Global assessment of the carbon leakage implications of carbon taxes on agricultural
emissions
Carbon leakage arises when emission reductions in countries applying a carbon tax
are offset, partially or completely, by emission increases in countries that do not
apply the tax or any other greenhouse gas (GHG) mitigation policies. Analysis using
the MAGNET computable general equilibrium model indicates that a carbon tax always
lowers global GHG emissions from agriculture, even when it is applied in a small group
of countries, provided that producers facing the tax can make use of GHG abatement
technologies. This suggests that mitigation policies should be considered in conjunction
with investments in research and development on abatement practices and technologies.
When a small number of countries adopt a carbon tax, about half of the direct reduction
in emissions in adopting counties is offset by higher emissions in non-adopting countries;
the rate of carbon leakage declines as the group of countries implementing a carbon
tax expands. Higher tax rates stimulate larger global emissions reductions, but also
induce higher rates of emissions leakage, thus limiting the mitigation benefits from
setting higher tax rates in contexts where few countries adopt the policy.
Published on October 27, 2021
In series:OECD Food, Agriculture and Fisheries Papersview more titles