Energy Management : : 2011/2012

1. Energy Management :: 2011/2012 Economic Input-Output Life-Cycle Assessment Prof. Paulo Ferrão ferrao@ist.utl.pt

2. MFA LCA Ecodesign Industrial Ecology: Tools Micro-scale Macro-scale Environment HybridEIO-LCA LCAA EIO-LCA EIO Economy

3. Industrial Sectors IO Principles • Idea developed by W. Leontief (Nobel prize in economics in the 70’s) • Extend the ideas of the economic base model by disaggregating production into a set of sectors Imports Market $ Industry $ $ Exports Households Services Consumption

4. Ecomic Input-Output tables, History History As part of the establishment of national accounts, input-output analysis was devised in the 1930s, and first implemented in the 1940s for the USA. Its founder was Wassilyu Leontief (1936), and his approach to national accounts was a disaggregated one, focusing on how industries trade with each other, and how suchinter-industry trading influenced the overall demand for labor and capital within an economy.

5. Basics The basic distinction that is made in input-output analysis is between the demand for goods and services sold to ‘Final Demand’ (households, governments, exports,investment), and the ‘Total Demand’ in the various sectors, resulting from the direct impact of final demand, and the indirect impacts resulting from inter-industry trading (intermediate demand). For instance, almost no iron and steel products are sold directly to domestic consumers (final demand), but a great deal is sold embodied in manufactured goods, such as cars and washing machines Total demand = intermediate demand + final demand

6. Sectors Intermediate Inputs(square matrix) Outputs Total output Consumption Sectors Inputs Primary Inputs Total Inputs or Total Costs Input-Output Analysis • Primary Inputs: • Added value (salaries, profits, …); • Imports; + = • Consumption: • Demand (families, government); • Exports + =

7. Sales Transaction table beetween sectors Total Output Final demand IO model - Leontief • W. Leontief (Nobel prize in economics in 70’s) • Part of National Income and Product Accounts • Total Inputs = Total Outputs $ x11 + x12 + x13 + … + x1n + y1 = x1 x21 + x22 + x23 + … + x2n + y2 = x2 x31 + x32 + x33 + … + x3n + y3 = x3 ……………………………………. xn1 + xn2 + xn3 + … + xnn + y3 = xn

8. Quadro de transacções

9. Tecnichal Coeficients Matrix Intermediate Technical Coefficient Matrix (-) Intermediate Input (€) Technical Coefficient Matrix (-) Total Input (€) = / Primary Input (€) Primary Technical Coefficient (-)

10. IO model - Leontief • If we define an input coefficient aij , that quantifies the output of sector i absorbed by sector j per unit of its total output of sector j where, • aij, is the input coefficient of product of sector i into sector j • xij, is the amount of the product sector i absorbed, as its input, by sector j • xj, is the physical output of sector j then or, in a matrix form

11. IO model - Leontief • That is equal to • Since the final demand is normally exogenous or given, for economic purposes the problem is to calculate the output column vector X. To do that is necessary to pré-multiply the by the inverse of (I-A), commonly referred as the Leonfief inverse, that result in Where • A denotes the net direct inputs of the coefficient matrix, • A2+A3+…+A∞ are, respectively, the 1st, 2nd, and n tier indirect requirements of the coefficient matrix.

12. Quadro de transacções

13. Quadro de coeficientes de Leontief

14. Classical uses One of the main uses of input-output analysis is to display all flows of goods and services within an economy, simultaneously illustrating the connection betweenproducers and consumers and the interdependence of industries. An advantage of input-output tables is that economic components, such as income, output andexpenditure, are presented in a consistent framework reconciling the discrepancies between the estimates of these components.

15. Uses Using linear algebra, input-output analysis allows all economic activity to be directly related to final demand. Of course, the final demand for the various producingsectors sums to Gross Domestic Product (GDP), one of the fundamental measures in national accounting. Input-output tables can be, and are being, used for variouseconomic analyses within and outside Government. The use of input-output tables is particularly important for analyzing structural adjustment in industry.

16. Mathematical formulation of the Input – Output Model Yi Vector of final consumption Aij Matrix of the intermediate Input Xi Vector of total output Aij + Yi = Xi

17. Input-Output Analysis Macro-Economy Application (example) Given the following matrix of the intermediate input for an economy with only 3 sectors (Agriculture, Industry and Services), and the respective values for the exports, imports, consumption and added value. a) Determine the elasticity in the economy for the unitary demand increase in the Agriculture sector.

18. Input-Output Analysis Macro-Economy Application (example solution) a) The elasticity in the economy will be given by X, X = {1.14; 0.40; 0.32 }, 1.86 .

