University of Groningen. Exploring futures from an energy perspective Noorman, Klaas Jan

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1 University of Groningen Exploring futures from an energy perspective Noorman, Klaas Jan IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite from it. Please check the document version below. Document Version Publisher's PDF, also known as Version of record Publication date: 1995 Link to publication in University of Groningen/UMCG research database Citation for published version (APA): Noorman, K. J. (1995). Exploring futures from an energy perspective: a natural capital accounting model study into the long-term economic development potential of the Netherlands Groningen: s.n. Copyright Other than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons). Take-down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Downloaded from the University of Groningen/UMCG research database (Pure): For technical reasons the number of authors shown on this cover page is limited to 10 maximum. Download date:

2 CHAPTER 5: FLOWS OF ENERGY IN THE NETHERLANDS ECONOMY IN Introduction In an attempt to explore the physical potential for economic development under various sets of pre-conditions, ECCO determines the direct and indirect energy requirements to produce goods and services. In an ECCO model essentially two types of energy flows through the economy can be distinguished. The first flow consists of the direct energy requirements of the various sectors. The second flow consists of energy embodied in goods and services, since the direct energy consumed by a given sector is passed on through the system embodied in the output of that sector. As a result the output of the various sectors in an ECCO model is valued in embodied energy terms. This chapter gives an overview of the methods used for the determination of a set of energy data for the initial year of the Netherlands ECCO model. Once such a data set (consisting of direct and indirect energy requirements) has been composed it can act as a starting point for studying the physical potential for economic development. Firstly, data on direct energy requirements are needed. These data can be obtained from published national energy statistics. Therefore this chapter focuses mainly on the determination of the flows of energy embodied in goods and services through the Dutch economy in Section 5.2 discusses the method applied in determining the total primary energy requirements of the various sectors in In the field of energy analysis several methods have been developed (or are still being extended) to determine the total (i.e. direct and indirect) energy required to produce goods and services. In essence, there are two fundamentally contrasting methodological approaches that can be applied to determine the energy requirements in production processes: process analysis based on physical sciences, and input-output energy analysis (IOEA) derived from standard economic input-output analysis. Within this study, input-output energy analysis has been adopted to determine the indirect primary energy flows through the Netherlands economy in This is due to the fact that, analogous to the ECCO approach, IOEA is applied at the sector level rather 1

3 than at the level of a single operation. Therefore, IOEA is generally regarded as an appropriate method to trace aggregated energy flows through the economic system. In order to introduce the method of IOEA, some general principles of standard economic input output analysis are briefly discussed in sub-section Section 5.2 then continues with the presentation of the theory of IOEA. Several aspects of IOEA relevant to the methodological framework of ECCO, such as the incorporation of the imports and capital in the input-output analysis and inserting the direct energy data in the standard input-output table, will be discussed. Section 5.3 presents the results of the IOEA (i.e. the energy intensities [ in MJ/Dfl] of the input-output sectors) for the year More details are given in appendix 4. Section 5.4 discusses the application of the results of IOEA within the ECCO paradigm. Whereas IOEA surveys the transactions between the various sectors of an economy in a given year, ECCO aims at dynamically determining the physical potential of an economy to grow. Although they are different, both methods can be combined to determine the initial data set which is at the very base of constructing an ECCO model. Section 5.5 draws some conclusions on the use of IOEA and the application of the results. This chapter concludes with an extended discussion on the role of IOEA as a method to derive an initial data set for ECCO models. 5.2 General principles of standard input-output analysis 1 Input-output analysis was developed by the economist Leontief (1951). Originally, this method was applied to analyze modifications in the total production of the various production sectors caused by changes in the final demand. An input-output table is constructed from surveys of transactions between the various sectors of an economy in a given year. Though the processes underlying the transactions between the sectors are real, the exchange of goods and services is represented in monetary value units. Since the underlying processes are real this 1 An extended description of the method of input-output analysis is given in appendix 2. 2

