are in the price of animal products such as
beef and poultry.
Global Food Price index (Base 2010=100)

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5. Results: climate system
 Unilateral action from developing countries will have a small impact.
 It will be very difficult to met the 2 degree target if some countries never
join to the coalition (unless negative emission technologies or BECSS would
be available)
Global temperature change, 2010-2100 (ºC)

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6. Conclusions
1. Fragmentation can lead to relevant carbon leakage effects, especially if terrestrial
carbon leakage is considered.
2. The dominant type of carbon leakage up to 2050 is the terrestrial channel,
although industrial carbon leakage takes over during the second half of the century,
once the carbon storage potential of afforestation is fully exploited.
3. Fragmentation can hurt vulnerable countries (even if they do not participate in the
climate coalition), because it induces deforestation in those regions and increases
(remarkably) the global price of food.

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References
Böhringer, Christoph, Edward J. Balistreri, and Thomas F. Rutherford. 2012. “The Role of Border Carbon Adjustment in
Unilateral Climate Policy: Overview of an Energy Modeling Forum Study (EMF 29).” Energy Economics, The Role of
Border Carbon Adjustment in Unilateral Climate Policy: Results from EMF 29, 34, Supplement 2: S97–110.
Calvin, Katherine, Marshall Wise, Page Kyle, Pralit Patel, Leon Clarke, and Jae Edmonds. 2014. “Trade-Offs of Different
Land and Bioenergy Policies on the Path to Achieving Climate Targets.” Climatic Change 123 (3-4): 691–704.
doi:10.1007/s10584-013-0897-y.
Calvin, Katherine. 2009. Land-Use Leakage. Working Report, PNNL.
Edmonds, J., and J. Reilly. 1985. Global Energy: Assessing the Future. New York: Oxford University Press.
Kyle, Page. 2011. GCAM 3.0 Agriculture and Land Use: Data Sources and Methods.
Otto, Sander A. C., David E. H. J. Gernaat, Morna Isaac, Paul L. Lucas, Mariësse A. E. van Sluisveld, Maarten van den
Berg, Jasper van Vliet, and Detlef P. van Vuuren. 2014. “Impact of Fragmented Emission Reduction Regimes on the
Energy Market and on CO2 Emissions Related to Land Use: A Case Study with China and the European Union as
First Movers.” Technological Forecasting and Social Change. doi:10.1016/j.techfore.2014.01.015.
Thomson, Allison M., Katherine V. Calvin, Steven J. Smith, G. Page Kyle, April Volke, Pralit Patel, Sabrina Delgado-Arias,
et al. 2011. “RCP4.5: A Pathway for Stabilization of Radiative Forcing by 2100.” Climatic Change 109 (1-2): 77–94.
doi:10.1007/s10584-011-0151-4.
Thomson, Allison M., Katherine V. Calvin, Steven J. Smith, G. Page Kyle, April Volke, Pralit Patel, Sabrina Delgado-Arias,
et al. 2011. “RCP4.5: A Pathway for Stabilization of Radiative Forcing by 2100.” Climatic Change 109 (1-2): 77–94.
doi:10.1007/s10584-011-0151-4.
Wise, M., and K. Calvin. 2011. GCAM 3.0 Agriculture and Land Use: Technical Description of Modeling Approach.
http://www.pnl.gov/main/publications/external/technical_reports/PNNL-21025.pdf.
Wise, Marshall, Katherine Calvin, Allison Thomson, Leon Clarke, Benjamin Bond-Lamberty, Ronald Sands, Steven J.
Smith, Anthony Janetos, and James Edmonds. 2009. “The Implications of Limiting CO2 Concentrations for Land Use
and Energy.” Science 324 (5931): 1183–86. doi:10.1126/science.1168475.

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Thank you
Eskerrik Asko
Gracias

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5. Results: climate system (1/3)
 Price of CO2 increases with participation as global mitigation effort will also
increase.
 In scenarios FR4, FR5 and FR6 there will be two CO2 markets (developing and
developed ) and, therefore, there will be two prices for CO2.
CO2 prices by regions ($/tCO2 US$2010)

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 The cumulative discounted cost of mitigation increases with participation.
 The incentives to free-ride are very relevant
5. Results: climate system (2/2)
Policy cost for the different scenario In 2100 (Trillion 2010$)