Carbon Leakage - Coal, Oil and "backstop" Technologies

Coal, Oil and "backstop" Technologies

The issue of carbon leakage can be interpreted from the perspective of the reliance of society on coal, oil, and "backstop" (less polluting) technologies, e.g., biomass. This is based on the theory of nonrenewable resources (Goldemberg et al., 1996, pp. 27-28). The potential emissions from coal, oil and gas is limited by the supply of these nonrenewable resources. To a first approximation, the total emissions from oil and gas is fixed, and the total load of carbon in the atmosphere is determined by coal usage.

A policy that, for example, sets a carbon tax only in developed countries might lead to leakage of emissions to developing countries. However, a negative leakage (i.e., leakage having the effect of reducing emissions) could also occur due to a lowering in demand and price for oil and gas. This might lead coal-rich countries to use less coal and more oil and gas, thus lowering their emissions (Goldemberg et al., 1996, pp. 27-28). While this is of short-term benefit, it reduces the insurance provided by limiting the consumption of oil and gas. The insurance is against the possibility of delayed arrival of backstop technologies. If the arrival of backstop technologies is delayed, the substitution of coal for oil and gas might have no long-term benefit. If the backstop technology arrives earlier, then the issue of substitution becomes unimportant. In terms of climate policy, the issue of substitution means that long-term leakage needs to be considered, and not just short-term leakage (Goldemberg et al., 1996, p. 28).