Key words: input-output, environment, pollution, waste disposal, common pool resources

Transcription

1 Augmentng the Input-Output Framewor for Common Pool Resources: Operatonalsng the Full Leontef Envronmental Model Grant J. ALLAN 1, Ncholas D. HANLEY 2, PETER G. McGREGOR 3,4, John KIM SWALES 1,4 & KAREN R. TURNER 3 1 Fraser of Allander Insttute, Department of Economcs, Unversty of Strathclyde, Glasgow, U.K., 2 Department of Economcs, Unversty of Strlng, U.K., 3 Department of Economcs, Unversty of Strathclyde, Glasgow, U.K., 4 Centre for Publc Polcy for Regons (CPPR), Unverstes of Glasgow and Strathclyde, Glasgow, U.K. (Receved May 2005; revsed July 2006) Abstract: In ts ntal formulaton, the full Leontef (1970) envronmental model augments the conventonal Input-Output (IO) table by ntroducng polluton generaton and separately dentfed polluton elmnaton sectors. Essentally t extends IO analyss to ncorporate the use of a common pool resource. Subsequent lterature has ether been analytcal n nature or has concentrated on polluton generaton but not cleanng actvty. In ths paper we generate an emprcal full Leontef envronmental IO system, based on augmentng the exstng Scottsh IO tables through endogensng waste generaton and waste dsposal actvty. Due to weanesses n data, our emprcal results need to be treated wth some cauton. However, the constructon of the extended IO system and the nterpretaton of the output and prce multpler results rase a number of nterestng practcal and conceptual ssues. The analyss undertaen here can be extended to other common pool resources such as the use of hghway use and rrgaton systems. Key words: nput-output, envronment, polluton, waste dsposal, common pool resources Correspondence Address: Karen R. Turner, Department of Economcs, Unversty of Strathclyde, Sr Wllam Duncan Buldng, 130 Rottenrow, Glasgow G4 0GE, U.K. Emal: aren.turner@strath.ac.u

2 1. Introducton In a semnal paper, Leontef (1970) extends the standard Input-Output (IO) accounts to ncorporate polluton as an addtonal commodty ( bad ) that accompanes producton and consumpton actvtes. Hs extended system also separately dentfes sectors that clean up or prevent these unwanted outputs, sectors that wll be referred to n ths paper genercally as cleanng sectors. The Leontef approach therefore lns polluton drectly to economc actvty and suggests methods to endogense cleanng behavour. The envronment s an example of a common pool resource and the servces t provdes are ntermedate between those provded by publc and prvate goods (Stgltz, 2000). A common pool resource supples servces n whch consumpton s rval, so that utlzng the resource mposes costs on other users. However, because of neffectve or ncomplete property rghts, the use of the resource s not fully excludable. 1 Typcally the user of such a resource does not have to pay the full cost. Ths has two mplcatons. Frst, the resource use s not optmally determned through the maret mechansm. Second, the use of the resource s not traced through the expendtures that are typcally employed to construct IO tables. The well-nown tragedy of the commons s a common pool resource problem, as s traffc congeston, spam and global warmng (Hardn, 1968). The power of the full Leontef extenson s that t shows, usng polluton as an example, how a common pool resource can be ncorporated n Input-Output analyss. Governments are aware of the nherent maret falure assocated wth the provson of common pool resources and adopt varous mechansms, ncludng usng publc expendture to replensh these resources, to renforce the maret processes. The full Leontef envronmental extenson ncorporates ths replenshment actvty, whch wll be at least partly demand drven. Moreover, the extended Input-Output accounts - and the assocated prce dual - can be used to assess more accurately those costs mposed by the use of common pool resources that are not drectly reflected n the prce mechansm. However, much of the emprcal wor on the envronmental extenson to IO subsequent to Leontef (1970) dentfes polluton generaton but not cleanng/replenshment. Ths normally nvolves usng a matrx of physcal polluton-output coeffcents to compute a vector of pollutants from the vectors of gross outputs and fnal demands. For example, McNcoll and Blacmore (1993) 1 Pure publc goods provde servces that are non-rval and non-excludable. Defence s an example. Prvate goods provde servces that are rval and excludable 2

3 and McGregor et al. (2001) adopt such an approach to model ar polluton n Scotland. 2 Ths type of wor quantfes the mpact of the economy on the envronment, n terms of the amount of polluton emtted as a result of economc actvty. However, t does not trac the subsequent feedbac from the envronment to the economy, wth respect to the actvty generated n envronmental cleanng. If we are nterested n ths aspect, we need to specfy the nput structure of any polluton abatement or cleanng actvtes and enter these as columns n the IO tables to represent cleanng sectors. A lterature has developed around the full Leontef envronmental model (Flc, 1974; Steenge, 1978; Lowe, 1979; Qayum, 1991; Arrous, 1994; and Luptac & Böhm, 1999). 3 Ths wor s analytcal and based on llustratve IO systems n whch both the goods and polluton are measured n physcal terms. It consders the operaton of both the quantty and dual prce models under dfferent assumptons about the organsaton and fnancng of ant-polluton (dsposal and cleanng) actvtes. In the present paper we attempt an emprcal applcaton of the full Leontef envronmental IO method usng a table that ncorporates one pollutant, waste, and ts accompanyng cleanng sector. 4 Ths extenson s based around the conventonal 1999 IO tables for Scotland measured n value terms (Scottsh Executve, 2002). The prmary objectve of ths paper s to dscuss the practcal and conceptual ssues nvolved n provdng a full Leontef envronmental extenson to an exstng IO table, so as to dentfy separately the exstng cleanng actvty embedded n the table, whlst retanng the accompanyng accountng denttes. We employ the augmented IO accounts to smulate mpacts on outputs and prces under varous assumptons about the nsttutonal (prmarly non-maret) arrangements for dealng wth polluton abatement. Whlst data problems lmt the usefulness of the results derved for Scotland from ths framewor, the emprcal wor does allow us to gve an alternatve llustratve appled perspectve on the exstng analytcal debates. 2. The Full Envronmental Leontef Model 2 McGregor et al. (2004) extend ths to a Scottsh envronmental Socal Accountng Matrx (SAM) approach, but agan do not fully endogense pollutant cleanng, as s done n Leontef (1970). 3 By full we mean an IO system where the addtonal envronmental elements nclude both the producton of pollutants and ther cleanng. A full envronmental system does not mean that we cover all pollutants. Ths s unfortunately not possble at present n Scotland because of data constrants. 4 We select waste as an llustratve pollutant on the bass of data avalablty. Other authors (e.g. Kondo and Naamura (2005) and Kagawa (2005)) offer more specfc analyses of waste problems. 3

