The Greening of Industrial Ecosystems. 1994.

Pp. 61-68. Washington, DC:

National Academy Press.

Input-Output Analysis and Industrial Ecology

FAYE DUCHIN

Elsewhere I have shown how input-output techniques could provide quantitative answers to the kinds of questions raised by industrial ecology (Duchin, 1992; see also Duchin, 1990); a numerical example illustrated how both money costs and levels of pollution would be affected by alternative technological or organizational decisions. Input-output techniques are the formalization of a more general theory about how a modern economy works, a theory I call structural economics to distinguish it from the contemporary mainstream, or neoclassical, economics.

Structural economics emphasizes the representation of stocks and flows, measured in physical units, as well as associated costs and prices where these are relevant. The variables representing such physical measures (like tons of steel or tons of carbon emissions), unlike variables that are essentially symbolic or index numbers, provide a direct link to technology and to the physical world with which industrial ecology is concerned. Highest importance is placed on this data base; and the subsequent analysis directly exploits its empirical content rather than relying exclusively on its formal manipulation. The data are developed using technical expertise and practical experience as well as experimental results, technical records, and accounting information.

Structural economics makes little use of idealized abstractions like an equilibrium state of the economy. The powerful concept of optimization is used for analyzing certain types of outcomes (for example, choosing the low-cost technology among several alternatives) but is not relied on as a general solution mechanism. While the computation of "local" optima is often useful, the concept of a maximum value for global "social welfare" (for example) is simply not operational. Neoclassical economics, by contrast, does rely in all instances on the com-



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The Greening of Industrial Ecosystems The Greening of Industrial Ecosystems. 1994. Pp. 61-68. Washington, DC: National Academy Press. Input-Output Analysis and Industrial Ecology FAYE DUCHIN Elsewhere I have shown how input-output techniques could provide quantitative answers to the kinds of questions raised by industrial ecology (Duchin, 1992; see also Duchin, 1990); a numerical example illustrated how both money costs and levels of pollution would be affected by alternative technological or organizational decisions. Input-output techniques are the formalization of a more general theory about how a modern economy works, a theory I call structural economics to distinguish it from the contemporary mainstream, or neoclassical, economics. Structural economics emphasizes the representation of stocks and flows, measured in physical units, as well as associated costs and prices where these are relevant. The variables representing such physical measures (like tons of steel or tons of carbon emissions), unlike variables that are essentially symbolic or index numbers, provide a direct link to technology and to the physical world with which industrial ecology is concerned. Highest importance is placed on this data base; and the subsequent analysis directly exploits its empirical content rather than relying exclusively on its formal manipulation. The data are developed using technical expertise and practical experience as well as experimental results, technical records, and accounting information. Structural economics makes little use of idealized abstractions like an equilibrium state of the economy. The powerful concept of optimization is used for analyzing certain types of outcomes (for example, choosing the low-cost technology among several alternatives) but is not relied on as a general solution mechanism. While the computation of "local" optima is often useful, the concept of a maximum value for global "social welfare" (for example) is simply not operational. Neoclassical economics, by contrast, does rely in all instances on the com-

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The Greening of Industrial Ecosystems bined concepts of equilibrium and optimization. This practice has the advantage of producing unique solutions to complex problems but at too high a price: it precludes the consideration of many alternatives that industrial ecologists will want to investigate, alternatives that society may in fact deem more desirable than those that may satisfy the short-term maximization of a single, vaguely defined criterion. Structural economics is an incomplete theory; this is a difficult status for an economist to defend because practicing economists have come to depend on a complete, although not always operational, conceptual and analytic framework. We choose, however, not to use a high level of abstraction as a mechanism to "complete" the theory. Instead, our models are "open," making use of exogenous information such as technological projections that are provided by engineers and other technical experts rather than being derived through the use of mathematical equations that describe idealized economic mechanisms. Through our work, my colleagues and I are trying to provide a systematic and operational description of structural economics as an economist's contribution to such new fields as industrial ecology, ecological economics, or the study of global change. This is necessary because I believe that economics needs to undergo, and will undergo, profound transformation not only in theory, but especially in scope and in methodology, as the next generation of economists attempts to understand and resolve environmental problems. The scope of the field is important because it delimits the questions that can be addressed, while the methodology determines the mathematics that will represent the theoretical propositions and the strategy for collecting and using information to implement the mathematical model and help interpret the numerical results. Industrial ecologists will come from many backgrounds and most cannot afford to be intimately involved in the transformation of other fields such as economics while trying to build their own field. For example, the proliferation of terms used here (input-output analysis, structural economics, neoclassical economics, and ecological economics) is essential for the process of sorting out and building within economics but cannot be allowed to become a jargon that fragments our common efforts. 1 In view of these considerations, I will focus my remaining comments on two related areas of scope and methodology that are of great importance both for structural economics and for industrial ecology. These are (1) the questions that we need to address and (2) the role of case studies. THE QUESTIONS TO BE ADDRESSED My colleagues and I have recently completed a quantitative analysis of strategies for sustainable development over the next several decades for the UN Conference on Environment and Development (UNCED) using an input-output model and data base of the world economy (Duchin et al., 1994). We have focused on the use of energy to promote development and on the associated emissions of

