Chapter 7. Indirect environmental requirements: the domestic
7.2 Indicators with a focus on indirect requirements
Several indicators have been developed with the purpose of showing the environmental burdens connected to trade flows. This section addresses some of the basic principles of estimating the trade related displacement of environmental requirements from one country to another. This section also continues the discussion on indicator additivity raised in chapter 3.
7.2.1 Indicator scope
When it is assumed that trade related transfers of environmental requirements follow the direction of product transfers, information on product flows within economic systems is essential in analysing environmental burden displacements.
As shown in chapter 6, product flows designate the thermodynamic linkage between natural resource inputs and residual outputs.
7.1a One-way allocation of indirect environmental requirements
Process I
∆Stock
Process II
∆Stock
Process III
∆Stock
Natural environment Resource
extraction
Residual outputs
Resource extraction
Residual outputs
Resource extraction
Residual outputs
Products Products
Figure 7.1a sketches a very simple product chain. Process (II) delivers a final product to a consumption process indicated by process (III). Process (I) delivers the raw or supplementary materials required in process (II). The product flows indicate the direction in which natural resource inputs or residual outputs in each stage of the entire product chain are allocated to the final user. In figure 7.1a this allocation is rather straightforward. Without changes in stocks, the direct and indirect environmental requirements of process (III),i.e.consumption, equals to the process wise summation of either all resource inputs or residual outputs. Although consumers are obviously not the extractors or emitters of all resource inputs and residual outputs in an economy, all environmental requirements in the total product chain are ultimately attributable to consumption.
A systematic allocation of environmental requirements becomes increasingly complicated when product flows between processes are directed in both ways.
This situation is illustrated in figure 7.1b. As shown in figure 3.5 of chapter 3, this scheme could for example represent the trade flows between two countries. Without any understanding about the final destination of product flows, a final allocation of the environmental requirements displaced by trade flows is simply impossible and, as discussed in chapter 3, may lead to indicator inconsistency.
An important question in relation to consistent indicator construction is how all environmental requirements are consistently allocated to the processes (I) and (II), taking consistently into consideration the environmental requirements attributed to their mutual product exchanges. The answer can be derived from the former example: the requirements have to be imputed to the final users in an economy. This is illustrated in figure 7.1c. Each production process ultimately aims at satisfying
7.1b Inconculusive allocation of indirect environmental requirements
Process I
∆Stock
Process II
∆Stock
Natural environment Resource
extraction
Residual outputs
Resource extraction
Residual outputs products
human needs by contributing to the provision of consumer goods. As such, all environmental requirements eventually contribute to the satisfaction of consumer needs and are ultimately attributable to final consumption.
The definition of flows presented in the figures 7.1a – 7.1c needs some further clarification. It must be noted that, from a material flow accounting perspective, in many cases consumption will not be the end stage of material flows. For example, consumer waste may partly be recycled or transferred to waste treatment facilities.
It is therefore important to distinct product flows from residual flows. While consumers may not be the final waste emitters, they still can be considered the ultimate beneficiaries of production. Due to a clear distinction between product and residual flows, the NAMEA provides a consistent framework for allocating all environmental requirements to final consumption. This allocation also takes into consideration the positive (emissions to air) and negative (waste absorption) environmental requirements of waste treatment activities in the economy.
The Direct Material Input indicator of Adriaanseet al.(1997) omits a consumption perspective, which leads to its inconsistency. The Eurostat handbook (2001b) on economy wide material flow accounting introduces a total material consumption indicator that does not carry this inconsistency. The Ecological Footprint indicator developed by Wackernagel & Rees (1996) is also based on a consumption perspective. This indicator is calculated as the total sum of all land needed to generate a specific consumption package. This consumption may refer to individuals, communities, countries or even the whole world and is subdivided by different consumption categories, with each its own specific land requirement. As already
7.1c Allocation of indirect environmental requirements
Natural environment Consumption
I
Production I Economy I
Consumption II Production
II
Economy II
discussed in chapter 3, the Ecological Footprint does not comprise a straightforward reallocation of land requirements from production to consumption as visualised by figure 7.1c. Instead, the indicator reflects, or should reflect, the minimum amount of space that is considered being required to sustain a predefined consumption pattern.
