RTI International is a trade name of Research Triangle Institute
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Estimating Leakage from Forest and Agricultural
Carbon Sequestration Projects
Presented byBrian C. MurrayRTI International
Presented at3rd USDA Symposium on Greenhouse Gases & Carbon Sequestration in
Agriculture & ForestryMarch 23, 2005Baltimore, MD
RTI International is a trade name of Research Triangle Institute
3040 Cornwallis Road ■ P.O. Box 12194 ■ Research Triangle Park, NC 27709Phone 919-541-6468 e-mail [email protected] 919-541-6683
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Funding and Collaborators
Funding: US EPA, Climate Change Division
Collaborators: RTI: Brent Sohngen* Texas A&M: Bruce McCarl, Dhazn Gillig,
Heng-chi Lee EPA: Ken Andrasko, Ben DeAngelo
* On sabbatical from Ohio State University
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Project Based Approaches to GHG Mitigation
Projects involve intentional activities or actions to reduce GHG’s
The product of these projects may (may not) be used to produce GHG emission offsets
Mitigation projects are voluntary, not required by law
Development of mitigation projects contain nuances that are location and sector specific
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What is Leakage?
Leakage: Emissions that occur outside the project boundaries as a result of the project activities themselves It is caused by the shifting of emitting activity
elsewhere in response to reductions (sequestration) in the project area Spatial
Local: aka “primary” Distant: aka “secondary” or “market”
Sectoral/life cycle: GHG effects up and down the supply chain
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* Important Point about Leakage
Leakage is only a problem if the “leaked” (shifted) emissions fall outside some accounting framework, E.g., from a capped or monitored sector or region
to an uncapped/unmonitored sector/regionFrom a monitored project to an unmonitored
activity
Otherwise, its captured in the accounting and does not undermine net emissions reduction
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Why do we care about leakage at the project level?
It erodes the GHG benefits of a project
Can be difficult to measure
Difficult to enforce due to incomplete contracts
Potential to undermine a project-based offset system
Accounting for Leakage
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Leakage as an issue in forestry and agriculture projects
Induced by economic forces: Supply/demand supplanted by the project is met elsewhere
Formal markets Other institutional arrangements
Leakage is not unique to forest and ag projects
But, features of forestry and agriculture make them somewhat susceptible to leakage Fixed land base: Land use change has spillover
effects Commodity markets are often broad in scope
(regional, national, global)
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Emissions Shifting as a Spatial Concept
Project
“Secondary”
“Primary”Local shifting: observable and contractable
Regional, National, Global Markets
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How to Address Leakage at the Project Level
Action Primary Secondary
1. Minimize leakage through project design
Expand contract to include local activity near project boundaries
Select activities that are not likely to have a lot of market leakage
2. Measure what you can’t minimize
Extend monitoring to include area proximate to project boundaries
Survey of local stakeholders
Market modeling
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Project Leakage in a Market Context
Project
S0
S1
Q0Q1Q’0
P0
P1
Leakage
Market A (Commodity i, region x)
Market B Market C Market D
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Estimating Leakage through Market Modeling
Simple comparative statics of individual market equilibria
L´ = R
N
C)]*1(*Ee[
C**e*100
Where e, E, γ, Φ, and Ci are market parameters
Sector modelsForest (e.g., Sohngen, Sedjo, Mendelsohn)
Forest and Ag (e.g., FASOMGHG)
CGE models
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Myth: Leakage only happens when projects are big enough to affect the market price
Reality: Leakage can happen any time that a project involves goods and services exchanged in a market.
