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Executive Summary Rising population and industrial growth are placing increasing strains on a variety of material and energy resources and the glo- bal environment. Understanding how to make the most economi- cally and environmentally efficient use of materials will require an under- standing of the flow of materials from the time a material is extracted, through processing, manufacturing, use, and its ultimate destination as a waste or reusable resource. It will also require knowledge of the environ- mental and societal impacts of the flows. These considerations are key to the overall application of sustainable development in practice. Material flows data have informed national security, industrial, and public policy decision makers for decades. For national security purposes it is important to recognize that the United States currently imports more than half its use of dozens of commodities. Many of the materials are stra- tegic for the economic growth and security of the nation, and in many cases, the primary sources of the materials are in regions of political in- stability. The most obvious example is the U.S. dependence on foreign oil. The need to collect material flows information to support national security decisions may be self-evident, but other uses of material flows information are also important though perhaps less obvious. Analyses of material flows data have prevented technologies that would severely strain material availability (e.g., the contemplated switch from tin-lead solder to a formula using bismuth and indium) from moving forward. Analyses of material flows data have also led to surprising and counter- intuitive insights into environmental pollutants. For example, a material flows study identified dental facilities, not heavy industry, as the largest 1

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2 MATERIALS COUNT wastewater source of mercury releases into the New York Harbor. In addition to identifying potential environmental concerns, material flows information can also be used to develop strategies for preventing envi- ronmental releases. Material flows data, for example, revealed that the widespread use of pressure-treated lumber over the past 30 years has cre- ated large stocks of arsenic in building materials that are now nearing the end of their useful life. Material flows information can thus allow for the development of effective strategies for preventing the widespread release of arsenic into the environment. These simple examples demonstrate that such data can inform a vari- ety of decision makers, but to be most useful the material flows data should be systematically organized into accounts. Material flows accounts track the movement of matter into and out of a system of interest, using methodically organized accounts and denoting the total amounts that re- main for a defined period to create a stock. When material flows are orga- nized into accounts, they are in some senses similar to financial accounts, a routine part of the business of corporations, government, and organiza- tions of all kinds. Financial accounts include such information as the bal- ance between revenue and expenses, cash flow, reserves, and competitive financial position. National and international agreements define the terms used in financial reports, the procedures for reporting, provisions for au- diting, and so forth. Decision makers rely on this information so heavily that our modern world is essentially unthinkable without it. As with fi- nancial accounts, material flows accounts include inputs, outputs, and accumulations in stocks and could, if implemented, become critical for planning and decision making. Because of the potential of material flows accounting for public policy making, the National Research Council was commissioned by the Depart- ment of Energy, U.S. Environmental Protection Agency, National Science Foundation, and U.S. Geological Survey to establish a Committee on Ma- terial Flows Accounting of Natural Resources, Products, and Residuals to undertake a study to address material flows accounting issues. The com- mittee was asked to do the following: Examine the usefulness of creating and maintaining material flows accounts for developing sound public policy on the environment, materi- als, and energy. Evaluate the technical basis for materials flows analysis. Assess the current state of material flows information, including what data are collected, where they reside, quality, scale, and complete- ness of the data; formats; accessibility; and the tools and methods avail- able for analyzing the data. Describe how the public and private sectors are currently using

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EXECUTIVE SUMMARY 3 this information and how material flows accounts can be improved through partnerships or access to additional data. Determine who should have institutional responsibility for collect- ing, maintaining, and providing access to additional data for material flows accounts. The committee did not undertake a cost-benefit analysis when con- sidering the usefulness of creating and maintaining material flows ac- counts. However, the committee did look qualitatively at the cost impact of several implementation options and the recommendations in general. USES AND USEFULNESS In a material flows account, the entries refer to exchange of quantities of a specific material rather than to monetary exchanges. If multiple mate- rials are involved, a separate account is established for each material. A manufacturer of power cables, for example, would have accounts for the copper that conducts electricity and for the polymer that encases the cop- per. A country would generate data, for example, for lead that is mined, processed, exported, discarded, and recycled. As with financial accounts, which are used to construct economic input-output tables and provide information on economic linkages throughout the economy, material flows accounts may be used to construct physical input-output tables that describe material linkages. Material flows databases and analyses are already well established in a variety of U.S. government agencies. Material flows analyses at the pro- cessing plant, corporate, and national levels are also being done by pri- vate organizations. The committee concludes that analyses using materialilows data have already proven useful. However, the data are not being used as effectively as they could be if there were a consistent framework and sys- tem to collect, analyze, and distribute the information routinely and to link data at various levels. Material flows accounts are new enough that their potential value is not yet universally appreciated or even comprehensively demonstrated. Their utility has been amply demonstrated in a number of case studies, however. The committee notes that the existence of a formal economy- wide material flows accounting system and of a national physical input- output table would likely provide a range of benefits, including the fol- lowing: Federal and state agencies would gain better information on the sources and uses of the mineral and renewable resources within their re- sponsibilities.

