Land-based greenhouse gas emission offset and leakage discounting

•Land-based greenhouse gas emission offset program in one region may leak by encouraging additional economic activities in other region.•A leakage formula for the land-based greenhouse gas offset is derived.•In an empirical illustration we compute a leakage discount of %14.8% for the conversion of rice to no-till sorghum and 14.9% for rice to pasture program in the Southeast Texas, United States.

This paper examines leakage from agricultural greenhouse gas reduction programs stimulated by reductions in regional commodity supply. This paper develops an extension of the leakage discount formula in Murray et al. (2004) that incorporates changes in input (land) usage rather than product output (crop or forest product quantity). Additionally the leakage discount developed here allows for land conversion and production replacement involving multiple alternative uses. In an empirical application in the Southeast Texas we compute leakage discounts of 14.8% for the conversion of rice to no-till sorghum and 14.9% for rice to pasture program. Most of the sources of GHG offset leakage come from conversions of cotton to rice and pasture to rice in the other regions.