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The Greening of Industrial Ecosystems carbon dioxide and oxides of sulfur and nitrogen. Our results show that if moderate economic development objectives are achieved in the developing countries over the next several decades, the geographic locus of emissions will continue its historic shift from the rich to the poor economies while total emissions of the principal global pollutants will increase significantly. This is true even under optimistic assumptions about pollution reduction and controls through the accelerated adoption of modem, commercially proven technologies in both rich and poor countries. Tables summarizing some of these results are shown in the Appendix. The first type of question we need to ask is, What can be done? I conclude that significant changes in production and consumption practices and technologies are required if emissions are to be held at current levels, not to mention reduced. Consequently, industrial ecology and Design for Environment (DFE) will need to go far beyond what is generally understood as pollution prevention and explore the potential for dramatic reductions in overall use of fossil fuels. This, and near-zero net emissions of long-lived toxic chemical compounds, are the objectives laid out by Robert Ayres (1991, pp. 22-23); a possible long-term energy scenario, with a thoughtful description of the transition to it, was described by Rogner (1993) at a recent meeting of mainly European and Japanese analysts. I also conclude from this work (and from a project in which we posed similar questions in the context of the Indonesian economy)that many of the challenges to DFE in the developing countries are very different from those in the developed economies and, from a global point of view, even more crucial to resolve. Many of these problems are related to water, soil, agriculture, forestry, fisheries, and wildlife rather than manufacturing; it is clear that industrial ecology cannot afford to ignore them (see Ayres, 1991, pp. 22-23). Industrial ecology concepts provide powerful building blocks for developing global or national economic strategies. The constituency for this work is being built at the present time. Industrial ecology also has to, and can, respond to other kinds of imperatives in order to maintain the broad base of support that will be needed to ensure its success; for example, a great deal of the work will need to focus on improving the short-term profitability of the individual corporations where product development and production actually take place. In attempting to resolve both the strategic and the tactical problems associated with the choice of product and technology from both economic and environmental points of view, some industrial ecology analysts will want to collaborate intimately with input-output analysts because our models can be a powerful tool for addressing a second type of question: What are the economic and environmental implications of each alternative strategy? Input-output models can be viewed as a very general form of benefit-cost analysis, The latter has typically been applied only to individual projects and requires many economic assumptions (about equilibrium, optimality, and "consumer surplus," for example) that the industrial ecology analyst may not wish to

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The Greening of Industrial Ecosystems make. The modem dynamic input-output model can evaluate not only the costs but also the potential contributions to reducing the volume of pollution for each strategy to improve current industrial practices while capturing the simultaneous effects on many sectors of the economy over a period of several decades. In early work along these lines, input-output models have already been used to compare the economic implications of alternative technological choices facing individual sectors of the economy (see Duchin and Lange, 1992, 1993). These models provide the framework for evaluating industrial ecology case studies in an economy-wide context. The work of industrial ecology analysts, in turn, is needed to provide the substantive input for the input-output analyses that until now have been developed with minimal benefit from this kind of technical expertise. In this way the combination of industrial ecology and structural economics can be used to provide a realistic basis for pollution reduction and private benefit, as well as to identify the need for action by other parties, including the government.2 CASE STUDIES There is an enormous overlap between the technical case studies required by the DFE analyst and the input-output analyst. Common methodology needs to be developed to ensure that such studies meet the technical standards and analytic requirements of both communities. For the UNCED project mentioned above, case studies were carried out at the Institute for Economics Analysis for the following areas, which were chosen for their intensive use of energy: electricity generation, industrial energy conservation, household energy use, motor vehicle transportation, metal fabrication and processing, construction and its major material inputs, paper, and chemicals (Duchin et al., 1994, chapters 6-15). For each, we inventoried the techniques in use in each region of the world economy and those that might be adopted over the next several decades. A quantitative description of these techniques was incorporated into the data base. Unfortunately, however, these case studies are uneven in coverage and depth and depended on the technical literature more than on first-hand knowledge and experience. The engineering community also has a conceptual framework for describing an entire production process (see, for example, Friedlander, in this volume) and criteria for selecting activities that could benefit from more intensive investigation. Often, however, these studies make minimal use of economic criteria or of any considerations outside of the industry in question. A powerful interdisciplinary research agenda can be realized if DFE case studies are carried out as part of a collaboration between structural economists and industrial ecologists. The perspective and tools of structural economics permit us to identify areas where new case studies may be crucial from the points of view of economic development and alleviation of environmental problems, and to analyze their implications. The production and use of fuels and feedstocks of biological origin in