4 provides a means to evaluate the primary energy requirements of an economy in a given year. Although a considerable set of economic data becomes available in applying input-output analysis, there are several limitations. Firstly, an input-output table surveys the transactions at a high level of aggregation, assuming that each sector produces a single representative output. In reality the output structure of a sector is far from homogeneous: for instance the I-O sector chemical final products industry produces a broad range of products, many of which require different production processes. Clearly an input-output table depicts only a limited survey of the heterogeneous character of the various production processes. Secondly, input-output analysis is a linear technique: the input into each sector is assumed to be proportional to the total output of that sector, thereby emphasising a fixed state of technological development. Finally, it should be mentioned that an input-output analysis is a steady-state analysis: an input output table reflects the transactions in an economy in one particular year as if no changes in sectors and in output variety per sector occur in that period Input-Output Energy Analysis Input-output energy analysis benefits from the standard economic input-output analysis. By utilizing IOEA it is assumed that the total energy inputs for production leave the economy through final demand deliveries. Wright (1974, 1975) was among the first to calculate the energy costs of production from US and UK input-output tables, using 1963 and 1968 input-output tables respectively. One year later, investigating the potential for saving energy through substitution of products and services, Bullard and Herendeen (1975) used 1967 data to calculate the energy intensities of the US economy applying a slightly modified IOEA. In order to compare the results of the Bullard and Herendeen study with the results published by Wright (1974), Bullard and Herendeen also performed in the same study a similar calculation for the year It appeared that the energy intensities calculated by Bullard and Herendeen were significantly higher than the results found by Wright. This was mainly due to the fact that Wright assigned zero energy costs to imports whereas Bullard and Herendeen counted the imports as if they were produced domestically. Another difference in the outcome resulted from 3

5 Wright s assumption that all sectors paid a uniform energy price whereas Bullard and Herendeen took into consideration differences in energy prices paid by the different sectors. Some details relevant to the incorporation of imports and the differences in energy tariffs are discussed later in this section Description of the method In this section a summary is given of the procedure that is used to calculate the energy intensity of an economic sector (cf. Wilting, et al., 1993; Peet, 1993). A few assumptions underlie the calculation of the cumulative energy requirements of the production of goods and services. Firstly, analogous to the assumption of the balance of payments being in equilibrium in standard input-output analysis (see appendix 2), in IOEA it has been assumed that the energy input into a sector equals the energy output of that sector: e T T Z T x D (5.1) In equation 5.1 e T T represents the transposed vector of direct energy inputs, represents the transposed vector of cumulative energy intensities whereas Z and x D represent the matrices of intermediate deliveries and total production respectively. The energy balance is shown in figure 5.1. The energy embodied in the total production of sector j ( j x j in MJ) is equal to the product of the energy intensity of sector j ( j in MJ/Dfl) and the total production of sector j (x j in Dfl) or, the embodied energy in the production output equals the sum Figure 5.1 The energy balance of an economic sector. of the direct energy inputs (e j ) and the energy embodied in the intermediate deliveries to that sector (Σ i Z ij ). Furthermore in IOEA it is assumed that the direct energy requirements are proportional to the total production: e T d T x D (5.2) where d T represents the vector of the direct energy intensities. Substitution of 4

6 equation 5.2 in 5.1 and recollecting that Z=Ax D (see appendix 2) leads to: d T x D T Ax D T x D (5.3) Solving for the cumulative energy intensities leads to: T d T (I A) 1 (5.4) Since the cumulative energy intensities represent the total primary energy requirements per unit of monetary output, they provide a link between the primary energy requirements of the output and the monetary value of the physical output. The basic principles of IOEA may be illustrated with an example of a model economy consisting of 3 sectors. Table 5.1 summarizes a standard input-output table in which the transactions are described in monetary units. To incorporate energy in the analysis, the assumption has been made that the direct energy requirements of sector 1, 2 and 3 are 60 TJ, 200 TJ and 550 TJ respectively. The total direct energy input thus amounts to 810 TJ. Table 5.1 An example of an input-output table for an economy with 3 sectors. sectors sub-total final demand total prod sub-total primary costs total costs Following equation 5.1, the energy balance of every sector can be formulated: 20 1 = = =

