Federal Statistical Office Germany
Considerations forthe construction of an embedded environmental impact indicatorbased on material flow accounts
Karl Schoer
Environmental-Economic Accounting
Federal Statistical Office Germany
Eurostat Task force on Environment Impact
Luxemburg 20 April 2007
BECH building – Room B2/464
Considerations forthe construction of an embedded environmental impact indicatorbased on material flow accounts
1. Introduction
An environmental impact indicator should show the impact of environmental pressures on the state of the environment in an aggregated manner. In this paper environmental impact indicatorsare proposed that are embedded into the environmental economic accounting system. The suggestion is based on some experiences and considerations in the German context. Two variants of embedded impact indicators are discussed in more detail. The first one covers the pressures related to the final products from the “cradle to the grave”. The second one is limited to pressures referring to the extraction and the primary processing of raw materials.
2. The cause effect chain
Disregarding from natural events changes in the state of the environment are caused by human or in a slightly narrower sense by economic activities. The cause-effect chain (see figure 1) includes in the context of this paper the driving forces (economic activities), the pressures (material or immaterial flows caused by economic activities) and the changes in the state of the environment (caused by the pressures).
An impact indicator could be limited to a pure environmentalist perspective by covering only the second step of the chain. However in this paper an environmental-economic approach is proposed where the environmental impact indicator is integrated into a database that covers the whole cause-effect chain from the driving forces over the pressures to the impacts. By applying that integrated approach the change of the environmental impact indicator can be put down to the change of the intensity and the composition of the causing economic activities. That link widens the analytical scope considerably as at the one hand the environmental costs (in physical terms of environmental impact) can be related to the individual economic activities and on the other hand the economic costs (in monetary terms) can be estimated of avoiding or reducing environmental impacts. That type of information is extremely useful when it comes to political action as it can be used for tailoring cost efficient measures for reducing environmental impacts of economic activities.
The physical and hybrid flow module of the System of Environmental-Economic Accounting (SEEA)depicts on the one hand he relationship between environmental pressure flows, like the use of subsoil resources, renewable resources, emissions of green house gases and other emissions relevant to different environmental media as well as on structural pressures (land use and land use intensity). On the other hand the causing economic activities (driving forces) are described at a rather detailed level by economic production (branches) and final use activities (private an public consumption, capital formation and exports).
It is the main task of an aggregated impact indicator or a set of impact indicators to bridge the gap between pressures and the related changes in the state of different components of the environmental assets. Subsequently the changes of the different types of assets have to be aggregated. The aggregation can only be achieved by combining the results of environmental sciences with social preferences, i.e. with social or political value judgements. Social preferences could for example be included by referring to quantitative environmental political performance or quality goals. At lot of work has to be done for establishinga meaningful and widely accepted link between the pressures and the state and to construct an aggregated indicator on that basis. And indeed that will be the main task for constructing an impact indicator. However, having in mind from the very beginning that the indicator has to be embedded into the accounting system will give the work a clear orientation regarding the system boundaries and the tools to be applied. Below different principal approaches for an embedded impact indicator are described.
Figure 1
3. System boundaries
The environmental-economic accounts are a satellite system to the economic accounts which extend the systematic description of the economic transactions by including the interactions between the economic and the environmental system. The type ofenvironmental-economic interaction that is especially relevant in the context of this paper refers to the physical environmental pressure flows that are caused byeconomic activities. The principal system boundary is given by the demarcation of the economic system as it is defined in the System of National Accounts (SNA) with a complete coverage of all economic activities. For keeping the analytical properties of that systematic approach the complete coverage of the economy should be the starting point for an embedded impact indicator as well.
A comprehensive approach would be to include all pressures of all economic activities into the impact indicator. However in order to keep the cost for establishing such a system manageable it will be useful to reduce the coverage. That could be done on the one hand by not including all pressure flows but to select those that are most relevant from a political or scientific perspective. On the other hand, the coverage could be limited to certain types of economic activities. Figure 2 shows a range of possible system boundaries for covering causing economic activities, ranging from the production of the total input of material to the economy (extraction of raw material and production of semi-finished and finished imported products) (1) over the additional inclusion of the usually rather pressure-intensiveprimary processing of raw materials (2), the inclusion of all production activities (3) to total coverage of all production and final use activities (4). The last mentioned means that the pressures generated over the whole chain from the extraction of raw material over all production steps up to the final consumption of the products (“from the cradle to the grave”) are included.
