A conceptual framework and its application for addressing leakage: the case of avoided deforestation

One of the most challenging technical issues associated with project-based mechanisms is that of leakage. A conceptual framework is proposed for the identification and analysis of leakage potentially generated by a project. The categorization of leakage based on the actors responsible for their manifestation is proposed, which divides sources of leakage into primary and secondary types. It is the actors or agents responsible for the baseline activities that cause primary leakage. Secondary leakage occurs when the project's outputs create incentives for third parties to increase emissions elsewhere. This distinction, based on the source of leakage, provides a basis for the analysis outlined in the paper. The extent and type of leakage will vary depending on the project typology and design. Using a decision tree approach, the process of identifying potential sources of leakage is demonstrated for the case study of avoided deforestation projects. If the main elements determining a baseline are properly identified and understood, in particular the 'baseline agents', a combination of the decision tree approach and apportioning responsibility, can assist in the quantification and monitoring of primary leakage. An analysis at the project design stage can also assist in minimizing the risk of future leakage. Econometric methods may prove more useful in analyzing secondary leakage.