7 Solving this set of equations results in an energy intensity of 10.0 MJ/Dfl, 5.0 MJ/Dfl and 15.0 MJ/Dfl for the sectors 1, 2 and 3 respectively. As a result of the incorporation of the intermediate deliveries, the distribution of the total energy input over the three sectors has changed compared to the direct energy requirements of the sectors. The division of the total energy input into the economy over the sectors can be calculated by multiplying the sectoral energy intensities with the final demand deliveries of each sector and has been calculated to 200 MJ for sector 1, 100 MJ for sector 2 and 510 MJ for sector Direct energy requirements and energy tariffs Input-output energy analysis aims at calculating the total primary energy requirements per monetary unit of output. The only data required to evaluate the allocation of primary energy over the various sectors are the direct primary energy inputs into the economy. Appendix 3 presents an overview of the direct fuel requirements of the various sectors in the input-output table of the Netherlands for In an economy, primary energy becomes available through the energy supply sectors. In an input-output table the energy transactions from the energy supply sectors to the non-energy sectors are measured in monetary terms. It has been mentioned already that the way in which the energy data are enclosed in the procedure might affect the outcome of the analysis. In assigning energy requirements to the final demand production of the various sectors, Wright (1974) assumed that energy was sold at a uniform price. Bullard and Herendeen (1975) pointed out rightly that this might lead to serious errors as different energy prices are paid by the various sectors. Therefore, transactions of energy expressed in monetary terms do not automatically correspond with energy transactions. Several methods have been proposed to deal with the differences in energy prices. Wilting et al. (1993) give a more detailed discussion on three methods and the impact of these methods on the outcome of the analysis. One of the methods proposed to tackle the difficulties related to the sectoral energy prices, concerns the assignment of the direct fuel inputs directly to the various end users (Van Engelenburg et al., 1991). Due to this breakdown of the direct energy demand per final demand consumer a more detailed evaluation of the direct and indirect energy requirements of the input-output sectors is possible. 6

8 Table 5.2 A breakdown of the energy requirements of the various energy carriers (MJ/MJ). Energy carrier ERE extr (MJ/MJ) ERE tran (MJ/MJ) ERE total oil natural gas coal electricity others It is assumed that the total domestic gas demand originates from indigenous production. 2 The losses of cokes production as a ratio of the total coal imports. 3 In 1987 the cumulative energy requirements of electricity generation span a range between 2.44 MJ/MJ and 2.83 MJ/MJ depending on the type of energy carrier and power station (Nieuwlaar, 1992). In this study an average of 2.55 MJ/MJ has been assumed. The losses and auto-consumption of electricity distribution are calculated to 0.17 MJ/MJ. The cumulative energy requirements of electricity at final demand are therefore 2.72 MJ/MJ. 4 In 1985, 2 percent (52.7 PJ) of the direct fuel requirements concerned nonprimary energy input. The major proportion of this is steam. Since primary energy was needed for steam production, the energy requirements are already accounted for in an earlier stage. Therefore an ERE of 1.00 MJ/MJ has been assumed. The primary energy requirements of the non-energy sectors are calculated by assigning the energy required for fuel production to the non-energy sectors. This has been done by multiplying the fuel requirements with the ERE values of the various energy carriers (see also section 3.6.4). To avoid double counting the direct energy use of the energy sectors has been set to zero. Table 5.2 lists the ERE s of the different forms of energy in the Netherlands. A distinction has been made between the primary energy costs of the extraction of imported energy (ERE extr ) and the energy losses and auto- consumption of the 7

9 domestic energy supply sector (ERE tran ). The first are derived from Nieuwlaar (1992), the latter are calculated from energy statistics (CBS, 1986) IOEA and imports In this section the role of the imports is given further attention. In an input-output table the imports are listed as a part of the primary costs in a row. Since the objective of IOEA is to determine the total energy requirements for production, the primary energy embodied in the imports should also be taken into account. In his study Wright (1974) did not take account of the energy costs of the imports. Bullard & Herendeen initially calculated the energy-intensities of domestic technology by removing the imports of a sector from the total output of that sector and subsequently reintroducing them to account for the energy embodied in the imports. This way they assumed that the imports have domestic counterparts (Bullard & Herendeen, 1975). In general two kinds of imports are distinguished: competitive and noncompetitive imports. Competitive imports are imports which have indigenous equivalents. Therefore these imports could also have been produced domestically. Non-competitive imports do not have domestic counterparts. Normally, the latter comprise only a relatively small proportion of the total imports (although this differs per sector). By convention, in the Netherlands 80 percent of the noncompetitive imports are considered services. About 50 percent of the rest are tropical agricultural products as cacao, coffee-beans and cotton (Kazemier et al., 1991). Because services take up an extensive proportion of the non-competitive imports and the energy-intensity of the imported agriculture products and raw resources is expected to be low, the value of the energy-intensity of sector 51 (government, civilian) i.e. 2.1 MJ/Dfl, has also been assigned to the noncompetitive imports. A breakdown of the competitive imports is given in an additional import matrix presenting the imports per sector and the sectors to which they are transferred to. In order to calculate the energy embodied in the competitive imports the production methods of goods and services entering the Netherlands economy were considered to be identical to indigenous production methods, using the same level of technology. To evaluate the embodied energy contribution of the competitive imports to the Dutch economy, the matrix of the competitive imports 8