Below the options 2 and 4 are described in more detail.
Figure 2
3. Ecologically weighted pressures caused by production and final use of products
In figure 3 a comprehensive approach for calculating an embedded impact indicator which covers pressures from all production and final use activities is described.
The SEEA provides a framework for relating the individual pressures to the different economic production and final use activities (direct pressures).
Indirect pressures can be estimated for the final products by a Leontief-type approach which is based on input-output (IOT) analysis. The indirect pressures comprise the total pressures that were generated over the whole production chain for manufacturing a product. The IOT-matrix shows the transaction relationships between the homogeneous branches. The following assumptions are made implicitly within the approach:
-The products are produced with a linear technology. That means the relation between inputs used and the output produced is presumed to be constant.
-For any individual product of a homogeneous branch (homogeneous product group), the average input structure of that homogeneous branch is applied.
Therefore the accuracy of the results depends on the degree to which the figures on the use structures of economic activities (the output coefficients) of the IOT-matrix that is applied reflect the actual output structure of the specific pressure that has to be allocated. Depending on the type of pressure to be allocated different types of IOT-matrixes (monetary, physical or hybrid) can be applied and the degree of disaggregation of the IOT matrix may be expanded by utilizing results of life cycle analysis[1].
By adding the indirect pressures to the direct pressures of the final use activities the cumulated pressures by product groups are obtained.
Figure 3
The second element of the calculation of the indicator is the vector of ecological impact intensities per unit of pressure for each type of pressure. Combining that vector with the cumulated pressures will yield ecologically weighted cumulated pressures of final use products.
4. Ecologically weighted pressures caused by the production of direct material input
Figure 4 shows the calculation of an impact indicator based on ecologically weighted pressures that are generated by the production of direct material input into the economy and the primary processing of the raw materials. That indicator has, by concentrating on the input-side of the economic system, a more limited coverage, but requires considerably less resources. The pressures generated by activities that are not included could be covered by other accounting modules.
One element for the calculation of that impact indicator is the direct material input expressed in raw material equivalents by type of raw material and economic activity. The calculation starts with the estimation of the direct material inputs (DMI) in raw material equivalents (RME). Instead, as shown in the figure, also a less ambitious but less accurate approach can be applied by using the original values for the DMI. The calculation approaches up to this point are explained in another paper in more detail[2].
A further element is the matrix of pressure intensities for the production of raw materials (including primary processing) by type of raw material and type of pressures which can also be obtained from the accounting system. Combining the first and the second element yields the matrix on the DMI (RME) related pressures by type of pressure, raw material and economic activity.
Figure 4
The third element is the vector of ecological impact intensities of pressures by type of pressures which was also used for the calculation of the indicator described in section 3. The ecologically weighted DMI (RME) by type of raw material and economic activity can be obtained by combining that vector with the pressure matrix. In the last step the DMI based ecological impact indicator can be calculated.
5. Conclusions
In this paper a first outline of an environmental impact indicator that is embedded into the environmental-economic accounting system has been presented. The conceptual considerations presented are still at a rather preliminary stage and need further clarification and consolidation. As far as the data is concerned a considerable part of the accounting data that are necessary for putting the proposed approaches into practice are available or at least under preparationin Germany. However effortsfor preparing the required matrix of ecological intensities have not been successful so far.
1
[1]See: Schoer. K (2006): Calculation of direct and indirect material inputs by type of raw material and economic activities, online paper, Federal Statistical Office Germany, Wiesbaden 2006
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[2] See Schoer, K (2006) and Schoer, K/ Schweinert, S. (2005): The use of primary material in Germany by branches and material categories, online paper Federal Statistical Office, Wiesbaden 2005.