Climate change policies must address carbon leakage

As more nations, states, and regional pacts (e.g. RGGI) look to craft and implement carbon reduction initiatives, the issue of carbon leakage remains a huge impediment to success. A recent article from Vancouver highlights the complexity of this issue. As British Columbia toys with the idea of a cap-and-trade system, the region’s cement industry—fearing devasting loses to offshore producers—has pointed to emissions leakage as a shortcoming in the policy:

“The way the carbon tax is designed now, it does not address taxation on import products. The province so far does not have a concept together for addressing leakage, and this poses a significant threat to domestic production.” - Jeorg Nixdorf, vice-president of manufacturing for Lehigh-Hanson Canada

According to Wikipedia, “carbon leakage occurs when there is an increase in CO2 emissions by some countries as a reaction to an emission reduction by countries with strict climate policy”. Carbon leakage will continue to slow progress on climate change initiatives, particularly in the U.S., where this issue has been repeatedly cited in the Bush administration’s castigation of the Kyoto Protocol. British Columbia’s efforts may be stymied as well:

"B.C. might decide to take an observer position in the western climate initiative while it sees what the next U.S. federal government will do," – Mark Jaccard, a key BC government adviser on climate change

At least one group is working to address carbon leakage proactively. The Regional Greenhouse Gas Initiative (RGGI)—a “cooperative effort by 9 Northeast and Mid-Atlantic states to discuss the design of a regional cap-and-trade program”—formed an Emissions Leakage Working Group to investigate this issue. The Working Group released their final report on April 1, which evaluates “potential emissions leakage under the [RGGI] and policy mechanisms available to mitigate potential emissions leakage”. The report highlights the complexities of implementing a regional initiative when a larger national (or global) system is not in place.

Can the issue of carbon leakage be addressed without a globally harmonized climate change initiative?