10 has been added to the direct requirement matrix A, herewith assuming that the imports are produced domestically. By this change of matrix A primary energy is assigned to the imports, resulting in a rise of the energy-intensities. This is illustrated with an example, using table 5.1. In this table the competative imports are part of the primary costs. In this hypothetical case it was assummed that 1 million Dfl. of the primary costs of sector 1 (i.e. 4 million Dfl.). is assigned to the competative imports from the transferred sector 2. Analogous to this, sector 2 imports of a worth of 10 million Dfl. from the transferred sector 3, whereas the competative imports of sector 3 are assumed to be 3 million Dfl., derived from the transferred sector 2. Taking into account the competative imports a new energy balance can be formulated. To compare this new set of equations with the energy balance formulated in sub-section both sets of equations are shown underneath. without imports: with imports: 20 1 = = = = = = After including the competitive imports, the energy-intensities of the sectors 1, 2 and 3 are calculated to be 12.7 MJ/Dfl., 8.0 MJ/Dfl. and 17.8 MJ/Dfl. respectively. These values are 25%-50% higher than those neglecting imports. Assigning energy inputs to the competative imports the total primary energy input is calculated to 1020 TJ IOEA and capital depreciation The energy embodied in the capital depreciated during the production process represents a significant proportion of the indirect energy requirements. Casler (1983) estimated that about 20 percent of all energy used in production processes is consumed in the production of capital goods. Thus ignoring the flow of 9

11 embodied energy in capital inputs leads to an underestimate of the energy intensities. In this respect Wilting (1993) found that not taking into account the energy embodied in depreciated capital resulted in an average underestimate of the energy intensities of 16 percent for the year ECCO includes the consumption of capital (i.e. capital depreciation) in the determination of energy embodied in the physical output of a sector. Since the objective is to estimate the flows of indirect energy in the year of initiation of the ECCO simulations, the contribution of indirect energy inputs through capital depreciation has been included in the IOEA for In an input-output table, capital investments are listed as a final demand vector whereas the depreciation of capital is listed as a row vector in the primary costs matrix. The capital depreciated in a production process in a given year refers to past capital investments. Therefore, for a properly estimate of the embodied energy in depreciated capital, one should make use of a dynamic analysis. Since in the Dutch input-output table capital depreciation is listed as a row vector, the origin of the depreciated capital cannot be traced back. To resolve this complication, the assumption has been made that depreciated capital from past investments has the same origin as the capital investments in the year of the survey. Inserting both the vector of capital investments and the row vector of capital depreciation into the intermediate matrix Z leads to an increase of the direct energy requirements matrix A. As energy is assigned to capital depreciation the cumulative requirements increase. For 1985 the inclusion of capital depreciation resulted in an average increase of the energy intensities of 15 percent confirming Wiltings findings (1993). 5.3 Results for the year 1985 The method of IOEA has been applied to the year The standard input-output table of the Dutch economy consists of 59 sectors. Sector 59 includes goods and services of unidentified origin and corrections. In order to include the energy embodied in the capital depreciated during the production process, this sector has been replaced by the sectoral capital depreciation. The analysis has been carried out for the different types of energy carriers consumed by the production sectors in Appendix 4 gives the results per type of energy and the cumulative 10