19. IO Principles • Basic assumptions The sector produces goods according a fixed production function (recipe) Main Assumption But also a limitation Simplification Limits the application scope to few years, where is shown that the “recipe” don’t change much Linear production functions Leontief production functions No scale economies Don’t allow the substitution of production factors

20. IO Principles • Coefficient matrix • Leontief Inverse Direct effect The difference between the values is the due to the indirect effect (in this case 0,37-0,18 =0,17) In the principal diagonal which is > 1, the unit value represents the increase in final demand in that sector, and the remaining (0,33) is the direct and indirect impact of the expansion Multiplier - Is the column sum, tells that the for an increase of 1 unit value production of that sector, 0,84 worth of activity is generated, for a total value of production of 1,84 (due to direct and indirect effects)

21. IO Principles • Multipliers • Provide an information on the sector impact on the rest of the economy of a unit change in final demand • Also called the “ripple effect” • Multipliers are explicated upon a domino theory of economic change. They translate the consequences of change in one variable upon others, taking account of sometimes complicated and roundabout linkages. • Besides the output multiplier, there are others types of multipliers like the employment and income multipliers Multiplier Is a function of the economical structure, size of the economy and the way exports and sectors are linked to each others Change over time Change over regions The sector importance depends of other factors besides the multiplier

22. EIO-LCA • The environmental extension of the input-output framework is easily done, by only considering that the amount of environmental impacts associated with one industry is directly proportional to is output, in a fixed proportion. Then: • Where: • b is a q x n matrix which shows the amounts of pollutants or natural resources emitted or consumed to produce a unit of monetary output of each industry, with • q rows with environmental interventions (CO2, CH4, etc…) • n columns with industrial sectors • B is a also a q x n matrix and represents the total direct and indirect environmental impacts for each industrial sector

23. GWG Emissions in the Portuguese EconomyNAMEA Unidade 10E6 escudos Sox Nox COVNM CH4 CO CO2 N2O NH3 (ton) (ton) (ton) (ton) (ton) (Kton) (ton) (ton) 01 2595 22843 8042 203083 7923 1464 7885 78072 Agricultura e Caça 02 176 1555 342144 12 541 92 34 1 Silvicult. E Expl Flor. 03 984 8668 131 529 1094 482 11 Pesca 04 25 7 2 Carvão 05 53521 7154 54480 4725 1297 2413 112 Petróleo 06 166933 72807 385 152 2240 16135 211 Electr., Gás e Água 07 5135 1160 596 55 49677 597 6 19 Min Fer. E não Fer. 08 Min. não Metálicos 09 4451 2689 4417 464 6666 2268 73 Porcelanas e Faiança 10 12084 2184 52 150 583 894 9 Fab. Vidro e Art. Vid 11 27320 9531 4713 1003 5967 6502 75 Out. Mat. Construção 12 4417 3855 773 359 20320 1485 3266 6971 Produtos Quimicos 13 224 253 1052 23 9 46 1 Produtos metálicos 14 19 21 173 2 1 4 Máq. Não Eléctricas 15 130 147 207 13 5 27 Maq. Out. Mat. Eléct. 16 69 78 3092 7 3 14 Material Transporte 17 667 235 20 24 69 61 1 Aba. Cons. de Carne 18 1043 368 31 37 108 96 2 Lacticínios 19 485 171 106 7997 50 141 243 Conservação de Peixe 20 267 94 3050 10 28 25 Óleos e Gord. Alim. 21 486 172 1842 17 50 48 1 Prod.Cereais e Legu. 22 2246 793 204 12051 233 351 367 Out. Prod. Alimentar 23 1482 523 4710 3591 153 213 110 Bebidas 24 929 428 9 37 11 70 1 Tabaco

24. Evolution of the contribution to the Portuguese GDP of the main economic sectors between 1993 and 1995 1. Agriculture & hunting 2. Petroleum 3. Chemical products 4. Transport vehicles and equipment 5. Textile & clothing industry 6. Construction 7. Restaurants & Hotels 8. Financial services 9. Services rendered for companies 10.Non-commercial services of Public Administration

25. Direct and indirect costs of the most important sectors to fulfil the total demand in 1993 and 1995 1. Textile & clothing industry 2. Construction 3. Transport vehicles and equipment 4. Agriculture & hunting 5. Chemical products 6. Non-commercial services of Public Administration 7. Financial services 8. Services rendered for companies 9. Petroleum 10.Restaurants & Hotels 8 6 24 19 22 21 23 30 20 30

26. GNP and GWP per economic sector for the years of 1993 and 1995 1. Textile & clothing industry 2. Construction 3. Transport vehicles and equipment 4. Agriculture & hunting 5. Chemical products 6. Non-commercial services of Public Administration 7. Financial services 8. Services rendered for companies 9. Petroleum 10.Restaurants & Hotels

27. Environmental sustainability of the sectors (increase of GNP versus increase of GWP) • 1. Textile & clothing industry • 2. Construction • 3. Transport vehicles and equipment • 4. Agriculture & hunting • 5. Chemical products • 6. Financial services • 7. Services rendered for companies • Petroleum • 9. Restaurants & Hotels

28. OBJECTIVES • Develop and assess EIO-LCA related tools. to promote fast and accurate life cycle analysis of products and services. • Analyze a case-study to compare the different tools. LCA HEIO-LCA EIO-LCA

29. Hybrid EIO-LCA • The hybrid Input-Output analysis combines the bottom-up approach of process-based LCA with the traditional top-down economical technique Input-Output Analysis, developed by Wassily Leontief 50 years ago Foreground • B, is the Total environmental intervention due to external demand • ~b, is the environmental flow matrix for process analysis • b, is the pollutant emission per $ of sector output • Ã, is the technology matrix for process analysis, expressed in various physical units per unit operation time for each process. • M, is the foreground system matrix, and represents the total physical output per total production in monetary term. It is expressed in physical flow required to produce $ worth output of each industry. • L, is the foreground system matrix, which represents the monetary input to each sector per given operation time, thus expressed in monetary unit per time. • A, is the matrix of inputs coefficients of traditional Input-output analysis, with n x n sectors. Background