4 Leontef (1970) frst proposed usng an extended IO framewor to analyse polluton or waste generaton, tang ar polluton as an example. In ths secton we dscuss the problems rased n constructng a set of IO physcal accounts based on ths system. For smplcty we follow Leontef s example by restrctng the analyss to one pollutant (ar polluton) and a correspondng cleanng sector, although adjustng the model to ncorporate many pollutants and cleanng sectors s conceptually straghtforward. The Leontef approach nvolves expandng and parttonng the standard IO accounts n two ways. Frst an extra row s nserted to record the ar polluton generated as an addtonal output n each producton and fnal demand sector. The elements of ths row are calculated usng the approprate physcal polluton-output coeffcents. Second, an addtonal column s created, showng the nputs commtted to ar polluton elmnaton or preventon. The ntal full Leontef envronmental approach poses a number of problems. One s the ntroducton of polluton as an addtonal (unwanted) output. Subsequent authors (Qayum, 1991; Arrous, 1994; and Luptac & Böhm, 1999) argue that the analyss s more straghtforward f we renterpret the polluton generaton row and polluton elmnaton column as reflectng the actvty of a sngle sector that, n ths case, produces clean ar. From our perspectve, clean ar s a common pool resource and the row entres show the demand for replenshng the clean ar mpled by each sector s producton actvty (whch corresponds to the amount of polluton generated n each sector). The addtonal column shows the actual nputs used to supply these cleanng actvtes. More formally, we can generate an expresson for the output taes the standard IO form: x of the cleanng sector that x a x a x a f s (1) f Where x s the output of producton sector, f s total fnal demand and s s the change n the stoc of clean ar. The mpled drect demand for the actvtes of cleanng sector per unt of output of the th producton sector, the cleanng sector tself, and fnal demand expendture f, are gven by a, a and a f, respectvely. It s mportant to understand how equaton (1) s to be nterpreted. Imagne that ths relates to the base year data ncorporated n an IO table that s wholly specfed n physcal unts. Equaton (1) can be reformulated as: x ( a x a x a f ) s (2) f 4

5 Ths equaton smply says that the dfference between the output x of the cleanng sector and the cleanng requrements generated by producton and fnal demand consumpton (that s, a x a consumpton. If x a f f ) gves the change n clean ar assocated wth domestc producton and s s postve, ths means that there was net cleanng of the envronment n the base year. Ths mght have been n order to repar earler envronmental damage or to deal wth concurrent polluton by sources other than domestc producton and fnal demand expendture. Ths polluton could be caused by economc actvty n other jursdctons, for example through ar polluton up wnd, or through natural causes, such as volcano eruptons. If s s negatve, ths ndcates that the stoc of clean ar fell as a result of domestc producton and consumpton actvty. However, ths does not necessarly mean that the envronment suffers. Common pool resources typcally have some carryng capacty, a level of use that does not affect ther overall provson of servces. For example, the envronment has some faclty to naturally treat pollutants. If s s zero the output of the cleanng sector s just enough to clean the pollutants generated n current domestc producton and fnal demand consumpton. A second ssue relatng to equaton (1) s that t does not n tself ndcate the responsblty for fnancng the cleanng sector, nor the nsttutonal arrangements for decdng the actual level of cleanng actvty. 5 As argued already, the level of pollutant producton and cleanng s not generally determned through standard maret mechansms. In partcular, the fact that producton sector, for example, generated pollutants that would requre a x output of the cleanng sector to treat does not mean that such treatment wll necessarly tae place, or that f t does, that the cost s borne by the pollutng sector. Essentally, addng a row to the IO accounts ndcates the pollutants assocated wth dfferent types of producton and consumpton actvty, and the net change n stocs dentfes the net burden on the envronment n the base year. However, nformaton n ths row does not show who has practcal responsblty for the cleanng that does tae place nor the nature of these responsbltes. Up to now we have focussed on the row added to the IO accounts to dentfy the producton of the pollutant (or the mpled demand for cleanng sector). Leontef (1970) also separately dentfes the column of nputs used n the ar polluton cleanng ndustry. In hs pedagogc 5 Analyses of responsblty ssues can also be found n Gallego and Lenzen (2005) and Hoestra and Jansen (2006). 5

