Leakage is defined as the unanticipated decrease or increase in GHG benefits outside of the project's accounting boundary (the boundary defined for the purposes of estimating the project's net GHG impact) as a result of project activities. For example, conserving forests that otherwise would have been deforested for agricultural land may displace farmers to an area outside of the project's boundaries. There, the displaced farmers may engage in deforestation-and the resulting carbon emissions are referred to as leakage.
Projects may also yield greater GHG benefits than anticipated-positive leakage or "spillover." For example, if a project introduced a new land management approach or technology-such as increased use of agroforestry or cover crops or increased saw mill efficiency-and this technology was more widely adopted outside the project's boundaries, the net GHG benefits would be larger than initially estimated.
Leakage has been divided into various effects. This section discusses leakage effects that are most relevant to forest and land-use projects.
Market effects occur when project activities change the supply/demand equilibrium, such as if demand is unmet because a project reduces supply or because it unexpectedly increases demand. For example, large-scale plantation projects may depress the local price of wood products, causing nearby plantations to be replaced with pasture or other low-biomass land uses (Fearnside, 1995). Activity-shifting occurs when the activity that causes carbon loss in the project area is displaced outside the project boundary. For example, prevention of deforestation in the project area may displace the GHG-emitting activity.
Although project experience to date is limited, case studies have indicated that landscape dynamics may signal if the project has no or low potential for leakage or a moderate to high risk for leakage.
No/Low Leakage Potential: Experience to date indicates that projects implemented on land that has few or no competing uses are unlikely to impact areas outside of project activities, and leakage potential is minimal. For example, the Krkonose project in the Czech Republic (see Table 5-2 and Box 5-1) is situated in a protected area with virtually no danger of encroachment or displacement because the park had protected status for many years (Brown et al., 1997).
Moderate/High Leakage Potential: Where land has competing uses or in dynamic settings where factors such as population growth, logging or agricultural production for export, subsistence agriculture, fuelwood needs, and concerns about deforestation interact, a project's impact may extend beyond the area of direct project activities (Brown, 1998). If net GHG benefits estimated and monitored fail to account for emissions that arise because of the project outside the area of direct activities, leakage is an issue. For example, a project that stops the conversion of forest to agricultural land or ends timber harvest by effectively "putting a fence around the forest" will face leakage problems because if an economic activity in the forest is stopped with no alternative taking its place, people will shift the activity to a surrounding area.
Changes in national or international policies also can lead to leakage. For example, when a government changes its policy to lower the country's overall emissions, the emissions may be displaced to other countries (see Section 2.1.1).
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