12 energy intensity per sector. Table 5.3 contains a summary of the results per ECCO sector. The energy intensities of the ECCO sectors are calculated by determining the weighted average of the energy intensities of the corresponding input-output sectors. Table 5.3. Direct and total energy intensities of the ECCO sectors (MJ/Dfl 1985 ). ECCO sectors corresponding I-O sectors direct cumulative Industry 5-24, 26-36, Market services 41-43, 46-50, Non-market services Agriculture Transport Energy supply 3, 25, 37, Weighted average This table shows a large gap exists between the direct energy requirements and the total energy requirements. The direct energy intensities only represent the total direct primary energy input into production (i.e PJ, see appendix 3). Besides the direct energy input, the cumulative energy intensities also include the intermediate deliveries and the energy embodied in imports and depreciated capital. As mentioned before, not taking into account the imports and capital depreciation results in an underestimate of the energy intensities. The average amount of primary energy required to produce one guilder worth of output has been calculated to be 5.7 MJ/Dfl. Clearly, the primary energy requirements of the various sectors show a wide range. The average energy intensity of the Dutch industry amounts to 10.0 MJ/Dfl., about four times as high as the average energy intensity of the services sectors. However, it should be mentioned that the industry sector as defined in the Dutch ECCO model includes a wide range of industrial activities, each of which calls for different energy inputs per unit of output. Industrial activities that are at the front-end of the chain 11

13 of production processes, such as the basic chemical products industry or the basic metal industry, are generally very energy intensive, having an energy intensity of 29.1 MJ/Dfl. and 22.4 MJ/Dfl. respectively. On the other hand, the primary energy requirements of industries operating at the back-end of the production chain, such as the manufacture of instruments, are much lower (3.5 MJ/Dfl.). The agricultural energy intensity is high (close to that of the primary energy requirements of the industry). This mainly results from the consumption of large amounts of natural gas in the horticultural sector and the use of energy-intensive inputs as pesticides and artificial fertilizers. As mentioned before, the energy intensities of the energy sectors only include the indirect energy requirements (i.e. the energy embodied in goods and services delivered to these sectors to ensure the continued of the supply of energy). The cumulative energy intensities derived from IOEA were applied to determine the flows of embodied energy between the various ECCO sectors. The application of the data from IOEA within the ECCO framework is discussed in the next section. 5.4 Results of IOEA applied to the ECCO approach At first sight, a combination of input-output analysis and system dynamic modelling might seem far-fetched. The former method has been characterized as static, as it surveys the transactions within an economy within a given year, whereas the latter approach studies the evolution of (complex) systems in time. In this study the data derived from IOEA were used to assess the flows of embodied energy within the Netherlands economy as well as the flows of embodied energy that pass the geographical boundaries of the Netherlands in the year of initiation of this study (1985). Furthermore, the data from IOEA have been applied to estimate the energy embodied in the capital stocks in 1985 (this is discussed in the next chapter). Once initiated with these energy data ECCO can be applied to evaluate the changes in the quality and magnitudes of the energy flows, within various sets of prepositions. Analogous to the energy balance of a single economic sector as shown in figure 5.1, at a high level of aggregation the energy balance of the entire economy can be determined. In order to quantify the flows of embodied energy, each row 12

14 of the standard input-output table has been multiplied by the cumulative energy intensity of that sector. Figure 5.2 shows the resulting energy balance of the Netherlands economy in Figure 5.2 The energy balance of the Dutch economy. Thin arrows represent direct energy flows whereas bold arrows represent flows of embodied energy. In figure 5.2 the dotted line represents the system boundary of the Dutch ECCO model. The energy embodied in the final demand production amounts to 3149 PJ. The generation of this output required a direct primary energy demand of 1733 PJ (1161 PJ PJ). Furthermore, the import of 1190 PJ of energy embodied in goods and services was required to realize this production output. The contribution of primary energy embodied in depreciated capital was calculated to total 226 PJ. Of the total input, 1387 PJ was reallocated among the 59 sectors through intermediate deliveries. An attempt has been made to distinguish between the direct primary energy inputs gained from domestic resources and primary energy import. This requires the assumption that the direct natural gas requirements of the non-energy sectors (657 PJ) as well as the direct natural gas inputs into electricity production (301 PJ) have been derived from domestic reserves. Furthermore, it has been assumed that oil from indigenous production (174 PJ) was consumed in domestic production processes. Multiplying these oil 13

15 and natural gas inputs with their ERE s results in a flow of 1161 PJ of primary energy originating from domestic energy reserves. This means that about 67% of the direct primary energy inputs was derived from domestic resources in Figure 5.2 only shows the flows of direct energy and indirect energy associated with the production of goods and services at a high level of aggregation. Though very illustrative, at this level of aggregation the figure offers neither insight in the import of primary energy in consumption goods or imported investment goods nor in the breakdown of the output of the production sector over the various demands. Furthermore, no detailed insight is given in the distribution of the intermediate deliveries over the various sectors. In order to get a more detailed insight in the energy flows through the economy, an energy input-output table was constructed. The energy input-output table (table 5.4) comprises the economic sectors distinguished in the Dutch ECCO model. Again, for each sector in the input-output table the energy balance is in equilibrium. This means that the sum of the energy embodied in the intermediate requirements, the imports, depreciated capital and the direct primary energy requirements of a sector equals the primary energy embodied in the intermediate deliveries and final demand production of that sector. The energy input-output table is regarded as the second step in the generation of an initial data set for the Dutch ECCO model. It offers a more detailed insight in the embodied energy flows between the different production sectors as well as in the contribution of primary energy embodied in imports and capital depreciation. 14

