Input-output Tables and Environmental-Economic Analysis

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Input-output tables and models play a crucial role in economic planning and analysis worldwide. They provide insights into the interrelations between industries, final uses, and environmental impacts. By combining physical flow accounts with input-output tables, environmentally extended input-output tables enhance understanding of the environmental pressures of economic activities. Through input-output analysis, questions regarding the direct and indirect effects of changes in various sectors, such as agriculture, construction, and energy production, can be answered. This analysis also helps in determining factors like the share of agricultural production in exports and the effects of investments on employment and energy production.

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Input-output tables, models and environmental- economic analysis Ole Gravg rd > > SEEA Training Seminar for the ECA Addis Ababa 2-5 February 2015

Input-output tables and analysis > > A way to represent central parts of the national accounts production accounts by using matrices measured in monetary units It gives a detailed picture of the links between industries and between industries and final uses, etc. IO used for economic planning and analysis all over the world Introduced by the russsian mathematician Wassily Leontief i the 1930 ies - Nobel prize in 1973 Since the 1970 ties also used for economic-environmental analysis International input-output association: http://www.iioa.org 2

Input-output tables and analysis? > > Input-output tables are used as the core of many macro-economic models Input-output tables is the basis of the input-output model that can give valuable information about the direct as well as indirect effects on production, employment, imports, air emissions etc. of changes in final demand. 3

What kind of questions can be answered by using input-output analysis? > > What is the direct and indirect share of agricultural production in total exports? What are the total direct and indirect effects on employment of increasing investment in construction by 10 pct? What are the total direct and indirect effects on energy production of increasing private consumption of meat by 1 million dollars? etc., etc. 4

Combining SEEA physical flow accounts with input-output tables > > For analytical purpuses it is useful to link the information from the SEEA physical flow accounts with the input-output tables measured in monetary units (hybrid tables) Environmentally extended input-output tables (EE-IOT) This facilitates insight into the drivers of the environmental pressures and the indirect effects (footprints) of various economic activities 5

Example: What are the air emissions throughout the economy resulting from private consumption, exports, etc.? > > CO2 Industry 2 CO2 Private consumption Industry 1 CO2 Industry 3 CO2 Industry 4 6 6

Using input-output modelling gives the answer: > > DANISH CO2 EMISSION BY CAUSING ECONOMIC ACTIVITIES EXPORTS GROSS FIXED CAPITAL FORMATION GOVERNMENT CONSUMPTION PRIVATE CONSUMPTION INDIRECT PRIVATE CONSUMPTION DIRECT 7

An input-output table > > Intermediate consumption Final demand Total telecommunication Public consumption 3. Electricity, heat, Gross fixed capital 6.Transport, post Changes in stocks personal services 2.Manufacturing intermediation, and restaurants 5. Trade, hotels gas and water 4. Construction 1.Agriculture, 8. Public and consumption business act. fishing and 7. Financial formation quarrying Private Export supply og DKK billions, current prices 8 50 96 7 3 30 14 35 5 144 9 1 3 3 0 0 3 1 4 0 2 0 0 7 1 6 8 0 2 3 1 1 0 7 3 1 5 0 1 7 0 0 1 0 0 0 8 0 45 292 121 573 51 187 343 323 535 524 684 233 3576 1. Agriculture, fishing and quarrying 13 1 1 5 1 8 1 11 3 52 -5 10 37 0 2 21 2 27 1 23 2 116 17 4 2 15 33 50 5 37 5 168 14 2 26 6 17 96 12 29 17 220 10 4 7 10 18 42 29 26 24 171 -4 301 49 21 4 148 36 193 81 77 132 745 29 0 125 22 2. Manufacturing 9 1 3. E lectricity, heat, gas and water supply 4. Construction 75 163 30 5. Trade, hotels and restaurants 35 18 3 127 2 6. Transport, post og telecommunications 29 4 53 40 304 7. Financial intermediation, business act. 379 2 8. P ublic and personal services 4 2 141 -2 757 Import incl. costum duties 3 6 Taxes on products, net 388 -1 131 25 0 5 211 403 18 Use at market prices 0 0 0 7 Other taxes on production, net 54 130 56 138 Compensation of employees Gross operating surplus and mixed income 65 121 56 573 22 51 17 187 46 343 57 323 170 535 56 524 Gross output at basic prices 8

An input-output table > > Intermediate consumption Final demand Total 6.Transport, post og Private consumption 5. Trade, hotels and telecommunications Public consumption 3. Electricity, heat, Gross fixed capital Changes in stocks personal services 2.Manufacturing intermediation, gas and water 4. Construction 1.Agriculture, 8. Public and business act. restaurants fishing and 7. Financial formation quarrying Export supply DKK billions, current prices 8 50 96 7 3 30 14 35 5 144 9 1 3 3 0 0 3 1 4 0 2 0 0 7 1 6 8 0 2 3 1 1 0 7 3 1 5 0 1 7 0 0 1 0 0 0 8 0 45 292 121 573 51 187 343 323 535 524 684 233 3576 1. Agriculture, fishing and quarrying 13 1 1 5 1 8 1 11 3 52 -5 10 37 0 2 21 2 27 1 23 2 116 17 4 2 15 33 50 5 37 5 168 14 2 26 6 17 96 12 29 17 220 10 4 7 10 18 42 29 26 24 171 -4 301 49 21 4 148 36 193 81 77 132 745 29 0 125 22 2. Manufacturing 9 1 3. E lectricity, heat, gas and water supply 4. Construction 75 163 30 5. Trade, hotels and restaurants 35 18 3 127 2 6. Transport, post og telecommunications 29 4 53 40 304 7. Financial intermediation, business act. 379 2 8. P ublic and personal services 4 2 141 -2 757 Import incl. costum duties 3 6 Taxes on products, net 388 -1 131 25 0 5 211 403 18 Use at market prices 0 0 0 7 Other taxes on production, net 54 130 56 138 Compensation of employees Gross operating surplus and mixed income 65 121 56 573 22 51 17 187 46 343 57 323 170 535 56 524 Gross output at basic prices 9