6 approach, Leontef proceeds as though the cleanng sector were newly ntroduced; that s, as though a cleanng sector were ntroduced nto a system that prevously generated untreated polluton. However, typcally cleanng actvty wll already occur n the economy. In some cases cleanng sectors are separately dentfed n the IO accounts, but even when they are not, cleanng actvty s lely to be ncluded somewhere n the IO table, aggregated n wth the data for one or more other sectors. Separatng out the nputs used n the cleanng sector s then prmarly a practcal ssue. Whlst detachng the cleanng sector column n the conventonal IO table, one should also separate out a row that shows the current sales for ths sector. Ths s so as to dentfy correctly the remanng ntermedate nput use by ndvdual sectors and the remanng sectoral composton of fnal demand. Ths ssue s foreshadowed, but not developed, n Leontef (1970) where he dscusses the dual prce vector. He argues that commodty prces mght nclude as ntermedate costs partpayment for the cleanng requred for the pollutants that are generated by the correspondng producton sectors. However, n analyss wth a conventonal, value-measured, I-O table, these payments are nterpreted as the ntermedate demands for these servces. We use a bar to label the approprate entry for the actual expendtures on cleanng, so that for the th producton sector ths s a x and from fnal demand t s a f f. Recall that these expendtures at ths pont are stll measured n physcal terms. The relatonshp therefore holds that: x a x a x a f (3) f Only under exceptonal crcumstances wll the elements of the row dentfyng exstng sales of the output of the cleanng sector, shown n equaton (3), be the same as those n the row of mpled demands dentfed n equaton (1). 6 Ther reconclaton s dscussed n greater detal n the next secton. 3. An Emprcal Applcaton of the Full Leontef Envronmental Approach The full envronmental IO method s rarely used for emprcal applcatons. In standard IO accounts, approprate data are generally not avalable to separate the specfc nputs used for polluton 6 However, by constructon, the total exstng sales of the cleanng sector equals the total mpled demand. 6

7 abatement from other sectoral nput expendtures (Leontef & Ford, 1972). 7 However, the Scottsh Executve the devolved government for Scotland - has responsblty for meetng Scotland s envronmental objectves. In Allan et al. (2004a, b) we attempt a plot study to dentfy the practcal and methodologcal problems that would accompany buldng on the exstng Scottsh IO base (for 1999) to produce a full Leontef envronmental system. We agan smply dentfy one pollutant and cleanng sector, n ths case waste and the waste removal sector. Our prmary concern n the Allan et al. (2004a, b) study s to generate the full Leontef envronmental set of accounts for Scotland 1999, wth waste generaton and the waste removal sector separately dentfed. 8 There are three general problems. The frst s to dentfy the exstng nputs commtted to envronmental cleanng (waste dsposal) and the sources of expendture on these exstng servces n the IO accounts. The second s to assemble the requred data on physcal pollutant (waste) generaton by source of generaton. The thrd s to ntroduce these data n an IO system measured n value terms and already constraned by famlar accountng denttes. In the standard IO accounts, outputs are measured n money values, rather than n the physcal terms we have assumed so far. Ths requres a lttle addtonal notaton. We dentfy the gross output of sector, measured n money values, as expendture as q and the value of household consumpton q f, Further, we label the nput coeffcents of sector, per unt of output of sector j and household consumpton as j and f respectvely, when measured n value terms. Asde from the standard IO accounts, the addtonal data requrements are: the vector of nputs to the cleanng sector (where the th element would be q ), and any consequent adjustments n the vectors of nputs to other sectors; the exstng expendture flows to the cleanng sector (where the element for the th sector would be q ), and the correspondng adjustment n the vector of other ntermedate nputs n the same sectors and fnal demand categores; the physcal polluton drectly generated by each sector and fnal demand type (where the amount for the th sector would be a x ); the change n stoc of cleared waste ( s ); and the prce p of a physcal unt of the pollutant, measured as the unt cost of cleanng. 7 Schäfer and Stahmer (1989) provde a notable counter example. They used very detaled satellte accountng data on envronmental protecton expendture collected and collated by the (then) Federal Republc of Germany. However, ther analyss focuses entrely on the economc mplcatons of envronmental protecton actvtes, and does not relate these to physcal polluton or waste generaton at the aggregate or sectoral level. 8 There are a number of potental polcy applcatons of such a framewor. In Appendx 1 we dscuss how the basc accounts can be used to calculate a measure of polluton-adjusted GDP. 7

8 Allan et al. (2004a,b) detals the constructon of ths framewor and the assocated data problems. Here, t s suffcent to note that none of these addtonal requred data s deally measured at present n Scotland. However, for the reasons already gven, the results provde a useful llustratve functon Identfyng exstng resource use by, and expendture on, waste dsposal We use the ndustry-by-ndustry Scottsh IO tables, for the year 1999 (Scottsh Executve, 2002). These are presented n analytcal/symmetrc form, wth quanttes valued at producer (basc) current prces for 128 IO categores (IOC) that map to the 1992 UK Standard Industral Classfcaton (SIC). These ndustres have been aggregated to the 19-sector breadown detaled n Table 1. Ths dsaggregaton s chosen for consstency wth UK data on sectoral waste ntenstes. INSERT TABLE 1 We then splt Sector 19 nto two sub-sectors gven n Table 1 as the new Sector (19), named Sewage, Santaton etc. (SIC and 90003) and an addtonal Sector (20), named Waste Dsposal (SIC 90002). It s ths last sector, Sector (20), whch we treat as a cleanng sector n the full Leontef envronmental sense. 10 Here, the adjustment s shown n a compact representaton of the Scottsh IO accounts gven n Table 2. In ths table, for heurstc reasons, n each productonsector and fnal-demand column we have combned the entres for purchases from Sectors 1 to 18. These are now represented n the frst sngle row. The row entres for the two new Sectors (19) and (20) are shown n rows 2 and 3, and the column entres n columns 19 and 20. Subsequent adjustments to the table are dscussed later, but the conventonal IO accounts, wth the Waste Dsposal sector separately dentfed, are gven by rows 1-3, 6 and 7 n Table 2. INSERT TABLE Waste generaton by source 9 The paucty of envronmental nformaton and the non-compatblty of economc and envronmental data n Scotland serously hnder relable wor on economc and envronmental nteracton. 10 See Allan et al (2004a,b) for full detals of how these two sectors were separated. The smplest and most transparent methods have been used. Allan et al. (2004a) s the full report of our study and a more detaled dscusson of data ssues s gven n Allan et al. (2004b). 8