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The Greening of Industrial Ecosystems temperate and tropical climates would be an ambitious and important case study. Another important area is the production and use of convenient, efficient equipment for public transportation. The industrial ecologist is likely to start from a different ordering of priorities. The collaboration Could prove fruitful in identifying areas for action that can satisfy the requirements of a relatively broad constituency, in quantifying the description of the inputs and outputs associated with alternative processes that might be adopted, and in providing a quantitative assessment of the economic and environmental implications of moving in these directions. NOTES 1.   Of course, industrial ecology also has sorting out to do Of concepts like industrial metabolism, industrial ecology, design for environment, life cycle analysis, and ecological engineering. 2.   Quality of information and the uncertainty and risks associated with drawing conclusions on the basis of these kinds of estimates and projections need to be taken explicitly into account. An excellent discussion of these issues is found in (Funtowicz and Ravetz, 1990). REFERENCES Ayres, Robert U. 1991. Eco-restructuring: Managing the transition to an ecologically sustainable economy. Carnegie-Mellon University, June, unpublished paper. Duchin, Faye. 1990. The conversion of biological materials and wastes to useful products. Structural Change and Economic Dynamics 1(2):243-261. Duchin, Faye. 1992. Industrial input-output analysis: Implications for industrial ecology. Proceedings of the National Academy of Sciences 89:851-855. Duchin, Faye, and Glenn-Marie Lange. 1992. Technological choices, prices, and their implications for the U.S. economy, 1963-2000. Economic Systems Research 4(1):53-76. Duchin, Faye, and Glenn-Marie Lange. 1993. The choice of technology and associated changes in prices in the U.S. economy. Submitted to Structural Change and Economic Dynamics. Duchin, Faye, and Glenn-Marie Lange, with Knut Thonstad and Annemarth Idenburg. 1994. Ecological Economics, Technology and the Future of the World Environment. New York: Oxford University Press. Funtowicz, Silvio O., and Jerome R. Ravetz. 1990. Uncertainty and Quality in Science for Policy. The Netherlands: Kluwer Academic Publishers. McCormick, L. 1985. Acid Earth. Washington, D.C.: International Institute for Environment. Rogner, Hans-Holger. 1993. Global energy futures: The long-term perspective for eco-restructuring. Text of presentation at United Nations University Symposium on Eco-restructuring, Tokyo, July. World Commission on Environment and Development. 1987. Our Common Future. New York: Oxford University Press.

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The Greening of Industrial Ecosystems APPENDIX This appendix contains two tables of results, discussed briefly in the text of the paper, obtained in an analysis using an input-output model and data base of the world economy. Table 1 shows the emissions of carbon dioxide and oxides of sulfur and carbon, for the period 1980 through 2020, under a scenario that assumes moderate economic growth in the developing countries, modest growth in the rich countries, and the rapid adoption in all countries of technologies that reduce emissions in part by economizing on energy and materials. The scenario, described in detail in Duchin and Lange (1992), is based on the kinds of assumptions that are described in the Brundtland Report, Our Common Future (World Commission on Environment and Development, 1987). While the analysis was carried out on the basis of 16 geographic regions, the results in Table 1 are presented on a more aggregated basis. Projections for the future can be compared only with projections made by others, but for past years the technical literature contains more direct measures and estimates. The sulfur emissions reported in the first table for 1980 are compared in Table 2, on a 16-region basis, with the results of many other studies that are reported in two surveys. This table illustrates two main points. First, by using the input-output case study methodology, it is possible to build a comprehensive data base from the bottom up based on technical assumptions. Only in this way are we able to arrive at an estimate for worldwide emissions of sulfur (in the last column of the table). Second, the input-output methodology is sufficiently explicit about underlying assumptions that one can analyze the reasons for major discrepancies between the World Model results and other results. The greatest discrepancies reported in Table 2 are with the official estimates of sulfur emissions in the former Soviet Union and in Eastern Europe. In the first case, an independent estimate by another researcher is very close to ours. In both cases, it is safe to conclude that the official estimates are unrealistically low.

