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What is carbon leakage?

Policies to reduce GHGs must take into account carbon leakage to be effective explains CAPP's Director of Climate, Patrick McDonald.

Policies to reduce greenhouse gas emissions need to take into account the phenomenon of carbon leakage if they are to be effective. Otherwise, there can be unintended consequences such as shifting GHG emissions to countries with lower environmental standards, and job losses here at home. CAPP's Director, Climate, Patrick McDonald explains what carbon leakage is and what needs to be done to avoid it.

Video transcript:

"Carbon leakage is really a shift of greenhouse gas emissions from one part of the globe to another, so from one country to another. It’s usually the result of governments implementing uncompetitive policies. 

An example of carbon leakage would be if policies implemented in a jurisdiction like Canada result in increased cost to the industry, and as a result, that industry is going to shift its investment elsewhere.

The implications of carbon leakage are both economic and emission related. Locally, we’re going to see an impact to the economy because we’re going to see less investment and that’s going to have an impact on jobs. And globally, as that investment shifts, we’re going to see likely an increase in emissions because that production is going to get moved to countries that don’t have near as rigorous environmental standards as Canada.

What we can do about carbon leakage is really ensure that climate policies are implemented in a manner that is consistent and considers the emissions intensive and trade-exposed nature of the industries in our country. While the oil and gas industry is supportive of managing GHG emissions, we need to ensure that we’re getting the best outcome globally, and that our industry can continue to be competitive."

In this article, Context speaks with:
  • Patrick McDonald, CAPP
    Patrick McDonald Director, Climate, Canadian Association of Petroleum Producers