An input-output table > > Intermediate consumption Final demand Total 6.Transport, post og Private consumption 5. Trade, hotels and telecommunications Public consumption 3. Electricity, heat, Gross fixed capital Changes in stocks personal services 2.Manufacturing intermediation, gas and water 4. Construction 1.Agriculture, 8. Public and business act. restaurants fishing and 7. Financial formation quarrying Export supply DKK billions, current prices 8 50 96 7 3 30 14 35 5 144 9 1 3 3 0 0 3 1 4 0 2 0 0 7 1 6 8 0 2 3 1 1 0 7 3 1 5 0 1 7 0 0 1 0 0 0 8 0 45 292 121 573 51 187 343 323 535 524 684 233 3576 1. Agriculture, fishing and quarrying 13 1 1 5 1 8 1 11 3 52 -5 10 37 0 2 21 2 27 1 23 2 116 17 4 2 15 33 50 5 37 5 168 14 2 26 6 17 96 12 29 17 220 10 4 7 10 18 42 29 26 24 171 -4 301 49 21 4 148 36 193 81 77 132 745 29 0 125 22 2. Manufacturing 9 1 3. E lectricity, heat, gas and water supply 4. Construction 75 163 30 5. Trade, hotels and restaurants 35 18 3 127 2 6. Transport, post og telecommunications 29 4 53 40 304 7. Financial intermediation, business act. 379 2 8. P ublic and personal services 4 2 141 -2 757 Import incl. costum duties 3 6 Taxes on products, net 388 -1 131 25 0 5 211 403 18 Use at market prices 0 0 0 7 Other taxes on production, net 54 130 56 138 Compensation of employees Gross operating surplus and mixed income 65 121 56 573 22 51 17 187 46 343 57 323 170 535 56 524 Gross output at basic prices 10

From IO-table to IO-model: two industries and private consumption > > Two equations: 1 + 9 + 10 = 20 8 + 2 + 13 =23 Using symbols: Two equations: B11 + B12 + Y1 =X1 B21 + B22 + Y2 =X2 11

From IO-table to IO-model > > Two equations: B11 + B12 + Y1 =X1 B21 + B22 + Y2 =X2 equal to: (B11/X1)*X1 +(B12/X2)*X2 + Y1 = X1 (B21/X1)*X1 +(B22/X2)*X2 + Y2 = X2 equal to: A11*X1 + A12*X2 + Y1 = X1 A21*X1 + A22*X2 + Y2 = X2 Where Aij are the input-output coefficents Bij/Xj 12

Input-output model > > A11*X1 + A12*X2 + Y1 = X1 A21*X1 + A22*X2 + Y2 = X2 using matrix notation: AX + Y = X 13

Generalised input-output model, n industries > > AX + Y = X (Input-output coefficients * output) plus final use = output X AX = Y X and Y are n x 1 column vectors A and (I-A)-1 are n x n matrices (I A)X = Y -1 Y X = (I A) which is the IO-model It calculates the total output, X, needed for a certain final use, Y (e.g. private consumption) by multiplying the Leontieff inverse (I- A)-1by the final use. It takes all deliveries between industries into account 14

Environmental extended input- output model > > Once the output X needed for a certain final use has been estimated it is possible to estimate employment, energy use, water use, air emissions etc. For instance, from the emissions accounts we first estimate emissions intensities, i.e. how much air emissions is on average generated in industries: Emission intensity, ei, for industry i is total emission Ei divided by output Xi: ei = Ei / Xi matrix notation 15

Environmental extended IO- model > > From the IO-model and the emissions coefficients we estimate the air emissions corresponding to a certain final use. Total air emissions from production in industries needed to satisfy the final demand Y: -1 Y # EM Air emissions = X # EM = (I A) Total production needed, nx1 Leontieff inverse, nxn Emission factors, nx1 Final use, nx1 16

Examples of EE-IOmodelling > > DANISH CO2 EMISSION BY CAUSING ECONOMIC ACTIVITIES EXPORTS GROSS FIXED CAPITAL FORMATION GOVERNMENT CONSUMPTION PRIVATE CONSUMPTION INDIRECT PRIVATE CONSUMPTION DIRECT 17

Consumption of water by industries by final demand that caused them Denmark 2005 > > Water consumption by industries 2005. Total Private consumptio n 33.345 3.217 Government consumptio n 1.863 Investment, buildings Investment others Export Agriculture Horticulture, orchards etc. Agricultural services; landscape gardeners etc. Forestry Fishing Extr. of crude petroleum, natural gas etc. Extr. of gravel, clay, stone and salt etc. Production etc. of meat and meat products Processing etc. of fish and fish products Processing etc. of fruit and vegetables Mfr. of vegetable and animal oils and fats 160.368 7.926 231 46 115 -137 11 122.165 4.272 240 284 912 74 150 19 2.132 3 1 345 26 8 3 38.776 312 43 47 36.227 2 0 0 0 0 2 3.254 36.292 8.071 4.355 1.169 590 313 609 55 55 36 842 78 33 1.373 25.153 6.328 3.939 601 10.012 1.582 356 516 124 13 7 8 4 9 5 18

CO2 embodied in Danish exports and imports > > CO2 balance for Danish foreign trade 1000 tonnes CO2 Emissions embodied in exports 20,368 Emissions embodied in imports 26,795 Surplus on CO2balance -6,427 19