9 Next we add the row that corresponds to the waste producton (and the mplct demand for cleanng). Ths nvolves three steps. Frst we dentfy the physcal waste generated drectly by each producton and fnal demand sector. These fgures are shown n Table Second, we quantfy the change n the stoc s f of untreated waste, whch, n the absence of other nformaton, we assume here to be zero. Fnally, we convert each of these physcal quanttes to a monetary value by multplyng by the prce found by dvdng the total value quantty x p of waste. Ths relevant prce s the unt cost of waste dsposal, whch s s of waste dsposed. The values of respectvely and the value of therefore: q of the output of the waste dsposal sector, by the physcal q and x are gven n Table 2 and 3 s s assumed here to be zero. The unt prce of waste dsposal s p q 374,934, (4) x s 10,990,134 INSERT TABLE 3 Each element n the waste generaton row gves the value of waste created n the correspondng producton sector or fnal demand category. Each of these elements can then dvded by the approprate value of sectoral output or fnal demand expendture to produce a value based wasteoutput coeffcent for each sector. Ths coeffcent can be used n conventonal IO multpler or attrbuton analyss. If the physcal output of waste drectly generated by sector s gven as then: x, x p and q xf p f (5) q f The full Leontef envronmental IO accounts can now be constructed n a consstent manner. 11 At present there s no natonal waste survey or any other statstcal vehcle that collects data on physcal waste generated by all SIC-classfed economc actvtes n Scotland. Therefore we have used a hybrd technque, ntegratng data from varous Scottsh and UK sources. Ths s detaled n Allan et al (2004a,b). 9

10 3.3 The full Leontef envronmental table, mantanng the accountng denttes The full Leontef envronmental approach nvolves replacng the actual expendtures on Waste Dsposal (row 3) wth a set of mpled expendtures calculated from the waste generated by the correspondng producton or fnal demand sector. Essentally we replace a vector of row entres derved from equaton (3) wth a vector reflectng equaton (1). In Table 2, ths nvolves substtutng row 4 for row 3. The mplct demands are valued n terms of the cost of treatment and n aggregate ths equals the cost of payments n the conventonal table. Therefore the overall fnancal balance emboded n the accounts s not affected. However, for ndvdual sectors, the value of output now wll not generally equal the value of nputs, once we have attrbuted to the producton of a good the cost of the mplct waste dsposal. We therefore nsert an addtonal row n the value-added bloc labelled Addtonal payments for waste collecton, treatment and dsposal (whch wll be referred to as the Addtonal Payments row). Ths s row 5. For sector, the value equals ( ) q and there are smlar addtons to the fnal demand columns. p entered n ths row, The relevant full Leontef envronmental accounts, wth Waste Dsposal separately dentfed, are therefore gven as rows 1, 2, 4, 5, 6 and 7 n Table 2. Ths table s now fully balanced. However, ths payments adjustment represents more than an arbtrary, but convenent, accountng fx. The terms n ths Addtonal Payments row sum to zero. Where there s a negatve entry, ths means that the correspondng producton or fnal demand sector s not drectly payng the full amount for the envronmental resources that t s usng. On the other hand, where the entres are postve, ths means that the sector s purchasng more waste-dsposal resources than are needed to treat the waste t produces. If the entry n the Addtonal Payments row under the change n stocs of cleaned waste column s postve, ths dentfes the cost pad by the envronment (whch, as we have argued n Secton 2, mght be more or less than the envronment can bear wthout envronmental degradaton). On the other hand, a negatve entry n ths column ndcates envronmental mprovement. The only stuaton n whch we expect all the elements of ths row to be zero, so that the conventonal and full Leontef envronmental IO tables concde, s where both a polluter pays system s mposed and the waste generated s fully dsposed of (Steenge, 1978; Lowe, 1979). However, as argued earler, because they are common pool resources, we do not expect pollutants and waste to be fully dealt wth through the maret mechansm. More detal on the full Leontef envronmental accounts as a set of green accounts s gven n Appendx 1. 10

