An introduction to input-output analysis and its use in ... · 5 The UK 0 200 400 600 800 1000 1200...

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School of Earth & Environment5582M: Tools and Techniques in Ecological Economics

An introduction to input-output analysisand its use in consumption-basedaccountingAnne Owen

[email protected]

Homework

• Introduction to Matrix Algebra using Matlab

• Any problems?


Lecture (30 mins)

• What does a consumption-based approach to emissionsaccounting tell us?

• How can we account for emissions from consumption?

• Input-Output analysis

• The future


2

Carbon emissions are increasing.

But what are the driving factors of this increase?

• Increase inindustrial output?

• Population?

• Increase in airtravel?

• Increase inconsumption?

• Productionbecoming moreinefficient?


Annex B countrieswere supposed toreduce theiremissions under the1997 Kyoto Protocol

Non-Annex Bcountries wereallowed to keepgrowing



3

Historically, theEU and US stillcontribute thegreatest share ofemitted CO2


• Why are emissions growing?

• Why have China’s emissions increased at such a paceover the last two decades?

• Who is responsible for emissions reduction?


• What if we reallocated emissions accounts to who was consuming theproducts rather than who produced them?

Chinacoal

Chinaplastic

USAPC

UK finaldemand

Chinasteel

Germancar

UK taxifirm

Frenchfinal

demand

UKelectricity

UKgadgets

USAplane

Germanfinal

demand

Producerperspective

Consumerperspective

ChinaUSA

UK

ChinaGermanyUK

France

UKUSA

Germany


4



The difference between production and consumptionemissions

Production: point source e.g. from factory or power station – relativelyeasy to indentify, link and add up

Consumption: emissions along the supply chain of a product – can bevery complex, difficult to draw boundaries


5

The UK

0

200

400

600

800

1000

1200

Me

ga

ton

ne

sC

O2e

UK comsumption-based emissions

UK production-based emissions

UK territorial emissions


• How can we reallocate emissions from producer toconsumer?

• Need to understand global supply chains

• How do businesses trade with each other and how doconsumers consume?

• Two methods: LCA or Input Output Analysis


Production layers and structural paths

of a family train journey

Lenzen & Murray, 2003

A bottom up approach: the full supply chain emissions of a train journey


6

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How to measure a product carbon footprint?

Hybrid LCA

Life Cycle Analysis Input-Output Analysis

Advantages Good for individual products Accounts for full supplychains.

Can determine the whole CBA

Disadvantages Truncation issues – howmany levels along the supplychain?

Impossible to account for allconsumption by a nation

Works on aggregated productlevel – e.g. ‘electronicappliances’ rather than‘washing machine’


Credits Debits

Sales $1000

Machines $300

Repairs $20

Insurance $15

Wages $15

Taxes $20

Grossoperatingsurplus

$650

Total $3000 $3000

Credits Debits

Sales $300

Machines

Repairs

Insurance

Wages

Taxes

Agriculture industry

Machine making industryAgriculture industry


7

Transaction Matrix

(Z)

Value Added (H)

Total Input (X)

Sales to

Final

Demand

(Y)

Tota

lO

utp

ut

(X)

Environmental Extensions

(F)

Purchases from

intermediate demand

Sale

sto

Inte

rmedia

te

dem

and

School of Earth & Environment3750: Sustainability Economics in Practice

12 8 4

2 18 12

6 10 26

This product ismade from thismix of sectors

Agriculture

Manufacturing

Services

Agri

culture

Manufa

ctu

ring

Serv

ices

16 12 24

36 48 66

12

16

24

36

48

66

Note that

12 + 8 + 4 + 12 = 36

Total output foragriculture is the sumof intermediate salesplus final demand

72 66 42

X in = X out

Value added

Fin

alD

em

and

These are the CO2

emissions fromproduction byindustrial sector

Total = 180 tonnesCO2

School of Earth & Environment3750: Sustainability Economics in Practice

Transaction Matrix

(Z)

Value Added (H)

Total Input (X)

Sales to

Final

Demand (Y)

Tota

lO

utp

ut

(X)

Environmental Extensions (F)

Purchases from intermediate

demand

Sale

sto

Inte

rmedia

te

dem

an

d

The total output ܠ) ) of a particular sector can be expressedas:

ܠ ൌ ܢ ܢ ڮ ܒܢ ܡ

Total output of a sector is the sum of its intermediate andfinal demand.

If each element, ,ܒܢ, along row i is divided by the output ܠ ,

associated with the corresponding column j, then eachelement in ܈ can be replaced with:

=ܒ܉ܒܢ

ܒܠ

Going back toalgebra…

8

1236

848

466

236

1848

1266

636

1048

2666

A matrix:

ܠ ୀܢ ܢ ڮ ܒܢ ܡ

=ܒ܉ܒܢ

ܒ܆

ൌܒܢ ܒܠܒ܉�

ൌܠ ܠ܉ ܠ܉ ڮ ܠܒ܉ ܡ

(1)

(2)

Substitutefor (2) in (1)

