The term refers to the situation where a reduction in carbon in one location can result in an increase of carbon in another location.  The most frequent instance is where one regional government will impose strict restrictions on generating carbon emissions, which has the effect of lowering emissions in that region.  At the same time those companies which would be subject to the restrictions move their commercial operations to an adjacent region which has no or less restrictions.  The net effect is that carbon emissions do not fall but remain level or even increase across the two regions.

In effect those who want to emit carbon will seek the region with the lowest regulations or restrictions, which typically lower the cost for that company and increase its profits.  Meanwhile, carbon levels across the wider regions remain high or increase.

It is said that the carbon oi the more protective region leaks out into the less protective region.

Such situations reflect how complicated it can be to try to lower carbon emissions on a global or regional scale.   One method for countering carbon leakage is for the region with the tougher restrictions on carbon to impose a tax on products being imported from a region with lighter restrictions, thereby balancing the costs saved by fewer limits on carbon emissions.

Some further ideas to explore on Carbon Leakage:

Do certain commercial activities typically result in significant carbon emissions?

Are there means of regulating their emissions in ways to avoid carbon leakage?

Can carbon taxes help to address carbon leakage?

Sources:

“What is Carbon Leakage?”  Clarity and Leadership for Environmental Awareness and Research at UC Davis (24 April 2020). bit.ly/3m7cw4H

“Carbon leakage,” European Commission bit.ly/3m33ntH

“What is carbon leakage? Clarifying misconceptions for a better mitigation effort,” London School of Economics (2021).  bit.ly/3Z1cfP6