11 4. Characterstcs and Issues arsng from the Scottsh Full Leontef Envronmental Accounts Wth a common pool resource, we would expect the followng pattern of entres n the Addtonal Payments row. In general, producton and household consumpton sectors should have negatve entres that are balanced by postve entres for government expendture and changes n stocs. Ths would mean that prvate demand for waste servces s less than the waste that s produced n producton and household consumpton. But ths s offset by the publc sector tang on the responsblty for the dspose of waste, or the costs beng borne by the envronment n terms of greater stocs of untreated waste. Whlst the Scottsh data shown n Table 2 broadly support these pror expectatons, there are a worryng number of exceptons. Frst, there s a zero entry n the Addtonal Payments row for Gross Government Fnal Consumpton. However, ths smply reflects the way that the government sector s treated n these accounts. Almost 100% of government expendture goes to Sector 18, Publc Admnstraton, Health and Educaton, and ths sector has a large postve entry n the Addtonal Payments row. 12 Ths s consstent wth the government s purchasng more waste dsposal output than t requres to clean the waste t produces tself because t also dsposes of waste generated n other producton and fnal demand sectors. If the fgure for the Publc Admnstraton, Health and Educaton sector, s subtracted, what remans s a large negatve Addtonal Payment fgure for all the other producton sectors combned. However, f we loo at the Addtonal Payments row n greater detal, some ndvdual results are problematc. There s a large negatve element for Sector 13, Constructon, but many other sectors have small postve entres. Table 2 suggests that these sectors are payng more for waste dsposal than the value of the waste they generate. There are at least three possble explanatons for ths. Frst, n any tme perod, a maret-drven producton or fnal demand sector could possbly be performng net cleanng, partcularly f the waste relates to actvty n a prevous perod. Second, as argued by Detzenbacher (2005), n a slghtly dfferent context, the unt cost of waste dsposal mght vary across dfferent types of waste, and also maybe across dfferent types of publc and prvate waste dsposal organsatons. The postve entres n the Addtonal Payments row mght smply ndcate expensve waste dsposal n that sector. Of course ths s stll troublesome because 11

12 the assumpton of constant wthn-sector prces s central to the conventonal nterpretaton and manpulaton of the value-based IO system. Thrd, t s also very lely that these Addtonal Payments anomales reflect problems of nadequate data. Recall that we have to estmate both the coeffcents and, and that the correspondng Addtonal Payments entry depends on the dfference between the two. The appearance of so many postve entres here suggests that ether coeffcent s, or both coeffcents are, nadequately estmated Full Leontef Envronmental Modellng Once a set of full Leontef envronmental accounts has been constructed, as n Table 2, the data can be used for full envronmental IO modellng, usng the whole sute of technques assocated wth the Leontef nverse approach. The full Leontef envronmental accounts allow a greater varety of endogenety n modellng the actvty of the envronmental cleanng sectors, n ths case, the Waste Dsposal sector. Two ponts are mportant. Frst, as we argue n Secton 2, the partcular form of the accounts does not typcally mply a specfc organsatonal relatonshp for dealng wth pollutants. To gve an example, magne that the base-year accounts show an ncrease n the stoc of waste equal to 25% of the value of the output of the waste dsposal sector. Ths s consstent wth a rule suggested by Leontef (1970), that the government has a tolerated level of waste, after whch all waste s cleared. However, t s also observatonally equvalent, n the base year, wth a rule that 80% of all waste s dsposed (Steenge, 1978). 14 Second, the nformaton n the full Leontef envronmental accounts can be used for a varety of speculatve smulatons. For example, the waste coeffcents derved from Table 2 can be adjusted to model margnal changes that dffer from the average relatonshps that are dentfed n the base-year accounts. In ths secton we report the results from some smple ndcatve smulatons usng the output and dual prce models. Remember frst that elements of the data are unrelable, so that the results must be treated wth partcular care. Second, the degree of envronmental endogenety 12 Also almost 70% of the output of Sector 18 goes to Gross Government Fnal Consumpton 13 We dd attempt more sophstcated, but stll essentally ad hoc, adjustments to the estmaton processes used to create the full Leontef envronmental accounts. However, none were unversally successful and we have stuc wth the most transparent estmates here. 14 The full Leontef envronmental accounts could also be generated by a wde range of other, more complex, rules that are amenable to IO modellng. For example, waste collecton from ndvdual sectors mght be some combnaton of a tolerated level plus a subsequent proportonate rule, whch could dffer across sectors. 12

13 modelled here s low: only one cleanng sector s fully endogensed. Ths means that n the output smulatons we do not dscuss the effects on aggregate actvty of dfferng rules for determnng the level of waste dsposal actvty, as the mpact at ths level s slght. Rather we hghlght the effect on the waste dsposal sector tself, where n some cases dramatc dfferences occur. 5.1 Results from the output model Table 4 reports the Type I and Type II output multpler results for the mpact on the waste dsposal sector (Sector (20)) of a 1 mllon expanson n fnal demand n each of the 20 producton sectors. Fgures are reported for varyng forms of endogenety for ths cleanng sector. Columns 1 to 3 calculate the mpacts based upon Type I multpler values whlst columns 4 to 6 show the correspondng results usng Type II multplers. 15 The frst column gves the results usng the coeffcents from the conventonal IO accounts. In column 2, we mpose the assumpton of 100% cleanng for margnal changes n actvty. Ths s the assumpton underlyng analyss n Leontef (1970) once the tolerated level of waste has been reached. In column 3, we mpose the assumpton of 90% cleanng for margnal waste. INSERT TABLE 4 The most llumnatng comparson s between columns 1 and 2. Here we are contrastng the mpact on the demand for waste dsposal servces that would be gven wth the conventonal IO approach, wth one where there s an explctly recognsed commtment to dspose of all net waste. The two models predct very dfferent mpacts for the waste dsposal sector. Whlst some of ths s undoubtedly due to data defcences, much s not. Frst, there are 8 sectors where the Type I multpler value s greater wth the standard IO accounts. As we expect, the bggest dfference, n both absolute and proportonate terms, s for Publc Admnstraton, Health and Educaton. Here the mpled drect and ndrect demand from waste dsposal servces per 1mllon of fnal demand expendture n ths secton s 4,000 less than the amount produced usng the conventonal IO calculaton. As argued n Secton 4, ths reflects the channellng of government expendture on waste dsposal through ths sector n the Scottsh IO accounts. However, there are other sectors wth a sgnfcantly bgger conventonal, as aganst full 15 Type I multplers are calculated on the bass that household consumpton s exogenous; Type II multplers have household consumpton endogenous (Mller and Blar, 1985). 13

