EMERGY SYNTHESIS 3: Theory and Applications of the Emergy Methodology

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1 EMERGY SYNTHESIS 3: Theory and Applications of the Emergy Methodology Proceedings from the Third Biennial Emergy Conference, Gainesville, Florida Edited by Mark T. Brown University of Florida Gainesville, Florida Managing Editor Eliana Bardi University of Florida, Gainesville, Florida Associate Editors Daniel E. Campbell US EPA Narragansett, Rhode Island Vito Comar State University of Mato Grosso do Sul Dourados, Brazil Shu-Li Haung National Taipei University Taipei, Taiwan Torbjorn Rydberg Centre for Sustainable Agriculture Uppsala, Sweden David Tilley University of Maryland College Park, Maryland Sergio Ulgiati University of Siena Siena, Italy November 2005 The Center for Environmental Policy Department of Environmental Engineering Sciences University of Florida Gainesville, FL ii

2 26 Emergy Evaluation of Welfare: A Case Study in Italy Enzo Tiezzi, Federico M. Pulselli, Fabiana Mapelli, and Laura Fugaro ABSTRACT The combined expressions of human behaviour affect the external environment in different ways that can be measured and evaluated by means of several approaches and indicators. Emergy evaluation is a suitable tool for measuring the real impact of human activity on a territory as a result of resource use. In order to provide a complete picture of a socio-economic system, other indicators should be considered, such as the economic performance of the system; for example, the local GDP. While GDP is a purely economic indicator for an anthropogenic system, other instruments are more suitable for measuring the socio-economic aspects, such as welfare. In particular, the Index of Sustainable Economic Welfare (ISEW) was introduced in 1989 by Herman Daly and John Cobb Jr. as a critical alternative measure of quality of life. The results of its applications in various countries reveal that today GDP and ISEW (both expressed in monetary terms) vary considerably. Since the latter accounts for the social and environmental implications and damage produced by human activities, it often results in lower values than those for GDP. This paper presents the results of emergy evaluation for a territorial system: the Province of Siena (central Italy), together with its ISEW, which is calculated for the first time at a local level. The aim is to determine the environmental cost of welfare within a socio-economic system by observing the ratios of emergy to GDP and to ISEW. INTRODUCTION Emergy evaluation, calculated for a given territorial area, provides an accounting system for all the inputs supporting all the processes, both natural and anthropogenic, within the territory. In general, it is arduous to ascertain the sustainability of a geographically circumscribed system, which is only separated from its surroundings by administrative boundaries. However, to supply policy-makers with guidelines concerning the proper management of resources and land in such systems, analytical tools must be developed to evaluate the behaviour of the populace of a territory. Assigning a nonmarket value to assets allows for a deeper knowledge of the system and may encourage the efficient management of resources from a sustainability perspective. An emergy approach may also be chosen to drive the development of a system, not as an alternative, but as a complementary tool with respect to traditional national (or even local) accounting instruments. There is a substantial difference between attaching a value to resources through emergy evaluation and assigning them a market price. Emergy determines the weight of a good or a service on the basis of a common unit (for example, solar energy), which is objective. On the contrary, a market price is the product of the individual preferences and benefits expressed by producers and consumers. Furthermore, emergy methodology embraces all the assets involved in a process, while economic systems evaluate assets without market relevance only indirectly. Therefore, a variety of methodologies are most likely to bring together a set of parameters capable of guiding decisions in terms of land use, resource management and territorial planning by policy-makers

