Analyzing Imports and Consumption using Multiregional Input-Output LCA (MRIO-LCA)

1. Analyzing Imports and Consumption using Multiregional Input-Output LCA (MRIO-LCA) Christopher L. Weber Slides borrowed liberally from Glen P Peters Advanced LCA 4/26/07

2. Outline • Background: Household Environmental Impact (HEI) • Model Framework: MRIO-LCA • Input-Output Analysis (EEIOA) and Consumer Expenditure Surveys (CES) • Characteristics of ‘Average’ HEI • Variation of HEI: Income and Expenditure • Sociodemographic Extensions • Uncertainty—quantifiable and unquantifiable

3. Previous Work • ‘Total Energy Requirements’ and ‘Total HEI’ subject of research since 1979 • US, Japan, Australia, EU, individual European countries • General conclusions: • ‘Average’ HEI dominated by food, transport, and home energy • Total energy/HEI correlated with expenditure and, to a lesser extent, income • Other sociodemographic factors sometimes important: family size, urbanity, living space, age, etc.

4. Previous Work • Several weaknesses: • Standard approach doesn’t track imports • Globalization has made volume much larger • Shifting trade patterns to developing world increases intensity • Work in US has not looked at distributional aspects • ‘Average’ Household not real: averaged over rich and poor, large and small, urban and rural, etc • Often very aggregated environmental models

5. Model Development: Imports in IOA • Import • A product that is provided to a domestic resident by a foreign producer • Should include transportation • …but this is difficult • International transportation network and ownership is complex • “Technology” definitions • A is the total inter-industry requirements (technology) • Ad is the inter-industry requirements of domestic production • Aim is the inter-industry requirements of imports

6. Math-wise: Imports in IOA • Definitions • yd is the domestic final demand on domestic production • yex is the export (foreign) final demand on domestic production • yt = yd + yex is the total final demand on domestic production • yim is the total domestic final demand on imports • m is the total imports into the domestic economy • y is the total sum of final demand, where imports are negative: • y = yd + yex - m

7. Math-wise: Imports in IOA • Want to calculate total output or requirements in US EIO-LCA Alternative definition

8. Math-wise: Imports in IOA • What does this mean? • When you run EIO-LCA, the output includes imports • Problematic in two ways • Can’t tell where emissions are occurring (here or in Mexico or China?) • Mexico and China don’t actually have the same technology as us!

9. How could we model the economies together? • Answer: MRIO-LCA • Conceptually, produces a model for final demand in any country, including trade from all other countries to make that final demand • Start with two regions: 1 = US, 2 = ROW • USmust produce • Its own final demand y1 • Imports to final demand in ROW, y12 (Fords to EU) • Imports to industry in ROW, A12 x2 (Intel chips to China)

10. Two-region model • USmust produce • Its own final demand y1 • Imports to final demand in ROW, y12 (Fords to EU) • Imports to industry in ROW, A12 x2 (Intel chips to China) • Same idea for ROW

11. In matrix notation Imports into US interindustry demand Imports into US final demand US total output Domestic interindustry demand on domestic production Domestic final demand on domestic production

12. Imports from multiple regions x=Ax+y x1 … output of domestic industries due to demand in region 1 x2..m output of industries in foreign countries due to domestic demand Amn … delivery of products from industries in country m to industries in country n yn1 … import to final consumption

13. Potential Model Simplifications • Treat rest-of-world as US • Treat exports from US exogenously • Assume direct trade dominates (unidirectional trade assumption) (can be done for all countries or non-US) Peters, G. and Hertwich, E. Production Factors and Pollution Embodied in Trade: Theoretical Development. NTNU Working Paper 05/2004.

14. Case Study: $1000 Computer (1997 prices) • Model 5 different ways: • 1) EIO-LCA (domestic production assumption) • 2) Uni-directional trade • 3) Multidirectional trade for US only • 4) Full Multidirectional trade (MRIO) • 5) Full MRIO + model imports to final demand by ratio • Most computers bought in US not finally produced (assembled) here!

15. Model Results, using market exchange rates (MER) Model 1) 2) 3) 4) 5)

16. How about total household consumption? US Input-Output Data (BEA) Total HH Final Consumption US Emissions Data (DOE,EPA) Environmental Input-Output Model Average HEI Assume imports made with domestic technology—standard assumption

17. US Total HEI: 2004 CO2, Dom Model Total = 5780 Mmt CO2 Similar ratios to EU, excluding Health

18. ‘Average’ HEI, Modeling imports US Input-Output Data (BEA) Total HH Final Consumption US Emissions Data (DOE,EPA) Environmental Input-Output Model Average HEI Foreign Input-Output Data Foreign Emissions Data (Govt Stats, IEA) 7 Foreign Countries 3 Pollutants (CO2, SO2, NOx) Trade Data (US Census)

19. US Total HEI: 2004 CO2 , Int Model Total = 6680 Mmt CO2 (4830 Domestic, 370 Annex 1, 1490 Non-Annex 1)

20. CES: Determining Variation and Covariation in HEI 18,000 Households ~400 Commodities • Income and Expenditure • Demographics: • Family Size • Home Size • Urbanity • Region of Country Consumer Expenditure Data (BLS) Use-phase Emissions Data (EIA) Use-Phase Model Environmental Input-Output Model 18,000X Micro-HEI

21. How does HEI vary with income and expenditure? Income vs. Total CO2 y = ax2+bx+c R2 = 0.46 y = axε R2≈ 0.48 ε = 0.45 Average HEI = 41 mt/hh

22. Expenditure vs. Total CO2 y = axε R2 ≈ 0.73 ε = 0.74 y = ax2+bx+c R2 = 0.69 Average HEI = 41 mt/hh

23. Expenditure and Family Size by CO2 by Category

24. Total and Domestic/International Shares

25. Modeling Uncertainties—difficult to quantify • Static technology assumption • Production functions • Emissions intensities • Price variations • Within sectors • Between regions and years (deflation) • Currency conversion issues and Rest of World • Aggregation error in input-output accounts • Survey Error: recall error, cognitive biases

26. Quantifiable uncertainty Issues • Does weighted CES capture most total household expenditure?

27. Policy implications • In general, several ways to reduce CO2 emissions • Production-side efficiences (CO2/GDP) • Change mix of production (International Trade) • Decrease overall consumption (lower aggregate GDP) • Change mix of consumption (less CO2-intensive consumption) • 1st obviously important but may not be enough • 3rd politically infeasible • 2nd problematic for international climate policy • 4th has warranted attention but not tried much yet

28. Policies for changing consumption • Most often cited: carbon/CO2 taxes • Large variation among households shows promise • Regressivity a major issue for direct carbon taxes • Depends on implementation—“total” C tax better? • Rebound effect? • Fixing regressivity may reduce tax efficiency! • International trade issues • Increasing foreign portion with income—regressive? • Difficult to ascertain answers with these methods

29. Future work • Incorporating international transport • Quantifying income rebound effects • Education and information transfer—what is effective?

30. Acknowledgements • Funding: EPA STAR fellowship program • Advisors: • Prof. H. Scott Matthews • Thanks to help from several students in EPP, CEE, and the Green Design Institute