Estimating Leakage from Forest Carbon Sequestration Programs

Leakage from forest carbon sequestration—the amount of a program’s direct carbon benefits undermined by carbon releases elsewhere—depends critically on demanders’ ability to substitute non-targeted timber for timber targeted by the program. Analytic, econometric, and sector-level optimization models are combined to estimate leakage from different forest carbon sequestration activities. Empirical estimates for the U.S. show leakage ranges from minimal (<10 percent) to enormous (>90 percent), depending on the activity and region. Importantly, and counter to common perceptions, the proportion of a project’s carbon benefits undermined by leakage is not proportionally small just because the project itself is small. JEL Classification: Q23, Q24