14 Leontef, multpler value. The most promnent example s Sector 12, Electrcty, Gas and Water Supply, Coe and Petrol Products. It s more dffcult to explan the pattern of results for these sectors. There are twelve sectors where the full Leontef envronmental Type I multpler mpact on the demand for waste dsposal s greater than that for the conventonal IO model. The most dramatc dfference s for Sector 13, Constructon. Wth the conventonal Scottsh IO table, constructon s dentfed as a sector generatng very low drect and ndrect demands for waste dsposal. A 1 mllon ncrease n fnal demand n ths sector produces a 856 ncrease n demand for the waste dsposal sector. Wth the full Leontef envronmental accounts, ths mpact s ncreased to 18,140. Ths s because n the Scottsh-specfc data on net waste producton just under 39% of all waste treated s generated n constructon and demolton actvtes, all of whch we have allocated to the Constructon sector. Ths compares wth less than 1% of payments to Waste Dsposal comng from the Constructon Sector n our adjusted IO table. Agan, however, these results are subject to the date problems outlned above. For most other sectors, the dfference s much more modest, though Sectors 8, (19) and 16 ( Metal Products, Sewage, Santaton etc. and Transport and Communcatons ) all regster substantally hgher drect and ndrect demands for waste dsposal usng the full Leontef envronmental approach. If the government changed the procedures for waste dsposal, such that only 90% of margnal waste was dsposed of, the Type I multpler results are gven n column 3 of Table 4. There are no surprses here: the proportonate fall n the multpler values s unform across sectors. When we calculate the correspondng Type II mpacts, the qualtatve results are very smlar. The only source of some concern n these smulatons s that the households mplct demand for waste dsposal s actually less than ther actual demands, so that endogensng households expendture slghtly boosts the standard IO multplers as aganst the full Leontef envronmental results. 5.2 Results from the prce model Table 5 gves results usng the prce dual of the quantty Input-Output system. The fgures reported are the percentage changes n the vector of output prces generated by the prce IO system when we replace the conventonal prce nverse wth the nverses derved from the full Leontef envronmental IO system wth 100% and 90% cleanng. Columns 1 and 2 calculate the mpacts on the prces of sectoral outputs usng the Type I prce multpler values for the adjusted system. Columns 3 and 4 show the correspondng Type II results. Columns 1 and 3 gve the percentage changes from the vector of ntal (untary) output prces from the conventonal accounts where t 14

15 assumed that 100% of margnal waste s cleaned. Columns 2 and 4 gve the changes under the assumpton that only 90% of margnal waste s cleaned. INSERT TABLE 5 The fgures n column 1 of Table 5 are therefore obtaned on the assumpton that 100% of the waste s cleaned and the polluter pays. The prce changes clearly reflect the results dentfed n the correspondng Type I output multpler analyss. Frst, there are 8 sectors where the prce of output s lower than under the exstng, standard, IO accounts. Agan, the bggest dfference s observed n the Publc Admnstraton, Health and Educaton sector, through whch government expendture on waste dsposal s channelled; the output prce for ths sector s 0.4% lower than wth the conventonal IO calculaton. For the other 12 sectors the prce of output s hgher than for the conventonal IO model. Agan, ths s consstent wth the outcomes from the output model. Essentally the prce results ndcate that, for these 12 sectors, the commodty prces n the conventonal IO model do not fully ncorporate the costs of usng the common pool resource. Instead, n the conventonal IO model the external cleanng costs are ncorporated n the output prces of the other 8 sectors. These costs wll be borne by the fnal consumers of the outputs of these sectors. In the case of sectors such as Publc Admnstraton, Health and Educaton, where government s the man consumer, the external cleanng costs are transferred to the local taxpayers. However, n other sectors domestc household or foregn consumpton bears the addtonal cleanng cost. The dstncton between external cleanng costs (.e. the resource requrements of waste dsposal) and the full socal costs, ncludng envronmental degradaton, are hghlghted n the results n column 2. If the government changes ts commtment to waste dsposal, so that not all waste s dsposed of, the prce of output n all sectors wll fall relatve to the 100% cleanng case. Column 2 gves the prce outcomes under a regme of 90% waste dsposal, pad for by the pollutng producton and consumpton sectors. All of the postve prce mpacts, relatve to the conventonal IO, are smaller and all of the negatve mpacts are larger. Prces fall to the taxpayer and consumers, but a hgher prce s pad by the envronment. To calculate the correspondng Type II prce mpacts, we endogense the nomnal wage, eepng the real wage constant. In our Scottsh data, the households mplct demand for waste dsposal s less than ther actual demand. Therefore n ths case n the full Leontef envronmental analyss, Type II output prces are lower than Type I. In Table 5, the Type I and II results for 100% cleanng are gven n columns 1 and 3 respectvely. Note that the postve prce effects are smaller - 15

