Potential carbon leakage risk: A cross-sector cross-country assessment in the OECD area

Achieving climate targets requires more stringent mitigation policies, including the participation of economic sectors beyond energy-intensive industries. However, what this implies for carbon leakage risks remains largely an open question. This paper aims to fill this gap by assessing potential carbon leakage risk for all sectors under varying climate policy scopes covering GHG emissions along global supply chains. To measure this risk, we use the emission-intensity and trade-exposure metric and emission data including CO2 and non-CO2 gasses. Under a uniform carbon price and assuming full carbon cost pass-through, we find that carbon leakage risk in downstream sectors can be as high as in sectors whose direct GHG emissions are subject to carbon pricing. We also find that agri-food and transport sectors have, on average, a higher potential risk than energy-intensive industries. Our results highlight the importance of developing sound anti-leakage mechanisms tailored to each sector’s characteristics.