16 Table 5.4 The 1985 energy input-output table of the Netherlands economy (PJ). ind mks nms agr tran other sub total export dom. demand fin. demand ind mks nms agr tran other sub total import RDC E-input ind : industry export : export mks : market services dom. demand : domestic final demand nms : non-market services fin. demand : total final demand agr : agriculture import : import tran : transport RDC : capital depreciation other : other sectors E-input : direct primary energy input The information derived from table 5.4 can be applied to determine the direct and indirect energy flows through the Netherlands economy in more detail than in figure 5.3. Taking the Gilliland diagram as point of departure, the combination of data on direct and indirect energy requirements has resulted in a diagram of direct energy flows and embodied energy flows through the Dutch 15

17 Figure 5.3 A flow diagram of the energy flows through the Netherlands economy in Thin arrows represent direct energy flows, whereas bold arrows represent flows of embodied energy. economy in This flow diagram is shown in figure 5.3. All direct energy flows are expressed as primary energy flows, i.e. the fuel inputs are multiplied with the energy carrier-specific ERE values 2. Therefore the energy losses and the auto-consumption of the energy sector (which consists of the 2 In the continuating text of this section, covering figure 5.3, for an easy comparison with the Dutch energy statistics (CBS, 1986) the quantities of direct energy flows are given in PJ of fuel. For this reason and due to the fact that the energy flows shown in figure 5.3 are highly aggregated, the energy data mentioned in the continuating text cannot be easily compared. In order to derive the primary energy data as given in figure 5.3 from the fuel data, the latter have to be multiplied by the various ERE values, given in table

18 energy production sector and the energy transformation sector) are allocated among the end users. The domestic natural gas production represented by far the largest proportion of the domestic energy extraction (2555 PJ) 3. The extraction of crude oil amounted to only 174 PJ. From the total natural gas production 1267 PJ was exported (in figure 5.3 this amount is multiplied by the ERE of natural gas (1.008 MJ/MJ), resulting in an export of 1277 PJ) Large quantities of crude oil were imported and refined in the oil refineries to satisfy both domestic demand and, for a considerable part, foreign markets. In 1985, 1597 PJ of crude oil was imported. Other fuel imports comprised natural gas condensate as refinery feedstock (106 PJ), coal (341 PJ) and small amounts of natural gas (66 PJ) and electricity (19 PJ). The transit function of the Netherlands is reflected in the throughput of a considerable quantity of oil products (1210 PJ). Besides the throughput of oil products, a significant fraction of the output of the refineries was exported (763 PJ of oil products). Finally, the outgoing flow of energy from the energy transformation sector comprised small quantities of crude oil (62 PJ) and coal (67 PJ). Some 833 PJ of primary energy was consumed directly in the households. In this amount the direct fuel use of private cars has been included (194 PJ). This may have led to an over-estimate of the direct energy use of households since a part of the private car fleet was used for job-related functions. With respect to the direct energy flows it can be stated that the energy balance of the Netherlands was almost in equilibrium: the total primary energy import amounted to 3670 PJ whereas the total primary export measured 3630 PJ. The primary energy embodied in the final demand production has been calculated to 3149 PJ. The production sectors have to meet several demands. About 26 percent (833 PJ) of the energy embodied in the final demand output of the production sector was required to meet final demand consumption. By convention, final demand consumption includes the consumption of households (651 PJ) and that of the government (165 PJ). Part of the imports directly covered final demand consumption (246 PJ). 3 In the following tekst I use this shorthand to indicate a quantity of energy having a caloric value of... PJ equivalence. 17

