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

2. Energy Management Economic Input-Output Life-Cycle Assessment Industrial Ecology: Tools EIO EIO-LCA Hybrid EIO-LCA Micro-scaleMacro-scale Environment Economy MFA LCA Ecodesign LCAA

3. Energy Management Economic Input-Output Life-Cycle Assessment 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 Industry Market Households $ $ $ ServicesConsumption Exports Imports Industrial Sectors

4. Energy Management Economic Input-Output Life-Cycle Assessment 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 such inter- industry trading influenced the overall demand for labor and capital within an economy. History Ecomic Input-Output tables, History

5. Energy Management Economic Input-Output Life-Cycle Assessment 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 Basics

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

7. Energy Management Economic Input-Output Life-Cycle Assessment IO model - Leontief W. Leontief (Nobel prize in economics in 70’s) Part of National Income and Product Accounts Total Inputs = Total Outputs Transaction table beetween sectors Final demand Total Output x 11 + x 12 + x 13 + … + x 1n + y 1 = x 1 x 21 + x 22 + x 23 + … + x 2n + y 2 = x 2 x 31 + x 32 + x 33 + … + x 3n + y 3 = x 3 ……………………………………. x n1 + x n2 + x n3 + … + x nn + y 3 = x n Sales $

8. Energy Management Economic Input-Output Life-Cycle Assessment Quadro de transacções

9. Energy Management Economic Input-Output Life-Cycle Assessment Intermediate Input (€) Primary Input (€) / Technical Coefficient Matrix (-) = Tecnichal Coeficients Matrix Total Input (€) Intermediate Technical Coefficient Matrix (-) Primary Technical Coefficient (-)

10. Energy Management Economic Input-Output Life-Cycle Assessment IO model - Leontief If we define an input coefficient a ij, that quantifies the output of sector i absorbed by sector j per unit of its total output of sector j where, –a ij, is the input coefficient of product of sector i into sector j –x ij, is the amount of the product sector i absorbed, as its input, by sector j –x j, is the physical output of sector j then or, in a matrix form

11. Energy Management Economic Input-Output Life-Cycle Assessment 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, –A 2 +A 3 +…+A ∞ are, respectively, the 1 st, 2 nd, and n tier indirect requirements of the coefficient matrix.

12. Energy Management Economic Input-Output Life-Cycle Assessment Quadro de transacções

13. Energy Management Economic Input-Output Life-Cycle Assessment Quadro de coeficientes de Leontief

14. Energy Management Economic Input-Output Life-Cycle Assessment 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 between producers and consumers and the interdependence of industries. An advantage of input-output tables is that economic components, such as income, output and expenditure, are presented in a consistent framework reconciling the discrepancies between the estimates of these components. Classical uses

15. Energy Management Economic Input-Output Life-Cycle Assessment 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 producing sectors sums to Gross Domestic Product (GDP), one of the fundamental measures in national accounting. Input-output tables can be, and are being, used for various economic analyses within and outside Government. The use of input-output tables is particularly important for analyzing structural adjustment in industry. Uses

16. Energy Management Economic Input-Output Life-Cycle Assessment Mathematical formulation of the Input – Output Model A ij Matrix of the intermediate Input Y i Vector of final consumption X i Vector of total output  A ij + Y i = X i

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

20. Energy Management Economic Input-Output Life-Cycle Assessment IO Principles Coefficient matrix Leontief Inverse The difference between the values is the due to the indirect effect (in this case 0,37-0,18 =0,17) Direct effect 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. Energy Management Economic Input-Output Life-Cycle Assessment 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. Energy Management Economic Input-Output Life-Cycle Assessment 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. Energy Management Economic Input-Output Life-Cycle Assessment GWG Emissions in the Portuguese Economy NAMEA Unidade 10E6 escudos SoxNoxCOVNMCH4COCO2N2ONH3 (ton) (Kton)(ton) 01 Agricultura e Caça 259522843804220308379231464788578072 02 Silvicult. E Expl Flor. 17615553421441254192341 03 Pesca 9848668131529109448211 04 Carvão 2572 05 Petróleo 53521715454480472512972413112 06 Electr., Gás e Água 16693372807385152224016135211 07 Min Fer. E não Fer. 513511605965549677597619 08 Min. não Metálicos 09 Porcelanas e Faiança 4451268944174646666226873 10 Fab. Vidro e Art. Vid 120842184521505838949 11 Out. Mat. Construção 273209531471310035967650275 12 Produtos Quimicos 4417385577335920320148532666971 13 Produtos metálicos 2242531052239461 14 Máq. Não Eléctricas 1921173214 15 Maq. Out. Mat. Eléct. 13014720713527 16 Material Transporte 697830927314 17 Aba. Cons. de Carne 667235202469611 18 Lacticínios 10433683137108962 19 Conservação de Peixe 485171106799750141243 20 Óleos e Gord. Alim. 267943050102825 21 Prod.Cereais e Legu. 48617218421750481 22 Out. Prod. Alimentar 224679320412051233351367 23 Bebidas 148252347103591153213110 24 Tabaco 92942893711701

24. Energy Management Economic Input-Output Life-Cycle Assessment 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. Energy Management Economic Input-Output Life-Cycle Assessment 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 20 21 23 19 22 24 30 6 8

26. Energy Management Economic Input-Output Life-Cycle Assessment 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. Energy Management Economic Input-Output Life-Cycle Assessment 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 8.Petroleum 9. Restaurants & Hotels

28. Energy Management Economic Input-Output Life-Cycle Assessment 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 EIO-LCA HEIO-LCA

29. Energy Management Economic Input-Output Life-Cycle Assessment 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  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. Foreground Background