Carbon leakage. The effectiveness of emissions trading systems depends on their design. If prices are low, then the system does not work well in terms of incentivizing industry players to be efficient. If the scheme is too restrictive and prices are high, it may encourage carbon leakage. So what is carbon leakage? Carbon leakage is the shifting of greenhouse gas emitting industries to regions outside the jurisdiction with strict emissions regimes. It can therefore be thought of as the carbon pricing equivalent of tax avoidance. In the same way that companies can shift profits to low tax countries to avoid paying taxes, they may shift their carbon intensive activities to countries that do not operate a carbon pricing mechanism to avoid purchasing carbon allowances.