16 and the negatve effects larger n column 3 than n column 1. The correspondng fgures for the 90% cleanng case are gven n columns 2 and 4 of Table 5. Agan we have lower prces n column 4 and some examples of sectors - Sector 2, Mnng and Quarryng, for example wth a postve entry n column 2 but a negatve entry n column Summary and conclusons In ths paper we attempt to operatonalse the full Leontef envronmental model based around the standard Scottsh IO accounts. Although data problems mean that the emprcal results reported here must be regarded wth cauton, constructng these llustratve accounts generates mportant nsghts. Frst, the full Leontef extenson s requred because the servces the envronment provdes relate to a common pool resource. Because of lmted property rghts, the use of common pool resources s not typcally fully allocated through the maret mechansm. Therefore whlst the use of these servces s assocated wth producton and fnal consumpton levels, ths ln s not made drectly through expendtures. Further, the method used for the Leontef full envronmental extenson could be used for the endogensng the use of other common pool resources, such as road capacty and rrgaton systems. Second, f a polluter pays scenaro exsts, where t s the drect responsblty of polluters to clean, there s no need for adjustment. The exstng payments to the cleanng sector(s) recorded mplctly or explctly n the IO accounts wll concde wth the demand for cleanng servces created by polluton generaton. If we have polluter pays, for example through the ntroducton of a tax, commodty prces wll match those from the full Leontef dual. However, f the government, rather than the prvate sector, stll retans some commtment to clean, a full Leontef quantty analyss s stll requred to dentfy the true output multpler values. Thrd, extendng the exstng IO database essentally ncorporates elements of green accountng. Waste producton and cleanng already occur n the Scottsh economy: but the full Leontef envronmental approach nvolves dentfyng the drect sectoral or fnal demand sources of that waste and who bears the cost of ts cleanng. Smlarly the full Leontef envronmental accounts gve a large degree of flexblty for envronmental modellng. In partcular, adjustments to the degree of endogenety, reflectng alternatve responsblty and admnstratve mechansms for dealng wth envronmental cleanng, have mportant output mplcatons for the cleanng sector and have potental prce mplcatons. 16

17 Fnally, n terms of the specfc problem that ntally motvated ths study, we note that whlst the Scottsh Executve has a formal responsblty for the delvery of envronmental polcy n Scotland, a lac of compatble ndustry-envronment data severely hnders a more thorough and accurate enumeraton and analyss of envronmental problems at the Scottsh level. 16 Ths nformaton problem s lely to be mrrored n many other economes, partcularly at the regonal level. Acnowledgements The research reported n ths paper was completed whle Allan, McGregor, Swales and Turner were n recept of fundng from the EPSRC Supergen Marne Consortum. The authors also acnowledge the support of the Scottsh Economc Polcy Networ n fundng the emprcal wor reported here (scotcecon award reference ). We are grateful to staff at the Scottsh Executve and the Scottsh Envronmental Protecton Agency for nput and advce on data ssues and to Laura Henderson for valuable research assstance. We also than partcpants at the ESRC Urban & Regonal Economc Semnar Group, Ednburgh, January 2004; the Scottsh Economc Socety Conference, Perth, March 2004; the Internatonal Input-Output Assocaton, Brussels, September 2004; and semnars at the Unversty of Glasgow and Glasgow Caledonan Unversty n February and May 2004, for comments on earler versons of ths paper. Fnally, we are grateful to the anonymous referees who commented on our ntal submsson of ths paper to Economc Systems Research. References Allan, G., Hanley, N.D., McGregor, P.G., Swales, J.K. and Turner, K.R. (2004a) Modellng the relatonshp between economc actvty and waste generaton, treatment and dsposal, Polcy paper publshed by the Scottsh Economc Polcy Networ (Scotecon) at Allan, G., Hanley, N.D., McGregor, P.G., Swales, J.K. and Turner, K.R. (2004b) An extenson and applcaton of the Leontef polluton model for waste generaton and dsposal n Scotland, 16 For example, McGregor et al (2005) also draw attenton to ths problem n attemptng to ncorporate sustanablty ndcators nto a computable general equlbrum model of the Scottsh economy. 17

18 Strathclyde Dscusson Papers n Economcs, No.04-05, avalable at Arrous, J. (1994) The Leontef polluton model: a systematc formulaton, Economc Systems Research, 5, pp Detzenbacher, E. (2005) Waste treatment n physcal nput-output analyss, Ecologcal Economcs, 55, pp Flc, W.A. (1974) Envronmental repercussons and the economc structure: an nput-output approach: a comment, Revew of Economcs and Statstcs, 56, pp Gallego, B. and Lenzen, M. (2005) A consstent nput-output formulaton of shared producer and consumer responsblty, Economc Systems Research, 17, pp Hardn, G. (1968) The tragedy of the commons, Scence, 162, pp Hoestra, R. and Jansen, M. (2006) Envronmental responslty and polcy n a two-country dynamc nput-output model, Economc Systems Research, 18, pp Kagawa, S. (2005) Inter-ndustry analyss, consumpton structure, and the household waste producton structure, Economc Systems Research, 17, pp Kondo, Y. and Naamura, S. (2005) Waste nput-output lnear programmng model wth ts applcaton to eco-effcency analyss, Economc Systems Research, 17, pp Leontef, W. (1970) Envronmental repercussons and the economc structure: an nput-output approach, Revew of Economcs and Statstcs, 52, pp Leontef, W. and Ford, D. (1972) Ar polluton and the economc structure: emprcal results of nput-output computatons, n A. Brody and A.P. Carter (Eds) Input-Output Technques (Amsterdam: North-Holland). Lowe, P.D. (1979) Prcng problems n an nput-output approach to envronmental protecton, Revew of Economcs and Statstcs, 61, pp Luptac, M. and Böhm, B. (1999) A consstent formulaton of the Leontef polluton model, Economc Systems Research, 11, pp McGregor, P.G, McLellan, D., Swales, J.K. and Turner, K.R. (2004) Attrbuton of polluton generaton to local prvate and publc demands n a small open economy: results from a SAM-based neo-classcal lnear attrbuton system for Scotland, Strathclyde Dscusson Papers n Economcs, No , avalable at McGregor, P.G., McNcoll, I.H., Swales, J.K. and Turner, K.R. (2001) Who pollutes n Scotland? A prelude to an analyss of sustanablty polces n a devolved context, Fraser of Allander Insttute, Quarterly Economc Commentary, 26 (3), pp