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4 MATERIALS COUNT In the pursuit of continuous improvement of economic and envi- ronmental performances, corporations would have better information on current and potential supplies of the materials they use, on potential posi- tive and negative environmental impacts of the materials, and on substi- tutes they could use to supplant undesirable materials in their systems and processes. Users of the material accounts would be able to track sources, flows, and dispositions of materials to determine more effective strategies for improving environmental and economic performances as well as effi- ciency of resource use. National security strategists would have better data on the sources of materials critical to the U.S. economy and to national security from energy materials, to rare metals, to widely used material resources. The committee concludes that the establishment of material flows accounts and their use in analyses will improve public policy making. Proper accounting requires the use of a standardized structure and specified principles. Therefore, the committee recommends that a structured material flows accounting framework that can accept and integrate existing and future data be established. MATERIAL FLOWS INFORMATION IN THE UNITED STATES Even though the United States has no organization or agency that is mandated to gather information and construct comprehensive material flows accounts, there are many sources of data on material flows. A num- ber of federal agencies (U.S. Geological Survey, Environmental Protection Agency, Department of Energy, and Department of Agriculture) gather material flows data relevant to their organizational missions and respon- sibilities. Although the data are not coordinated or integrated for analysis or public policy-making purposes and are not adequate to construct ma- terial flows accounts, the data could be used to begin populating national material flows accounts. The committee recognizes that the present state of information at the federal level is useful to the agencies that collect it, but is inadequate to construct comprehensive material flows accounts. The committee concludes that there are some good sources of data relevant to materialilows, but the data are not yet adequate to populateformal materialilows accounts. The committee further concludes that these inadequacies impede the development of sound public policy and business decisions. The committee rec- ommends that a national-level effort be initiated to identify and fill significant data gaps that presently impede the development of effec- tive material flows accounts. Integration and modest supplementation of existing data acquisition programs are thus extremely valuable.

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EXECUTIVE SUMMARY 5 RESEARCH CHALLENGES FOR MATERIAL FLOWS ACCOUNTING The early development of material flows accounts will raise impor- tant issues concerning the scope of the accounts, the data in them, and the tools and analytical approaches to studying stocks and flows. Many areas of potential utility (that is, of the assessments that follow from studies based on information in accounts) also remain to be fully explored. These important issues include spatially discrete measurements (potentially im- portant for considerations of materials reuse), dynamic assessments (flows over time), multilevel assessments (e.g., how state-level material flows accounts are related to national material flows accounts), and culturally related assessments (e.g., how changes in population diversity will be re- flected in materials use). Working together, government agencies, the industrial sector, re- searchers, and other users of the data will have to capture the issues that arise during the development and use of material flows accounts, which will require further research for solution or better understanding. Indeed, with financial accounting as a model, it appears virtually impossible to contemplate a material flows accounting program that does not include research activities. The committee concludes that a comprehensive material JqOWS accounting program requires a research component that explores tools and analytical approaches to studying stocks andilows that vary over space and time, that treat multiple organizational levels, and that explores the complexities and benefits of cycles linked by nature, by technology, or by a combination of the two. The committee recommends that relevant government agencies support research related to material flows accounting. IMPLEMENTATION STRATEGY A successful implementation strategy for material flows accounting will be the key to its effective use in public policy making. An important element of the strategy would be the nature of the organization and its functionality. Clearly stating the mission and specifying the anticipated goals of the material flows accounting organization will be a necessary first step. An example, based in part on the European Union mission (Eurostat, 2001) statement follows: The mission of the Material Flows Accounting Office [organization] is to develop and maintain a common database system that will provide ma- terial flows information, which can be integrated into analyses of physi- cal and economic systems, thereby permitting more robust public policy decision-making.