�ൌܠ �ܠۯ� ܡ

��ൌܡ ܠۯ��Ȃܠ��

=ܡ –۷)ܠ (ۯ


12

6

24

��ൌܠ ��۷�Ȃۯ� ܡ

36

48

66

1236

848

466

236

1848

1266

636

1048

2666

1- 0- 0-

0- 1- 0-

0- 0- 1-

2436

- 848

- 466

- 236

3048

- 1266

- 636

- 1048

- 4066

=

But we want =ܠ (something) x ܡ

��ൌܡ ሻۯ�ሺ۷�Ȃܠ��

36

48

66

2436

- 848

- 466

- 236

3048

- 1266

- 636

- 1048

4066

=

-1

12

16

24


12

16

24

36

48

66

=1.6265 0.5422 0.3253

0.3052 1.8795 0.5944

0.5522 0.7952 1.9438

36

48

66

=12 x

1.626516 x

0.542224 x

0.3253

12 x0.3052

16 x1.8795

24 x0.5944

12 x0.5522

16 x0.7952

24 x1.9438

=36

48

66

��ൌܠ ܡۺ��


9

36

48

66

=

42.5

49.2

68.2

Output from agriculture has to increase by 6.5

Output from manufacturing has to increase by 1.2

Output from services has to increase by 2.2

So…. If demand for agriculture increased to 16 from 12….

Compared to

16 x1.6265

16 x0.5422

24 x0.3253

16 x0.3052

16 x1.8795

24 x0.5944

16 x0.5522

16 x0.7952

24 x1.9438


Matlab tasks (15 mins)

• Work through tasks 1 to 4 from ‘Introduction to Input-Output analysis’

• Loading variables

• Calculating A

• Calculating L

• Investigating the effect of a change in demand


If ൌ܍ ܠ

܍ is the emissions per unit of output

Multiplying both sides of �ൌܠ‘ ’ܡۺ� by :gives܍

ൌܠܠ ܇ۺ܍

ൌ ܡۺ܍

But what about those emissions?

7236

6648

4266

2 1.375 0.636


10

=

12

16

24

And if final demand for agriculture increases to 16?

CO2 increases by

16 tonnes

2 1.375 0.636

180

=

16

16

24

2 1.375 0.636

196

1.6265 0.5422 0.3253

0.3052 1.8795 0.5944

0.5522 0.7952 1.9438

1.6265 0.5422 0.3253

0.3052 1.8795 0.5944

0.5522 0.7952 1.9438


12 0 0

0 16 0

0 0 24

2 0 0

0 1.375 0

0 0 0.636

1.6265 0.5422 0.3253

0.3052 1.8795 0.5944

0.5522 0.7952 1.9438

39.0361 17.3494 15.6145

5.0361 41.3494 19.6145

4.2169 8.0964 29.6867

72

66

42

48.2892 66.7952 64.9157

Column sum is the carbon emissions by product – i.e.the full supply chain emissions of making the product

Row sum isthe originalindustryemissions


16 0 0

0 16 0

0 0 24

2 0 0

0 1.375 0

0 0 0.636

1.6265 0.5422 0.3253

0.3052 1.8795 0.5944

0.5522 0.7952 1.9438

52.0482 17.3494 15.6145

6.7149 41.3494 19.6145

5.6225 8.0964 29.6867

64.3855 66.7952 64.9157

If final demand for agriculture increases, only theproduct footprint for agriculture increases


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• Work through task 5 to 6 from ‘Introduction to Input-Output Analysis’

• Using L to investigate Carbon Consumption-Based Accounts

• Saving your work


2000s World IO, footprinting, Hybrid LCA

1990s Industrial ecology, physical IO

1970s Energy analysis, pollution

1973 Nobel Prize

1940-60s Structure of the economy

1930s Introduction of IOA


Hoekstra, R. (2010) (Towards) A complete database of peer-reviewed articles on environmentally extended input-output analysis.18th International Input-Output Conference of the International Input-Output Association (IIOA) , 20-25 June 2010. Sydney, Australia.


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Hoekstra, R. (2010) (Towards) A complete database of peer-reviewed articles on environmentally extended input-output analysis.18th International Input-Output Conference of the International Input-Output Association (IIOA) , 20-25 June 2010. Sydney, Australia.


Hybrid Approaches

• IO-LCA Models

• Physical flow models

• Dynamic IO

• Econometric forecasting

Increasing complexity, coverage, comparability androbustness



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New MRIO data, models, techniques (Eora)

• Computer runtime under 6 hours per year, 20 days total

Global MRIO (USyd)

• 130 countries at 100 sectors = 13,000 sectors, plus

• 40 countries at ≈ 200 sectors = 8,000 sectors

• 1 sheet size ≈ 20,000 x 20,000 = 400 million entries

• 7 valuations (bp, 2xfob, 2xcif, tax, subs) = 2.8 billion entries

• 40 years = 112 billion entries

• ≈ 900 GB per MRIO set

• Computer runtime under 6 hours per year, 20 days total



• Work through task 7-8 from ‘Introduction to Input-Output Analysis’

• Multiregional Input-Output tables

• Structs

• Bar charts


School of somethingFACULTY OF OTHER

Thank you

Anne Owen

[email protected]


An introduction to input-output analysis and its use in ... · 5 The UK 0 200 400 600 800 1000 1200...

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