3 From the theoretical perspective, in-depth research into the relationship between economic and emergy evaluations and their interaction is still required. In particular, this paper presents a comparison of the environmental performance of a territorial system measured in terms of emergybased indicators, and its economic performance in terms of GDP (in this case study at the local level, we will use a measure of local GDP). Furthermore, in order to reveal a complete panorama of the system, additional aspects will be considered. While GDP is a purely economic indicator of wealth, other instruments are more suitable when measuring the socio-economic aspects, such as welfare, of an anthropogenic system. In other words, GDP is strongly linked to economic or technological conditions and it does not completely reflect the extent of social well-being that a local populace truly enjoys. On the contrary, it is necessary to introduce a measure of regional well-being which might be compared with the local GDP. In 1989, the Index of Sustainable Economic Welfare (ISEW) was introduced by Herman Daly and John Cobb Jr. as a critical alternative measure of welfare with respect to GDP. Since then, many studies have been published at the national level (see, for example, Stockhammer et al, 1997; Guenno and Tiezzi, 1998; Castañeda, 1999), together with some critical (Neumayer, 1999, 2000) or supporting (England, 1998; Lawn, 2003) positions regarding this indicator. This paper represents the first local application of the ISEW and investigates the implications arising from a comparison of the ratios of emergy to local GDP and emergy to ISEW. Our aim is to give a qualitative dimension to the outcome of economic and emergy evaluations concerning the behaviour of a populace within a territorial system. THEORETICAL BACKGROUND Emergy and Economics The results of an emergy evaluation at a territorial level can be related to several economic or socio-economic parameters such as GDP, employment, the import of goods and services, industrial and urban settlements. In particular, the so-called emergy/money ratio, attained by dividing total annual emergy use (the sum of indigenous resources used and imports) by the gross economic product, is defined as the amount of real wealth that circulating money buys (Odum, 1996, p. 202). The emergy/money ratio might also be useful for evaluating the emergy contribution in goods and services where data are given in dollars. The inverse of the emergy/money ratio, vice versa, may be calculated to put emergy wealth in economic terms familiar to most people (Odum, 1996, p. 312). In general, the emergy/money ratio can indicate the amount of resources supporting the economic performance of a territorial system. However, when dealing with sustainability, the meaning of its value is not univocal and depends on several factors such as the makeup of emergy (its percentage of renewability and non renewability, its dependence on other ecosystems, etc.) and economic results (the foreseen outcome of private consumption, investments and public expenditure). In particular, while GDP is a good indicator of the capacity of the system to generate marketable products and a good measure of this aspect of its economic performance, at the same time, it is not a sustainability indicator because it does not account for numerous factors that are fundamental to environmental, social and even economic sustainability. Emergy accounting is useful in revealing assets not contemplated by economic accounting systems, but must be related to other indicators capable of providing additional qualitative information. The Index of Sustainable Economic Welfare As an alternative to the GDP, the Index of Sustainable Economic Welfare is a list of economic, social and environmental factors that provide an integrated index of economic welfare. The ISEW methodology was introduced by Daly and Cobb (1989) with the purpose of adjusting GDP in order to produce a more accurate measure of economic well-being (Castañeda, 1999). It can also -338-