19 Furthermore, 2 percent (17 PJ) of the domestic final demand production was consumed by the banking system. In order to produce the investment goods required to maintain and expand the stock of capital goods in the Netherlands, 248 PJ of primary energy was needed. Besides this, a significant part of the energy embodied in investment goods came from abroad (138 PJ). In contrast with the direct energy balance (which was more or less in an equilibrium) the primary energy embodied in the exported goods and services (2035 PJ) grossly exceeded the import of embodied energy (1574 PJ), reflecting the export-oriented character of the Dutch economy. From this it can be concluded that the Dutch economy was a net energy exporter in Conclusions The method. From this chapter it can be concluded that standard input-output analysis, generally accepted as a conventional economic technique, provides a valuable base of carrying out an energy analysis of an economy at a high level of aggregation. The incorporation of primary energy in the input-output methodology enables to modify the standard input-output table into an input-output energy table as shown in table 5.4. It was shown that IOEA provides a useful means of linking the physical nature of production processes with the monetary measurement of the output of these production processes. Therefore, IOEA can be regarded as an appropriate method to trace the primary energy flows through an economy. The results For every input-output sector the energy intensities ( ) have been calculated per type of energy carrier. The average of the Dutch industry has been calculated at 10.0 MJ/Dfl, about four times as high as the average of the services sector. The average primary energy required to produce one guilder worth of output in the Netherlands in 1985 has been calculated at 5.7 MJ/Dfl. It turned out that a large gap exists between the direct energy requirements and the total energy requirements in This leads to the conclusion that, in the context of reducing the use of primary energy, energy conservation strategies should focus on both direct energy saving potentials and energy conservation in indirect energy consumption. 18

20 The input-output energy table and the flow diagrams showing the direct and indirect energy flows through the Dutch economy in 1985 provide a very useful means to compose an initial set of energy data for the Dutch ECCO model. 5.6 Discussion Input-output analysis versus process analysis As mentioned before, two contrasting methods can be applied to determine the primary energy requirements of production processes. The first one, IOEA has been extensively discussed in this chapter already. The second method, process analysis, divides complex operations in series of unit operations. It is considered a major advantage of process analysis that energy requirements of unit operations can often be measured accurately. Process analysis is therefore a suitable method to use when evaluating the energy requirements of a specified process. The system boundaries of the process under study are determined by making distinctions in the order of analysis. By expanding the system boundaries, the number of inputs to be evaluated rapidly increases with the level of desaggregation while their contribution to the end-result becomes increasingly smaller. It is generally seen as a disadvantage of process analysis that the required data are a function of the level of desaggregation. To define the system under study, the IFIAS workshop (1974, p. 40) recommended four levels of analysis, whereby the energy input decreases from the first level to the fourth level. The first level only includes the direct energy and the transport energy. The second level includes the energy required to make the material inputs available. In many cases these two levels will comprise of 90 percent of the GER. The energy requirements to produce the capital equipments is included at level 3. Finally, although often negligible, the fourth level takes into account the energy to make the machines that make the machines. The choice for one of the available methods depends on the required level of accuracy of the results and on the availability of data and time. For two reasons IOEA was selected for this study. Firstly, as in ECCO, IOEA is applied at a sector level rather than at the level of a single operation. Secondly, IOEA can be applied to trace the primary energy flows through the economy in a single year. Herewith IOEA provides a means to compose an initial set of energy data for the Dutch 19

21 ECCO model. The linkage between a statical method and system dynamics modelling By applying IOEA, the energy flows through an economy are only surveyed within a given year. ECCO in turn, dynamically determines the direct and indirect energy flows related to the societal metabolism over a long time period. IOEA was applied to generate an initial data set for the Netherlands ECCO model. This initial data set should consist of the direct and indirect energy requirements of the sectors in the economy, the distribution of the output of the production sectors over the various demands, and the technological state of the economy. A standard input-output table surveys the technological structure of the economy in a given year. Several indicators mark the technological state of development of the economy. Firstly, the ratio between inputs and output emphasises the given state of technological development. Furthermore, technological development is characterized by the direct and indirect energy requirements of the production sectors. The flow diagrams derived from IOEA indicate the relationships between primary energy requirements for production processes and the primary energy embodied in investment goods, consumption goods and exports. From this starting point ECCO can be applied to indicate the conditions necessary to maintain the activities of the economy along a given time path and to evaluate the long term consequences of various development strategies. It was shown that the combination of the statical input-output analysis and the ECCO approach enhances the merits and decreases the shortcomings of the individual methods. 20

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