In the context of climate policy, carbon leakage refers to an increase in greenhouse gas emissions in one jurisdiction resulting from actions intended to reduce emissions in another jurisdiction. Corporate net zero pledges, in which companies promise to balance their carbon emissions with removals of equivalent amounts of carbon from the atmosphere, are also susceptible to leakage. Net zero leakage reflects the potential for companies’ actions under net zero pledges to displace rather than reduce carbon emissions. Just as carbon regulation in one jurisdiction can lead to carbon leakage, action by a private actor under a net zero pledge can result in greater emissions by another actor. Overall emissions may even increase. Net zero leakage presents more than a problem of greenwashing, however, as it poses a widespread and serious threat to climate change mitigation efforts.
This Article explores strategies to prevent or limit net zero leakage. These strategies include: extending net zero pledges to cover more activities and entities, amending carbon accounting rules to account for actual carbon impacts, incorporating safeguards against leakage into asset sales agreements, and establishing investment vehicles aimed at purchasing and retiring fossil fuel assets.