19 McGregor, P.G., McNcoll, I.H., Swales, J.K., Turner, K.R. and Yn, Y.P. (2005) Incorporatng sustanablty ndcators nto a computable general equlbrum model of the Scottsh economy, Economc Systems Research, 17, pp McNcoll, I.H. and Blacmore, D. (1993) A plot study on the constructon of a Scottsh envronmental nput-output system, Report to Scottsh Enterprse, Department of Economcs, Unversty of Strathclyde, Glasgow. Mller, R.E. and Blar, P.D. (1985) Input-Output Analyss: Foundatons and Extensons (Englewood Clffs, NJ: Prentce-Hall). Qayum, A. (1991) A reformulaton of the Leontef polluton model, Economc Systems Research, 3, pp Schäfer, D. and Stahmer, C. (1989) Input-output model for the analyss of envronmental protecton actvtes, Economc Systems Research, 1, pp Scottsh Executve (2002) Input-Output Tables and Multplers for Scotland 1999 (Glasgow: Government Statstcal Servces). Steenge, A.E. (1978) Envronmental repercussons and the economc structure: further comments, Revew of Economcs and Statstcs, 60, pp Stgltz, J. (2000) Economcs of the Publc Sector, 3 rd edton (London: W.W. Norton). Unted Natons (2003) Integrated envronmental and economc accountng (fnal draft verson), Studes n Methods: Handboo of Natonal Accountng, Seres F, No 61, New Yor. Appendx: Envronmental Accounts The full envronmental IO system dentfed n Table 2 has a number of strengths from a green accountng perspectve. As argued already, we can see from the entres n the Addtonal Payments row those sectors whose prce fals to fully reflect the drect resource use n ther producton. 17 The nformaton n the table should also allow the GDP measure to be recalculated to tae nto account cleanng actvty (Unted Natons, 2003). We wll call ths polluton-adjusted GDP (PAGDP). The standard GDP fgure s calculated as the sum of the fnal demand elements n the IO accounts (Mller and Blar, 1985). We use the notaton adopted n the text to dentfy the actual payments by a bar. Therefore: 19

20 GDP q f (A1) However, ths calculaton ncludes as a postve entry the fnal demand expendture on waste dsposal, an actvty whch repars one element of the envronmental damage mposed by other forms of fnal consumpton. Envronmentalsts have argued that such expendtures should be excluded from GDP calculatons. Further, any net change n the stoc of clean space s not valued n the conventonal GDP fgures, so that: PAGDP q q qs (A2) f f where qs p s ). These adjustments mx actual fnal demand expendtures and the value of ( f any net envronmental cleanng. Of course n ths case f there s an ncrease n the stoc of waste, then qs taes a negatve sgn. An alternatve way of presentng ths accountng measure usng only the Leontef full envronmental accounts s as follows. For each producton sector, the value added equals the actual expendtures on wages and other value added from the standard IO system plus the Addtonal Payments entry. Therefore: v v b (A3) where v s value added and b s the addtonal payment. If there are n sectors, the sum of the value added recorded n the IO table equals the unadjusted GDP, so that from (A1) n 1 v q f (A4) Also we now that the addtonal payments entres sum across all the producton sectors and fnal demands to zero, so that 17 Ths does not account for the effect of ndrect non-payment for resource use, n the sense that the prce of ntermedate nputs mght not reflect ther resource nputs. For a more extended dscusson of polluton attrbuton see McGregor et al. (2001). 20

21 n 1 b b b 0 (A5) f qs Rearrangng (A5) gves b b f b qs, where b qs qs and f f f b q q (A6) It s straghtforward to show that the sum all the sectoral value added entres mnus the fnal demand entry for the cleanng sector n the Leontef full envronmental accounts equals the polluton adjusted GDP. Usng equatons (A1) (A6) produces ths result: n 1 n n v qf v b qf q f b f b qs qf q f qf qs PAGDP 1 1 Ths means that the contrbuton of ndvdual sectors to PAGDP can be dentfed, whch equals ther full Leontef envronmental GVA fgures. Ths taes nto account the drect mpled envronmental costs. If we use the results from Table 2 n the text, the 1999 Scottsh GDP at basc prces equals 96,068.3 mllon. If adjustments are made for the waste dsposal, under the assumpton of no change n the stoc of waste, the Scottsh PAGDP s 0.14% lower at 95,932.8 mllon. 21

22 Table 1. Producton Sectors/Actvtes Identfed n the Scottsh Waste IO Tables, 1999 Sector SIC (1992) codes Scottsh IO categores 1 Agrculture Mnng and quarryng Food, drn and tobacco Textles and clothng etc Paper and prntng Chemcals Non-metallc mneral products Metal Products Machnery and equpment Transport equpment Other manufacturng , , Electrcty, gas and water supply, coe and petrol products , , Constructon Wholesale and retal Hotels, caterng, pubs etc Transport and communcatons Fnance and other servces , 91-93, , Publc admnstraton, health & educaton 75, 80, Sewage, santaton and refuse dsposal (19) Sewage, santaton etc 90001, part of 119 (20) Waste dsposal part of

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