EMEA3: InputOutput Models

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EMEA3 Input-Output Models

• Economic input-output models
• Environmental input-output models
• Coupled input-output models
• Life cycle analysis
• IO models are accounting truisms, devoid of
  theory, yet useful in selected applications

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Input-Output Models

• Consider a three sector economy, with
  agriculture, industry, households
• The output of each sector is partly used by the
  sector itself, and partly delivered to the other
  sectors
• These intermediate (industry to industry) and
  final (industry to households) deliveries can be
  written down as a matrix, known as the
  input-output table

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An Input-Output Table
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Input-Output Models -2

• Call the elements xij where i is the producer and
  j is the consumer
• The input coefficients follow from dividing the
  input to a sector by the output from that sector
• The output coefficients follow from dividing the
  outputs of a sector by the total output from that
  sector

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Input Coefficients
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Output Coefficients
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Input-Output Models -3

• So far, we have measured everything in their
  natural units. We can also do this in money. If
  the market is in equilibrium, then
• Or, in matrix notation
• Solving this, we get

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Input-Output with Money
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Input-Output Models -4

• In matrix notation
• L is the Leontief inverse, it measures how
  changes in final demand alter production and
  intermediary inputs
• How can this be extended to include environment
  and resources?

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Common and Salma, 1992
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Environmental IO Models

• Environmental input output models can be
  constructed in the same way as economic
  input-output models
• Instead of economic sectors (industry,
  agriculture, households), one looks at
  environmental compartments (water, air, soil)
• Instead of economic goods, one looks at
  ecological goods (energy, materials)

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Environmental IO Models -2

• Typically, one looks at the chain from resources
  to production to consumption to waste
• Some flows are contained in the production
  systems Funds
• Some flows support product flows, but are not
  consumed (energy) Auxiliary flows
• Some flows go backwards Recycling
• The total flow through a sector is called the
  throughput

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Environmental IO Models -3

• Resource plus recycling consumption plus waste
• Efficiency productive and consumptive use
  relative to throughput
• Product allocation coefficient fund relative to
  production plus consumption
• Recycling coefficient recycling relative to
  throughput

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Coupled IO Models

• Step 1 Split the economy of the environmental
  IO model into different sectors or add resource
  and waste sectors to the economic IO model
• Step 2 Connect the economic and environmental
  input-output models using technical coefficient
  describing the resource use/matter flow/waste per
  unit of economic activity

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Coupled IO Models -2

• Resource use
• Emissions and waste
• So, a change in final demand can be traced to
  changes in emissions or resource use

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Final demand shift of GBP 30 million for fossil
fuels Final demand shift of GBP 70 million for
transport
McNicholl and Blackmore (1993)
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Change in Emissions
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IO and Life Cycle Analysis

• Life cycle analysis is closely related to
  economic input output analysis
• Essentially, life cycle analysis traces all
  relevant environmental impacts of all stages of
  the life cycle of an economic good
• The main difference between LCA and IO is that IO
  focuses on the economy as a whole

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EIO-LCA

• A life-cycle analysis calculates resource use and
  emissions of a product over its entire life cycle
• This require emission coefficients for all
  economic activities related to that product
• At www.eiolca.net, a comprehensive database has
  been coupled to a detailed input-output model
• What happens if I buy 1 million worth of cars?

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IO Models

• Although IO models are very simple, particularly,
  they assume fixed, linear relationships between
  everything, they are very pragmatic
• IO tables are available for just about every
  country, often in great sectoral detail (e.g.,
  500 for the USA)
• Databases of technical coefficients are readily
  available

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Input-Output Models

• Input-output models are static and linear models
  of the entire economy
• So, they can only be used as an approximation
  around the present situation
• Nonetheless, input-output models are useful for
  analysing the pattern of disturbance in an
  economy of a shock in one sector
• Input-output models are not very demanding on
  theory and data
• Input-output models can be used in LCA

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IO and CGE Models

• IO models are measured in values
• So, one can use IO models to calculate the
  implications of price changes in an input
• This, of course, assumes that demand and supply
  do not change
• IO models, however, are the core of computable
  general equilibrium models
• CGEs can be extended so as to include resources
  and wastes