4 provide necessary information for drawing up good economic policy, calculating its impact on the environment and its sustainability. Daly and Cobb tried to design an aggregate measure of welfare by arguing that the flow of services to the populace from all sources, rather than the output of marketable commodities, is indicative of economic welfare (England, 1998). The ISEW calculation starts with private consumption, which is directly connected to wellbeing, and incorporates some adjustments to official variables of GDP in order to obtain the sustainable flow of useful services. Then private consumption is adjusted on the basis of Gini s index of income distribution to account for social inequality. This index is based on the principle that an additional thousand dollars in income adds more to the welfare of a poor family than it does to a rich family (Daly and Cobb, 1989, p. 445). Hence, this revised level of consumption expenditure is more representative of the real well-being of a population. Afterwards, the factors that are considered to have a positive effect on welfare are added to the adjusted private consumption, while those that are considered to have a negative effect on welfare are subtracted from it. For example, positive benefits include services, which depend on domestic labor, durable goods and the transportation network. Negative items include health and private education costs (because they are defensive expenditures), costs for the acquisition of durable goods, the cost of commuting and road accidents. Other costs include environmental damage such as air, water and noise pollution, the loss of farmland and wetlands, long-term environmental damage and the depletion of non-renewable resources, since in general, the consumption of natural capital corresponds to a cost for future generations that should be subtracted from the account of the present generation. The result of the whole calculation is expressed in monetary terms and can be compared to GDP. Several experiences with national-level analyses show how in recent decades the level of ISEW is decreasing relative to a growing level of GDP. In other words, economic growth does not necessarily indicate a real increase in well-being, as measured by the ISEW. The ISEW index has been criticized in the literature. For example, we may consider comments by Eric Neumayer (1999, 2000) concerning the arbitrary selection of certain variables to be included or excluded from the index, the method of calculation and the idea that the GDP is not an indicator of economic welfare when, in reality, it is compiled as an indicator of total economic productive output. However, as Daly has said, ISEW is like putting a filter on a cigarette. It s better than nothing (England, 1998, p. 101). CASE STUDY: THE PROVINCE OF SIENA Description of Study Site The Province of Siena is located in Tuscany, has a population of 252,972 (in 1999) and comprises 36 municipalities. It is one of the largest provinces in Italy. The main economic activities are tourism, trade, banking and agriculture with a very low level of industrial activity, with the exception of several mines and a renowned crystal-making district. The main commercial products are wine (Brunello di Montalcino, Chianti, Vino Nobile di Montepulciano and Vernaccia di San Gimignano), cheese and olive oil. In 1999, in a survey published by the most authoritative Italian financial and economic newspaper, Il Sole 24 ore (1999), Siena was ranked 9 th among 103 Italian Provinces for its quality of life. Moreover, in the Province of Siena there are three UNESCO World Heritage sites: San Gimignano, Siena and Pienza. These are much more than tourist attractions because they require a strict policy to preserve and maintain their natural and historical integrity (OECD, 2002). Emergy evaluation for the Province of Siena In order to assess the sustainability of the Province of Siena, an environmental accounting methodology, such as emergy evaluation, is necessary due to the complexity of the system. All the -339-

5 results of the analysis were compiled as part of the SPIn-Eco Project 1. The collection of raw data first shows which inputs support all the activities inside the system. All the inputs (expressed in terms of energy or mass) are converted into solar emjoules and then aggregated as either renewable (R), non renewable (N) or imported (F). Finally, some synthetic indicators are calculated. Table 1 presents both the emergy flows and the indicators calculated for the Province of Siena. The most relevant values are related to the exploitation of local non-renewable resources, in particular the materials extracted from the earth s crust, and to the importing of both the energy (F1) and goods and services (F2) necessary to support the needs of the population rather than the local productive system. However, a visible imbalance emerges between local resources and those that are purchased, which respectively account for 71% and 29% of total emergy. Local renewables represent 8.57% of total emergy, due to the environmental inputs and the use of geothermal heat to produce electricity (which is partially renewable). The ELR (10.65) and ED (2.53x10 12 sej/m 2 per year) values reflect contained exploitation of the territory, and are some of the lowest values ever seen in Italian systems thus far (Niccolucci et al., 2003). These results are representative of a system with an economic structure principally centred on services and tourism and mostly characterized by small artisan undertakings. The EPP (3.83x10 16 sej/person per year) may be considered to represent resource availability in the case of renewable resources and resource consumption in the case of non-renewable resources. In the Province of Siena the EPP is relevant and highly dependent on non-renewables, but the low level of population density Table 1. Emergy flows and indicators for the Province of Siena. Emergy flows and indicators Expression Unit Province of Siena Emergy flows Local renewable sources R sej/year 0.83x10 21 Local non-renewable sources N sej/year 5.98x10 21 Imported energy F1 sej/year 1.69x10 21 Purchased goods F2 sej/year 1.18x10 21 Total imported emergy F = F1 + F2 sej/year 2.87x10 21 Total emergy Use U = R + N + F sej/year 9.68x10 21 Emergy Indicators Environmental loading ratio (ELR) (N + F) / R Emergy density (ED) U / area sej/m 2 /year 2.53x10 12 Emergy used per person (EPP) U / population sej/person/year 3.83x10 16 Emergy yield ratio (EYR) R +N+F / F The SPIn-Eco project (Sustainability study of the Province of Siena based on ecodynamic indicators) is an ambitious three-year research program whose purpose is to assess the sustainability of human impact on the Province of Siena (Italy) and in all its 36 municipalities by means of several approaches such as Emergy Evaluation, Ecological Footprint calculations, Exergy Analysis, Greenhouse Gas Inventory, Remote Sensing Analysis and Life Cycle Assessment