The NAMEA helps to designate two kinds of environmental interdependencies with the rest of the world. Firstly, the intersection of the rest of the world account with the environmental accounts records the cross-boundary transfers of environmental burdens. As shown in table 3.1, these transfers exist of two components: cross-boundary economic activities and the transfer of pollution via environmental media. Table 5.2 shows two kinds of indicators that are directly derived from the substance flow accounts of the NAMEA: the ‘net emission by residents’ (I) and the ‘net accumulation on national territory’ (II). The gaps between both indicators illustrate the significance of cross-boundary pollution in the Netherlands and show that the state of the domestic environment is only partly determined by domestic economic activity.
The second type of interdependency with the rest of the world concerns the displacement of environmental impacts through international trade. The so-called
‘environmental balance of trade’ (indicator III in table 7.1) determines for a specific pollution type or any other environmental requirement the balance of pollution attributed to exports minus pollution attributed to imports. The environmental balance of trade brings about a shift in focus from the producer oriented direct recording of environmental requirements (I) to the indirect recording or imputed
Table 7.1
Extending the emission aggregates to emissions attributed to consumption, the Netherlands, 1997
NOx SO2 NH3 P N Acid-eq. Nutrient-eq.
1 2 3 4 5 f(1–3) f(4–5)
mln kg acid-eq. mln kg N-eq.
Emissions attributed to import (–) 313 134 115 53 610 179 1 144
Emissions attributed to export 521 239 181 73 854 295 1 585
(III) The environmental balance
of trade 207 105 65 20 244 117 441
(I) Net emissions by residents 701 236 188 78 917 338 1 701
(IV) Environmental consumption =
(I)– (III) = (vh+vc) 494 131 122 59 673 221 1 260
Direct emissions from households (vh) 109 2 7 9 115 29 205
Attributed emissions (vc) 385 129 115 50 558 193 1 055
1) 0.022×NOX+ 0.031×SO2+ 0.059×NH3.
2) 10×P + N.
Source: Statistics Netherlands (2000) and additional calculations.
environmental requirements to final commodity uses. The latter is labelled in table 7.1 as ‘environmental consumption’ (IV).
Table 5.2 shows that all intra-household activities such as own account transportation and house heating are part of the direct recording of environmental requirements. These direct emissions from households, i.e. vh, are subsequently included in the ‘environmental consumption’ indicator. Further, this indicator resembles all acid and nutrient pollution from foreign and domestic production processes that was needed in the provision of domestic consumption in the Netherlands.1)The significant amount of pollution displaced by import and export reveals the open structure of the Dutch economy. These results underline the necessity to take into consideration import and export flows when analysing the total environmental requirements of domestic consumption.
As already mentioned, the indicators presented in table 5.2 (I and II) principally result from direct statistical observation. The third and fourth indicator presented in table 7.1 result from imputing pollution to product flows. The imputation of emissions, or any other environmental requirement, to domestic consumption can only be obtained from reallocating the environmental requirements of industries to their outputs and subsequently to the final users of these outputs. The next sections show how this imputation is accomplished by way of input-output analysis.
Others have introduced indicators quite similar to the ‘environmental consumption’
and ‘the environmental balance of trade’ indicators presented here. Trade related indicators are for example presented by Wyckoff & Roop (1994) who estimate for a range of countries the embodiment of carbon in imports of manufactured products Antweiler (1996) constructs ‘pollution terms of trade’ ratios measuring the amount of attributed pollution per money unit of export relative to that of import. Muradian et al.(2001) introduce a similar kind of indicator expressing the ‘balance of embodied emissions in trade’.
In addition to the Ecological Footprint indicator of Wackernagel & Rees (1996), other consumption related indicators are for example developed by Konijnet al. (1997) measuring metal intensities of final products with the help of a hybrid input-output system. Tiwari (2000) calculate for India the energy intensities of final products at the industry level. A methodological discussion of attributing energy requirements to final products with the help of input-output models is also provided by Millar &
Blair (1985, chapter 6). As mentioned, the Eurostat (2001b) methodological guide on economy-wide material flow accounting introduces a ‘material consumption indicator’ measuring the total material use associated with domestic product consumption, including import and excluding export related flows. Nijdam &
Wilting (2003) recently calculated for the Netherlands a range of consumption based pressure indices for various environmental requirements. Based on a household budget survey, they compiled these indicators also for a range of consumption purposes such as living, clothing and leisure.
The primary aim of this chapter is to show how these trade and consumption related indicators fit into a national accounts based framework. The following section
discusses several conceptual features of the indicators (III) and (IV) presented in table 7.1.