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Significance of Leakage in Carbon Credits
Leakage challenges the integrity of carbon credit projects. Without properly accounting for leakage, projects might overstate their net climate benefits. Just as additionality ensures that the emission reductions are a direct result of the project, leakage ensures that these reductions are not offset by increases elsewhere.
Measuring and Controlling Leakage
- Similar to assessing additionality, leakage is estimated by examining indirect impacts of a project. For example, if a forest conservation project reduces logging in one area, does it inadvertently increase logging in another area?
- Leakage is factored into the baseline scenario of a project. This scenario, like in the case of additionality, represents the 'business-as-usual' emissions.
- Regular monitoring, as part of the project’s MRV (Monitoring, Reporting, and Verification) process, is crucial to track and address leakage over time.
Types of Leakage
- Activity Shifting Leakage: Occurs when activities causing emissions are simply relocated to areas outside the project.
- Market Leakage: Results from market-driven responses to a project, like changes in supply and demand of commodities.
What does this mean for Sustainability Leaders?
For leaders and organisations committed to credible climate action, understanding leakage is essential. It ensures that investments in carbon credits and climate projects achieve genuine emission reductions. Recognising and addressing leakage is crucial to avoid inadvertent negative impacts and to maintain the credibility of carbon offset initiatives. It is also important to not look at leakage alone. It is also critical to assess factors such as additionality and permanence when evaluating the quality of a project.