6 should also be considered, given the low levels of ELR and ED. The EYR value (3.38) confirms that the Province of Siena can clearly be labelled a consumer of local resources, rather than a transformer of imported goods and services. In general, the low level of environmental stress is the result of a territorial settlement (urban and productive) that is highly integrated with the features of the territory. Nowadays, natural resources do not represent a limiting factor, but rather contribute to the richness of the territory. The ISEW for the Province of Siena The results of emergy evaluation are strengthened by the calculation of the ISEW for the Province of Siena, expressed in monetary terms. Table 2 lists all the factors considered, in particular those which most influence the final value: among marketable commodities, expenditures for durable consumer goods like cars, TVs and washing machines; among environmental items, the most significant value is that of exhaustible resources depreciation calculated by considering mined products such as sand, clay, gravel, limestone, marble and travertine. Household services provide another very interesting figure, even if they are not methodologically included in the traditional economic accounting system. The final result demonstrates the difference between the value of the ISEW with respect to local GDP, with the former representing approximately 71% of the latter. This gap arises from the different ways in which the two indicators are calculated: GDP value is obtained by considering merely economic evidence; the ISEW, on the contrary, gives a more realistic and qualitative view of local or national economic welfare and for this reason can supply data to supplement GDP. Furthermore, the results of ISEW and Emergy Evaluation are similar in kind: ISEW methodology supports environmental analysis better than GDP, as it takes into account elements that are not influenced by market prejudices. DISCUSSION The natural extension of the study is a comparison between the environmental work supporting the territorial system (measured in solar emjoules) and the economic parameters related to human activity (local GDP and ISEW measured in monetary terms). The ratio of Emergy to local GDP for the Province of Siena in 1999 was 2.15 x10 12 sej/. This is typical of a territory dedicated to commerce, service and tourism rather than industry, since a good portion of income is produced without great exploitation of resources. However, the Emergy/GDP ratio presents the same lack of qualitative information as GDP concerning the actual living conditions of the population. Even emergy sometimes gives a slanted view of development trends. In other words, GDP and Emergy give information about how much is produced in monetary terms or how many resources are used over a period, but they do not specify anything about the different ways in which money is spent or resources are used. In order to direct policy-making towards sustainable development, it is necessary to integrate additional elements such as, for example, the value of ISEW. The ratio of Emergy to ISEW for the Province of Siena in 1999 is 3.01x10 12 sej/. It is higher than Emergy/GDP by 40%, indicating that only a fraction of the emergy necessary to obtain a certain level of market wealth, as measured by GDP, is translated into real well-being. This last ratio might be a good indicator for policy-makers because it illustrates how much social or environmental degradation is related to the use of the resources supporting the local lifestyle. Even if the two indicators are both expressed in sej/, they do not represent the same information (i.e. the relative purchasing power of a monetary unit), because they are the result of different calculations. The difference between the Emergy/GDP and Emergy/ISEW ratios is similar to the difference between growth and development, so the application of this integrated methodology might help to determine the point beyond which economic growth becomes dis-economic and why this takes place

