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3 Broad Context for Material and Energy Flows Information he benefits of material flows accounting are more understandable if the historical and current context is clear. At the end of the nine- teenth century, the United States economy was based primarily on agriculture, extractive industries, and manufacturing (Figure 1.1~. Since then, developed economies have evolved to become primarily service economies. Although the overall shift of employment and revenue gen- eration has been from the agricultural and extractive industries to the ser- vice sector, the overall scope of manufacturing activity has not declined significantly. This is especially true in the global economy, with manufac- turing shifting to developing economies over time and expanding because of growth in global economic activity. Service economies partially decouple material consumption from rev- enue generation, in the sense that total material requirements per unit gross domestic product decline in countries such as the United States as the economy evolves (Figure 3.1~. However, such economies do not de- materialize completely. Every service whether a fast food restaurant, a medical treatment, a retail store, or the Internet requires a physical plat- form based on the use of materials and energy. Thus, although the pat- terns of materials use become much more complex in service-oriented economies, materials of all kinds remain foundational to economic evolu- tion and the quality of life (Sidebar 3.1~. GLOBALIZATION OF THE ECONOMY The international political structure also has an effect on material flows and it has been evolving as well. The relative simplicity of interna- 33

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34 120 - 1 1 0 - 100 - 11 90- a) 80 - 70 - 60 1 1 1 1 1975 1978 1981 1984 1987 1990 1993 MATERIALS COUNT (5 yr. average) Germany Japan Netherlands - - - - United States FIGURE 3.1 Overall material intensity (total material requirements per gross do- mestic product) index. SOURCE: Adriaanse et al., 1997. Copyright permission granted by World Resources Institute. tional governance systems dominated by nation-states has given way to much more complicated networks of power, particularly in areas such as trade, human rights, and environment. The result has been a shift toward a more complex structure, including not just nation-states, but also multi- national firms, nongovernmental organizations of all types, and commu- nities, both traditional and, increasingly, based in cyberspace. This devel- opment has had several important implications for material use patterns. First, it increases the number of issues and stakeholders associated with material extraction, processing, and management. Whereas a mining firm previously had to deal only with the national government in a developing country where it operated for example, it may now find itself negotiating with local communities and developed-country human rights and envi- ronmental campaigners. Second, global markets may be affected by non- governmental organizations' campaigns regarding a company's manage- ment of its products and waste streams in jurisdictions around the world. Many nongovernmental organizations focus on a "single issue." Thus, they may be concerned about only one dimension of corporate perfor- mance and ignore the economics of material extraction, processing, and management. The potential for adversarial relationships and conflict in- creases as the number of stakeholders increases. Material flows accounts cannot resolve the confusion of a more complex governance system, but they can help decrease the potential and scope for such conflict by provid- ing an objective basis for dialogue.

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BROAD CONTEXT FOR MATERIAL AND ENERGY FLOW INFORMATION 35 These trends illustrate the globalization of economic activity, which itself creates important needs for material flows accounts. Globalization is the process by which systems previously described by national or regional boundaries have become globally coupled and interconnected, creating more complexity. The implications of globalization for materials are sig- nificant. Most obviously for the United States, its complex economy has grown to rely heavily on material imports. The United States imports 100 percent of several commodities and significant proportions of other criti- cal materials (Figure 1.2~. These patterns of material use clearly suggest that any materials accounting methodology should extend beyond na- tional boundaries to be truly systemic and ensure the capture of impor- tant information. Such material source data could, for example, indicate

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36 MATERIALS COUNT to firms or countries that, although absolute physical scarcity of a particu- lar material is unlikely to be a short-term economic problem, the availabil- ity of important materials may be compromised by political or institu- tional factors. This should not be surprising: in terms of commodities from food to fuel to materials of various kinds history indicates that shortages most often arise from institutional deficiencies and factors, rather than absolute scarcity. A classic example is the availability of minerals, where a particu- lar mineral becomes scarce cyclically as the selling price and margin vary over time. With a higher price, the margin grows and so does exploration to expand reserves of the minerals and increase its availability. Thus, an important function of materials and energy information for firms and so- ciety as a whole is to provide the foundational data upon which material security and availability studies may be based (including, for example, identification of potential substitutes for materials controlled by possibly hostile governments). One of the reasons that DuPont uses material flows analysis is to avoid being significantly impacted by a supplier crisis (see Chapter 4) (! Carberry, DuPont, personal communication, 2002~. In this sense, material flows accounts are important mechanisms supporting the economic resiliency of firms and of the U.S. economy as a whole. SUSTAINABLE DEVELOPMENT There are social trends that are just as broad as the evolution of the service economy and that also urge the need for material flows accounts. Most obvious, perhaps, is the concept of sustainable development. This idea was brought to the world's attention by the World Commission on Environment and Development, also known as the Brundtland Commis- sion, in 1987 in its report Our Common Future (World Commission on En- vironment and Development, 1987~. There it was defined as "develop- ment that meets the needs of the present without compromising the ability of future generations to meet their own needs." It represents an effort to integrate economic development with stewardship of natural resources, quality of the environment, and human equity, especially the right of poor countries to develop. Recent discussions in the United States, the Organi- zation for Economic Cooperation and Development, the World Bank, and elsewhere relate sustainability to the maintenance or improvement of stocks of various forms of capital such as built infrastructure and facili- ties, productive capital, natural resources, and the quality of the environ- ment. The idea of sustainability is important in many policy, environmen- tal, and scientific communities. The value of material and energy flows information for supporting and adding substance to studies of sustain- ability across broad areas of economic activity is apparent. Indeed, it is

