Greenhouse gas (GHG) restrictions implemented by some nations can increase emissions in nations without climate policies. Leakage of emissions can occur via at least two channels. First, climate policies reduce fossil fuel prices which result in increased energy consumption in countries without restrictions. Second, energy-intensive production in countries without GHG restrictions can increase at the expense of energy-intensive production in countries with climate policies. The second form of leakage highlights competitiveness issues that arise when a subset of nations restricts emissions.

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