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

Christopher L. WeberSlides borrowed liberally from Glen P PetersAdvanced LCA4/26/07

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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

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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.

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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

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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

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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

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Math-wise: Imports in IOA

Want to calculate total output or requirements in US

( )( )

since

d im d e im

d t im im

d t

im im

x Ax y

x A A x y y y m

x A x y A x y m

x A x y

m A x y

= +

= + + + + −

= + + + −

= +

= +

EIO-LCA

Alternative definition

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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!

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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 US must 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)

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Two-region model

( )( )

1 1 1 1 12 2 12

2 2 2 2 21 1 21

d

d

x A x y A x y

x A x y A x y

= + + +

= + + +

US must 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

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In matrix notation

1 1 12

2 21 2

1 12

2 21

d

d

x Ax y

x A Ax A

x A A

y yy

y y

= +

⎛ ⎞⎛ ⎞= =⎜ ⎟⎜ ⎟⎝ ⎠ ⎝ ⎠

+⎛ ⎞=⎜ ⎟+⎝ ⎠

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

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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

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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.

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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!

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Model Results, using market exchange rates (MER)

EIO-LCA Uni, US MultUS MRIO MRIOmixTotal CO2, domestic ? 151 158 158 84CO2, Canada ? 7 7 8 5CO2, Mexico ? 40 40 41 65CO2, China ? 168 169 195 336CO2, Japan ? 12 12 17 28CO2, Korea ? 2 2 3 5CO2, UK ? 1 1 2 2CO2, Germany ? 1 1 5 7CO2, ROW ? 60 61 61 102Total CO2 300 441 451 489 634

Model 1) 2) 3) 4) 5)

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How about total household consumption?

US Input-Output Data (BEA)

US Emissions Data (DOE,EPA)

Environmental Input-Output Model Average HEI

Total HH Final Consumption

Assume imports made with domestic technology—standard assumption

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US Total HEI: 2004 CO2, Dom Model

Total = 5780 Mmt CO2

0 250 500 750 1000 1250 1500 1750 2000

Food/NalcBev

Restaurants,Hotels

AlcBev,Tobacco

PrivateTransport

Housing

Furnish,Equip,Maint

Utilities

Rec/Culture

Mis Goods/Services

Clothing/Footwear

Communications

Health

Education

MT CO2 and $B HH Expenditure

Expend, $B

CO2, mt/yr

Similar ratios to EU, excluding Health

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‘Average’ HEI, Modeling imports

US Input-Output Data (BEA)

US Emissions Data (DOE,EPA)

Foreign Input-Output Data

Trade Data (US Census)

Foreign Emissions Data (Govt Stats, IEA)

Environmental Input-Output Model

7 Foreign Countries

3 Pollutants (CO2, SO2, NOx)

Average HEI

Total HH Final Consumption

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US Total HEI: 2004 CO2 , Int Model

Total = 6680 Mmt CO2 (4830 Domestic, 370 Annex 1, 1490 Non-Annex 1)

0 250 500 750 1000 1250 1500 1750 2000

Food/NalcBev

Restaurants,Hotels

AlcBev,Tobacco

PrivateTransport

Housing

Furnish,Equip,Maint

Utilities

Rec/Culture

Misc Goods/Services

Clothing/Footwear

Communications

Health

Education

MT CO2

Domestic

Ann1

NonAnn1

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CES: Determining Variation and Covariation in HEI

Income and Expenditure

Demographics: Family Size Home Size Urbanity Region of Country

Consumer Expenditure Data (BLS)

Use-phase Emissions Data (EIA)

Use-Phase Model

Micro-HEI

Environmental Input-Output Model

18,000 Households

~400 Commodities

18,000X

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How does HEI vary with income and expenditure? Income vs. Total CO2

y = ax2+bx+cR2 = 0.46

y = axε

R2 ≈ 0.48ε = 0.45Average HEI = 41 mt/hh

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Expenditure vs. Total CO2

y = ax2+bx+c

y = axε

R2 ≈ 0.73

R2 = 0.69

ε = 0.74

Average HEI = 41 mt/hh

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Expenditure and Family Size by CO2 by Category

0

20

40

60

80

$0 $20,000 $40,000 $60,000 $80,000 $100,000Yearly Expenditure, $/yr

CO2 footprint, mt/yr

Housing

Education

Health

AlcBev,Tobacco

Communications

Clothing/Footwear

Misc Goods/Serv

Rec/Culture

Utilities

Restaurants,Hotels

Furnish,Equip,Maint

PrivateTransport

Food/NalcBev

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Total and Domestic/International Shares

0.00

0.10

0.20

0.30

0.40

$0 $25,000 $50,000 $75,000 $100,000

Yearly Expenditure, $/yr

International Share, IntCO2/TotCO2

5th

25th

50th

75th

95th

HEI Expend/Inc R2

Total Expenditure 0.69Domestic Expenditure 0.61International Expenditure 0.54Total Income 0.46Domestic Income 0.44International Income 0.31

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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

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Quantifiable uncertainty Issues Does weighted CES capture most total

household expenditure?

0 200 400 600 800 1000 1200 1400 1600 1800

Food/NalcBev*

Restaurants,Hotels

AlcBev,Tobacco

PrivateTransport

Housing

Furnishings,HHEquip,Maint

Utilities

Rec/Culture

Mis Goods/Services

Clothing/Footwear

Communications

Health

Education

Total US HEI, mt CO2/yr

IOA

CES

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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

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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

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Future work

Incorporating international transport Quantifying income rebound effects Education and information transfer—

what is effective?

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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