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BROAD CONTEXT FOR MATERIAL AND ENERGY FLOW INFORMATION 37 difficult to see how any reasoned discussion of sustainability can take place in the absence of information regarding the stocks and flows of materials and energy within economies and natural systems. Importantly, as sustainability issues are addressed in the future, the full cost accounting of policy options should be considered, and material flows accounting, coupled with various derived indicators, will give insight on the impact of the options. Some policy makers indeed believe that the market will not operate correctly and sustainability will not be achieved until full cost accounting is achieved. TECHNOLOGY EVOLUTION As the above factors indicate, the modern world is far more complex than that of the late nineteenth century, when the United States first be- gan gathering material flows data. Rates of change of technologies, indus- trial sectors, and economic structures are, if anything, increasing partially as a result of the autocatalytic effect of technological evolution. Such com- plexity obviously poses challenges to material and energy flows analysis methodologies how, for example, should material flows data systems be designed to ensure that they are both up-to-date and reflective of tech- nological evolution as it occurs? It also emphasizes the need for struc- tured accounts for material and energy data, so that basic patterns of ma- terial and energy production, consumption, and disposal can be identified; the changes in those patterns tracked as technology changes; and that in- formation, in turn, provided to numerous stakeholders from corpora- tions to nongovernmental organizations and governments to inform and improve their decisions. BIOGEOCHEMICAL CYCLES More broadly, as a result of the Industrial Revolution and consequent technological, economic, and demographic evolution, the dynamics of most natural systems, such as the carbon and nitrogen cycles, the climate and hydrological cycles, and biological systems at many scales, are now increasingly impacted by human activity. Continued economic progress and stability of these human and natural systems will require the ability to better and more rationally engineer and manage them in a highly inte- grated fashion. It is apparent that rational action in such a complex envi- ronment, characterized by highly integrated and convolving human and natural systems, requires a basic knowledge of the material patterns that underlie it. Without such knowledge it would be impossible to under- stand what the economic, social, and environmental impacts of various choices may be. This observation has methodological implications as well.

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38 MATERIALS COUNT Most importantly, material and energy cannot in such a world be limited just to "human" or "natural" components of stocks and flows; they should encompass both. Moreover, beyond materials of economic interest to hu- mans, material flows accounts should also embrace material systems that are perceived to be "non-human" especially the four so-called grand cycles: nitrogen, carbon, sulfur, and phosphorus. The connection among traditional ecology, industrial ecology, and material flows provides opportunities for holistic analyses of interactions that could lead to better public policy making, founded on strong multidisciplinary research and studies. Ecology is built on the premise that everything is connected to everything else. The biologist who ignores the connection between ecology and material flows is as short-sighted as the engineer that misses the connection. For example, the degradation of air, land, and water resources will never be fully understood or reversed unless the flow of materials impacting them is well understood, in both quantity and composition. Discovering and addressing the underlying cause of the decline of stratospheric ozone, for example, required an un- derstanding of material flows. Limiting the exposure of children to lead required material flows analysis. Ultimately, addressing the solid waste problem will be dependent upon a much better understanding of material flows. Thus, public policy making based on linkages among material flows information with biological and physical information can be more robust and must necessarily be founded on multidisciplinary research in this area. SUMMARY The changing nature of economies, the complexity of products and services, the global nature of markets, the increasing human impact on natural cycles, and the international political structure have heavily im- pacted the magnitude and flows of materials, which have been evolving in complexity as well. These developments have had several important implications for material use patterns and have increased the number of issues and stakeholders. Moreover, the United States is dependent on other countries for 100 percent of several commodities and significant pro- portions of other critical materials. One potential important use of mate- rial flows accounting, therefore, is the identification of potential substi- tutes or the creation of stockpiles for materials controlled by possibly hostile governments. The idea of sustainability is important in many policy, environmen- tal, and scientific communities. Material and energy flows information is important for supporting and adding substance to studies of sustainability across broad areas of economic activity.