Leakage Effects

In the context of impact assessments, we use the term leakage effect to describe situations where measures for improving the situation (e.g., environmental protection) in one location result in a shift of problematic activities to other locations. Leakage effects may partly or fully offset intended positive effects of environmental policies by displacing, rather than alleviating environmental pressures.


Leakage effects gained public attention mainly with regard to a displacement of greenhouse gas emission. The problem of potential “carbon leakage” has been addressed both in in policy (European Commission, 2014) and science (Franzen & Mader, 2018; Naegele & Zaklan, 2019). Leakage effects can also cause Indirect Land Use Changes (ILUC). Lambin & Meyfroidt (2011) present an example of how land zoning for environmental protection may lead to displacement of populations or a stronger reliance on agricultural imports, resulting in land use changes and an encroachment of natural ecosystems elsewhere. Additional forms of leakage effects may exist, such as stricter regulations for pesticide and fertilizer application leading to higher imports of agricultural commodities from countries where regulations are laxer. However, studies addressing this are currently lacking.


The possibility of leakage effects should be considered in the design and evaluation of policies. For impact assessments to be able to detect them, spatial scales must be set wide enough to also capture effects that appear outside the area of policy application.

In the context of impact assessments, we use the term leakage effect to describe situations where measures for increased environmental protection in one location result in a shift of problematic activities to other locations. Leakage effects may partly or fully offset intended positive effects of environmental policies by displacing, rather than alleviating environmental pressures. They can occur at all geographical scales (Henders & Ostwald, 2014). According to Watson et al. (2000), four leakage mechanisms can be distinguished:

 

• Activity displacement 

• Demand displacement,

• Supply displacement 

• Investment crowding 

 

The term “investment crowding” describes a situation where (additional) investment in a project results in a reduction of investment from other sources. This mechanism is different from the other three in that it does not cause a shift of negative activities but rather a withdrawal of positive activities. It does stricto sensu not fall under our definition of leakage effects.

 

Leakage effects gained public attention mainly with regard to a potential displacement of greenhouse gas emission, the so called “carbon leakage”. For example, if efforts are undertaken in a region to mitigate emissions, emission intensive production processes may simply be relocated, so that emission reductions at the global scale are smaller than those in the targeted region (Calvin et al., 2009). Because assessments only consider effects if they occur within the system boundaries, emissions due to leakage effects may easily be overlooked if the spatio-temporal scales are set too narrow, thereby resulting in a an overestimation of mitigation efficiencies (Watson et al., 2000). The potential problem of carbon leakage is addressed both in in policy (European Commission, 2014) and science (Franzen & Mader, 2018; Naegele & Zaklan, 2019).

 

With regards to land use, leakage effects can cause so called “indirect land use changes" (ILUC), often through a cascade of different displacement activities (Lambin & Meyfroidt, 2011; Watson et al., 2000). Accordingly, several studies dealing with land-use changes or agricultural intensification, greenhouse gas emissions or deforestation connect these to leakage effects due to policy changes (Calvin et al., 2009; Henders & Ostwald, 2014; Lambin & Meyfroidt, 2011; Lee et al., 2006; Lim et al., 2016). 

 

Additional forms of leakage effects are possible, such as stricter regulations for pesticide and fertilizer application leading to higher imports of agricultural commodities from countries where regulations are laxer. However, studies addressing this are currently lacking.

Policies and innovations aimed at improving soil management and reducing pressures on the environment may, depending on their specific design, come with the risk of leakage effects. This could compromise their environmental benefit. For example, reducing the area of intensive agricultural production may alleviate pressures on the environment locally, but due to a global demand for agricultural commodities may also lead to more agricultural production in other regions. Impact assessment that fail to consider leakage effects overestimate the overall positive impacts of measures or arrive at wrong conclusions.


The risk of leakage effects should already be considered in the design of innovative soil management strategies. Impact assessments can be used to identify such risks and facilitate the  design of additional measures to mitigate or prevent them.

 

Identifying the consequences that changes in one (production) system have on other systems at different geographical scales is challenging (Henders & Ostwald, 2014). Only where impact assessment also consider effects occurring outside of the locations targeted by policies or innovations will they be able to identify potential leakage effects. A wide setting of the spatio-temporal system boundaries, considering effects up to the global scale, may be necessary for this.

 

Focussing on land use change, Lim et al. (2016) describe in detail economic mechanisms relevant for the occurrence of leakage effects from conservation measures or agricultural intensification. They present a framework of  market responses that can be used to identify where unintended policy outcomes are likely.

 

Henders & Ostwald (2014) reviewed applicability, strengths and weaknesses of assessment methods for quantifying leakage effects as unintended consequences of policies. This included methods such as equilibrium modelling, statistical correlations and causal-descriptive methods. For global overviews and for determining the drivers and the occurrence of leakage, these authors recommend top-down approaches such as Computable General Equilibriums (CGE) and Multi-Regional Input-Output Analysis (MRIO) models. To find the connection between consumption and production across regions, they state that extended Material-flow Analysis (MFA) methods, representing bottom-up assessments, have a better resolution and can be used to cover the national level or to compare several countries.

 

 

Calvin K V, Edmonds J, Bond-Lamberty B, Clarke L, Kim S, Kyle P, Thomson A, Wise M. 2009. Land-Use Leakage. Pacific Northwest National Laboratory: pp. 29.

 

European Commission 2014. Commission Decision of 27 October 2014 determining,a list of sector sand subsectors which are deemed to be exposed to a significant risk  of carbon leakage, for the period 2015 to 2019. Decision 2014/746/EU.

 

Franzen A, Mader S. 2018. Consumption-based versus production-based accounting of CO2 emissions: Is there evidence for carbon leakage? Environmental Science and Policy 84: 34–40. DOI:10.1016/j.envsci.2018.02.009

 

Henders S, Ostwald M. 2014. Accounting methods for international land-related leakage and distant deforestation drivers. Ecological Economics 99: 21-28. DOI: 10.1016/j.ecolecon.2014.01.005

 

Lambin E F, Meyfroidt P. 2011. Global land use change, economic globalization, and the looming land scarcity. PNAS 108(9): 3465-3472. DOI:10.1073/pnas.1100480108

 

Lee H-C, McCarl B A, Schneider U A, Chen C-C. 2006. Leakage and Comparative Advantage Implications of Agricultural Participation in Greenhouse Gas Emission Mitigation. Mitigation and Adaptation Strategies for Global Change

 

Lim F K S, Carrasco R, McHardy J, Edwards D P. 2017. Perverse Market Outcomes from Biodiversity Conservation Interventions. Conservation Letters 10(5): 506-516. DOI:10.1111/conl.12332

 

Naegele H, Zaklan, A. 2019. Does the EU ETS cause carbon leakage in European manufacturing? Journal of Environmental Economics and Management 93: 125–147.  DOI:10.1016/j.jeem.2018.11.004

 

Watson R T, Noble I R, Bolin B, Ravindranath N H, Verardo D J, Dokken D J. (Eds.) 2000. IPCC Special Report – Summary for Policymakers. Land use, Land-use change and Forestry. Cambridge University Press, UK: pp. 24