In fact, leakage is proportionately larger for small projects thanfor large projects or policies
Myths and Reality
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Leakage Estimates from Market Models
International emissions leakage/energy: ~10-20% of targeted reductions are offset by leakage (from the literature)
Forest carbon leakageAfforestation Program Leakage Estimates by Region (All Quantities Are Percentages)
Region Leakage Estimate (%)
Northeast 23.2
Lake states 18.3
Corn Belt 30.2
Southeast 40.6
South-Central 42.5
Source: Murray, McCarl, Lee. 2004. Estimating Leakage from Forest Carbon Sequestration Programs. Land Econ: 80(1):109-124
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Leakage Estimates from Market Models (II)
Forest preservation (avoided deforestation, no harvesting*)
Region Leakage %
PNW – East 8.9
Northeast 43.1
Lake States 92.2
Corn Belt 31.5
South-central 28.8
Source: Murray, McCarl, Lee. 2004. Estimating Leakage from Forest Carbon Sequestration Programs. Land Econ: 80(1):109-124
* Leakage is moderately lower if harvesting is allowed
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Some recent leakage results comparing different forestry and agriculture activities*
Leakage Estimates by Mitigation Activity at a GHG Price of $15/t CO2
Eq. All quantities are on an annualized basis for the time period 2010–2110.
Targeted Mitigation Activities
AGHG
Effects of Targeted Payment (Tg. CO2
Eq.)
BNet GHG Effects of
All Activities(Tg. CO2
Eq.)
CIndirect
GHG Effects from
Nontargeted Activitya
(Tg. CO2
Eq.)
DLeakage
Rateb
(%)
Afforestation 137 104 –33 24.0
Agricultural Soil Carbon 154 145 –9 5.7
Biofuels 84 83 –1 0.2
aIndirect effects: C = (B – A).bLeakage rate: D = –(C/A) * 100; rounding occurs in table.Note: Negative leakage rate in D refers to positive leakage (i.e., additional mitigation outside targeted activity region).
* Ongoing work, Murray and McCarl
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Regional dimensions of leakage *
Regional Leakage Flows for Afforestation-Only Payment Scenario: $15/t CO2 Eq.
-40
-20
0
20
40
60
80
100
120
140
GH
G M
itiga
tion
inTg
CO
2 E
q., A
nnua
lized
, 20
10–2
100
SCAfforestaion
All OtherAfforestation
SC FossilFuels/Crops
SC ForestMgmt.
SE ForestMgmt.
SC Ag. Soil CSequestration
All OtherActivities and
Regions
Afforestation Induced by Payments Leakage Effects
* Ongoing work, Murray and McCarl
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Leakage over Time
Leakage time
horizon
AGHG Effects of Targeted
Payment(Tg. CO2 Eq.)
BNet GHG
Effects of All Activities
(Tg. CO2 Eq.)
CIndirect GHG Effects from Nontargeted
Activitya
(Tg. CO2 Eq.)
DLeakage
Rateb
(%)
10 decades 137.4 104.4 –33.0 24.0%
5 decades 170.7 129.7 –41.0 24.0%
2 decades 208.5 127.7 –80.8 38.8%
Effect of varying the time horizon over which leakage is quantified.
Afforestation program paying $15 per t CO2
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How is leakage being handled in project accounting protocols?
WRI/WBCSD: Screening, mitigation, quantification of primary and secondary leakage are prescribed but no specific requirements in place
California Registry Draft Protocol (2004)
Leakage category Assessment Quantification
Primary (onsite) Required Required
Primary (offsite) Required Strongly encouraged
Secondary (market) Strongly encouraged Strongly encouraged
Lifecycle Required Encouraged
Chicago Climate Exchange: leakage not explicitly considered
1605(b) guidelines still in development
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Conclusions
A project-based offsets/trading system seeks assurance that the emissions allowance correctly corresponds to the reduction by the project
For Carbon sequestration projects, the main factors that may disrupt this correspondence are Permanence Additionality Leakage
Methods are now being developed to address each of these factors, but there is debate about how far to go in terms of reporting standards, stringency, etc…
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Conclusions (II)
Early empirical evidence suggests leakage could either be trivial (~0) or enormous (over 90%) depending on the activity, location, and time period considered
Q: Is this enough to make these investments uneconomic?
Depends on the price and on the discounts applied to other offset credits
First: design projects to minimize leakage
Centralized efforts needed to harmonize approaches to address and quantify leakage