7 Table 2. Calculation of ISEW for the Province of Siena. Items Values (in Euro, ) A Year 1999 B Personal consumption expenditure 3,492,258,828 C Index of distribution inequality (adimensional) D Weighted personal consumption expenditure [=B/(1+C)] (+) 2,676,060,404 E Services of domestic labour (+) 931,977,688 F Consumer durables services (+) 1,604,156,791 G Services of road and highways (+) 1,755,953 H Public expenditure on health and education (+) 82,392,693 I Expenditures on consumer durables (-) 676,984,208 J Defensive private expenditures on health and education (-) 115,129,206 K Local advertising expenditure (-) Data not available L Cost of commuting (-) 203,306,989 M Cost of urbanisation (-) 30,595,423 N Cost of car accidents (-) 2,944,063 O Cost of water pollution (-) 581,964 P Cost of air pollution (-) 531,166 Q Cost of noise pollution (-) NA R Loss of wetlands* (+) 7,224 S Loss of agricultural land (-) 11,089,879 T Exhaustible resources depreciation (-) 1,034,711,527 U Long-term environmental damage (-) 328,884 V Net capital growth (+) 52,374 W Local ISEW (= sum of all positive and negative items) 3,220,199,819 X Local ISEW per capita 12,729 Y Local GDP 4,510,000,000 Z Local GDP per capita 17,836 Population 252,972 * In 1999, an increase in wetlands was computed by the statistical office of the Province of Siena

8 CONCLUSIONS AND FUTURE PERSPECTIVES The development of ISEW methodology was corroborated during the 90s by ecological economists who addressed the environmental problems correlated to economic growth. In particular, Max-Neef (1995) proposed a so-called threshold hypothesis stating that economic growth brings about an improvement in the quality of life, but only up to a point beyond which, if there is more economic growth, the quality of life may begin to deteriorate. One of the most efficient methods for preventing such problems and damage is to support economic analysis with environmental analysis such as emergy evaluation. In the course of this paper we have explained why it is appropriate to measure the economic performance of a system together with its environmental condition, and how an approach aimed at determining the economic wealth of a system differs from an approach aimed at determining well-being. We consider Max-Neef s threshold hypothesis of utmost importance, since even in a territorial system subjected to a low level of environmental stress, a substantial fraction of the expenditures (emergy or Euro) supporting market activity can either fail to support or undermine the population s well-being. As this calculation had never previously been carried out at the local level, in future research we aspire to process a larger set of data representing more districts and longer time series. REFERENCES Castañeda, B.E An index of sustainable economic welfare (ISEW) for Chile. Ecological Economics 28: Daly, H.E. and Cobb, J.B For the common good. Beacon Press, Boston. England, R.W Measurement of social well-being: alternatives to gross domestic product. Ecological Economics 25: Guenno, G. and Tiezzi, S The Index of Sustainable Economic Welfare (ISEW) for Italy. Worknote Fondazione Enrico Mattei, Milano, Italy. Il Sole 24Ore (Italian financial newspaper) Dossier - La qualità della vita., December 27th: Lawn, P.A A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), and other related indexes. Ecological Economics 44: Max-Neef, M Economic growth and quality of life: a threshold hypothesis. Ecological Economics 15: Neumayer, E The ISEW - not an index of sustainable economic welfare. Social Indicators Research 48: 1, Neumayer, E On the methodology of ISEW, GPI and related measures: some constructive suggestions and some doubt on the threshold hypothesis. Ecological Economics 34: Niccolucci, V., Ridolfi, R. and Facchini, A The emergy analysis of the Province of Siena in the SPIn-Eco project. In Ecosystems and Sustainable Development IV (E. Tiezzi, C.A. Brebbia, J.L. Usò eds.), WIT Press, Southampton, pp Odum, H.T Environmental Accounting: Emergy and Environmental Decision Making. John Wiley & Sons, New York. OECD Territorial Reviews. Siena Italy. OECD, Paris. Stockhammer, E., Hochreiter, H., Hobermayr, B. and Steiner, K The index of sustainable economic welfare (ISEW) as an alternative to GPD in measuring economic welfare. The result of the Austrian (revised) ISEW calculation, Ecological Economics 21:

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