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6 MATERIALS COUNT Although falling short of creating purposeful national material flows accounts, the United States possesses numerous databases, accounting based and statistical in nature, that could support the development of such accounts. Any movement toward the creation of material flows ac- counts requires that these data be available for incorporation. A success- ful implementation strategy for material flows accounting will be the key to its effective use in public policy making. The committee concludes that the present level of data collection and analysis must be maintained as an essential foundation for initial development of struc- tured materialflows accounts. The committee recommends that the present material flows data activities of the federal government, including those in the U.S. Geological Survey, U.S. Environmental Protection Agency, and Departments of Commerce and Agriculture, be maintained at least at their current levels of activity. Budgetary support must be sufficient to allow the activities to continue at levels that will maintain the integrity of the present databases. Sufficient resources must be available to replace retiring personnel and to maintain the staffing levels. If a decision is made to establish a system of national material flows accounts, staffing levels in existing agencies would likely have to be enhanced to support the effort. For the entire system of material flows accounts, analyses, and link- ages to achieve success, it is important that a broad range of stakeholder experts be involved in the process to prioritize the incorporation of suc- cessive data. The material flows accounting effort must be supported by a core group of government representatives from agencies that assemble the primary and other data. Further, the material flows accounting pro- cess must be institutionalized through a core team comprised of interdis- ciplinary experts. A well-conceived and well-executed material flows account should be multidimensional, requiring inputs from many sources, appropriate data management, and careful quality control of input data and analytical methods. Formal material flows accounting can be quite complicated, and an important aspect concerns the precision of the data and the accuracy of account results. Flawed or inadequate material flows accounts may lead to inappropriate decisions and actions. As such, it is crucial that material flows accounting activities be highly participatory and collaborative among parties with appropriate material flows accounting expertise, rel- evant process knowledge, and familiarity with the appropriate data sets. Participants as partners in material flows accounting activities are important to the quality of accounting products. The quality is enhanced when partners are knowledgeable and actively engaged in the Process ~ ., 1 e 1 1 ~ 1 1 ~ 1 r~1 ' and their legitimate concerns are appreciated and respected. l he commlt- tee concludes that partnerships are critical to developing and maintaining mate- rial flows accounts. The most effective partnerships are those based on

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EXECUTIVE SUMMARY stable, trusting relationships established over time, where all gain from the compiled information, and that such partnerships are critical to the success of material flows accounting. The committee recommends that any process for developing material flows accounts be based on a part- nership approach. Partnerships among all relevant stakeholder groups (e.g., government agencies, industry, and nongovernmental organiza- tions) should be encouraged, with strong leadership, representation ap- propriate to the material flows accounts under consideration, active par- ticipation in the accounting activity, and regard for each participant's motivations and incentives for participating. The committee recommends that the system be designed to allow for the inclusion of proprietary data, while protecting business confidentiality. Data in the material flows accounts should be available to the greatest extent feasible, unless proprietary issues demand otherwise. The committee notes that formidable work will be required in design- ing a robust system of material flows accounts. Having examined several options, the committee concludes that an independent organization is the most likely option to ensure success of materialilows accounting in the United States. The committee believes that it will help the partnership process if the organization is separate from existing data providers. Accordingly, the committee recommends that an independent organization, comprised of interdisciplinary experts, be created and funded through a formal process. The organization may be formed through creation of a partner- ship-based consortium of industry, government, academia, and other committed stakeholders; a competitive solicitation; or some other process. The establishment of material flows accounts and their use in mate- rial flows analyses will improve public policy making. Ultimately, the ac- counts and analyses using them can be coupled with economic, quality- of-life, and environmental information to give integrated-impact input on public policy. Much of the progress in this arena will stem from ongoing research, which will run concurrently with the development of material flows accounts. The strategy for successful implementation of material flows accounts is important to ensure downstream successes in using them. By using a partnership approach, the accounts and their uses would be enhanced, and through this enhancement, linkages with other databases on the economy, the environment, and social and cultural information could lead to the type of holistic public policy making necessary for a progressively more complex society.

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8 MATERIALS COUNT confidentiality. Data in the material flows accounts should be available to the greatest extent feasible, unless proprietary issues demand otherwise. The committee notes that formidable work will be required in designing a robust system of material flows accounts. Having examined" several options, the committee concludes that , .1 . '.' ~ .. an independent organization is tne most Very option to ensure success of materialflows accounting in the United States. The committee believes that it will help the partnership process if the organization is separate from existing data providers. Accordingly, the committee recommends that an independent organization, comprised of interdisciplinary experts, be created and funded through a formal process. The organization may be formed through creation of a partnership-based consortium of industry, government, academia, and other committed stakeholders; a competitive solicitation; or some other process. The establishment of material flows accounts and their use in material flows analyses will improve public policy making. Ultimately, the accounts and analyses using them can be coupled with economic, quaTity-of-life, and environmental information to give integrated-impact input on public policy. Much of the progress in this arena will stem from ongoing research, which will run concurrently with the development of material flows accounts. The strategy for successful implementation of material flows accounts is important to ensure downstream successes in using them. By using a partnership approach, the accounts and their uses would be enhanced, ant! through this enhancement, linkages with other databases on the economy, the environment, and social and cultural information could lead to the type of holistic public policy making necessary for a progressively more complex society. PRE-PUBLICATION VERSION, SUBJECT TO EDITORIAL CHANGES