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The Greening of Industrial Ecosystems TABLE 1 Regional Distribution of Emissions of Carbon Dioxide, Sulfur Oxides, and Nitrogen Oxides in 1980 through 2020 a. Carbon Dioxide (106 metric tons)   1980 1990 2000 2010 2020 Rich, Developed Economies 0.55 0.50 0.43 0.38 0.34 Newly Industrializing Economies 0.05 0.06 0.08 0.09 0.10 Other Developing Economies 0.14 0.21 0.27 0.32 0.36 Eastern Europe and Former USSR 0.26 0.23 0.21 0.21 0.20 World Total 1.00 1.00 1.00 1.00 1.00 World Total (levels) 4,730 5,632 7,001 8,173 9,718 b. Sulfur Oxides (106 metric tons of SO2 equivalent)   1980 1990 2000 2010 2020 Rich, Developed Economies 0.41 0.36 0.31 0.28 0.25 Newly Industrializing Economies 0.04 0.06 0.09 0.10 0.13 Other Developing Economies 0.15 0.23 0.29 0.34 0.38 Eastern Europe and Former USSR 0.40 0.35 0.31 0.28 0.24 World Total 1.00 1.00 1.00 1.00 1.00 World Total (levels) 125.0 127.3 140.8 147.3 157.2 c. Nitrogen Oxides (106 metric tons of NO2 equivalent)   1980 1990 2000 2010 2020 Rich, Developed Economies 0.51 0.45 0.38 0.33 0.27 Newly Industrializing Economies 0.07 0.08 0.11 0.13 0.15 Other Developing Economies 0.14 0.21 0.27 0.31 0.36 Eastern Europe and Former USSR 0.28 0.26 0.24 0.23 0.22 World Total 1.00 1.00 1.00 1.00 1.00 World Total (levels) 69.0 78.2 96.6 113.7 135.8 NOTE: See text for a description Of the underlying assumptions. SOURCE: Duchin et al. (1994).

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The Greening of Industrial Ecosystems TABLE 2 Estimates of Sulfur Oxide Emissions from Fossil Fuel Combustion by Region in 1980 According to Three Sources     (106 tons of SO2)       Region UNEP/WHO UN/ECE Combined World Modela 1 High-Income North America 27.81b 27.85b   23.97 2 Newly Industrializing Latin America na na   4.20 3 Other Latin America na na   1.00 4 High-Income Western Europe 18.24 13.52 18.44 15.80 5 Medium-Income Western Europe 4.46 3.92 5.45 6.40 6 Eastern Europe 12.57 8.83 14.07 25.70 7 Former USSR na 12.80   23.80       25.00c     8 Centrally Planned Asia 14.21 na   13.66 9 Japan 1.64 1.26   1.60 10 Newly Industrializing Asia na na   2.00 11 Low-Income Asia 2.23 na   2.44 12 Major Oil Producers 0.20 na   0.84 13 Other Middle East and North Africa 0.29 na   0.73 14 Sub-Saharan Africa na na   0.33 15 Southern Africa na na   2.04 16 Oceania 1.48 na   1.47 NOTES: na = not available. 1. The UNEP/WHO and UN/ECE estimates often do not cover all countries in each region. The coverage of activities is not uniform. Some countries, notably the United States, include industrial emissions from sources other than combustion. 2. Three regions are covered by both sources but with significant geographic gaps. In the column called ''combined" we have aggregated the emissions for countries reported in only one of the sources and the higher of the two estimates, so as to include more economic activities, for countries included in both. a Corresponds to figures in the first column of panel b in Table 1. b Includes emissions from activities other than combustion. c Obtained from McCormick (1985). SOURCES: Duchin et al. (1994) based on: UN Environment Program (UNEP) and World Health Organization (WHO), 1988, Assessment of Urban Quality, p. 90, New York: UN; UN Statistical Commission and the Economic Commission for Europe (ECE), 1987, National Strategies and Policies for Air Pollution Abatement, Table I-15, New York: UN; McCormick, J. 1985, Acid Earth. Washington, D.C.: International Institute for Environment.