Economic Models and the Environment: Input–Output Analysis

Abstract

This chapter explores the potential of combining two useful ecological-economic methods: input-output analysis and multi-criteria decision aid. By doing so, it assesses the sustainability of investment in various economic sectors, with the aim of minimising resource use and generation of emissions. The UK case is taken for the purpose of illustration, and (given the availability of the necessary data) this methodology might be applied in countries with various economic structures and specialisations. An environmentally extended static 123-sector UK input-output model is used, linking a range of physical flows (domestic extraction, use of water, and emissions of CO2, CH4, NOx) with the economic structure of the UK. A range of environmentally adjusted forward and backward linkage coefficients has been developed, adjusted according to final demand, domestic extraction, publicly supplied and directly abstracted water, and emissions of CO2 and NOx. The data on the final demand adjusted and environmentally adjusted forward and backward linkage coefficients were used in a multi-criteria decision-aid assessment, employing a NAIADE method in three different sustainability settings. The assessment was constructed in such a way that each sector of the UK economy was assessed by means of a panel of sustainability criteria, maximising economic effects and minimising environmental effects. This type of multi-criteria analysis, could prove to be a valuable basis for similar studies, especially in the developing world, where trade-offs between economic development and environmental protection have been the subject of considerable debate.