Physical water use and water sector activity in environmental input-output analysis

Abstract

This paper uses input-output accounting methods to identify the direct, indirect, and induced physical demand for water. The seminal work by Leontief (1970) has previously motivated a more extensive account of issues related to those sectors that generate and those that clean/treat polluting outputs. The present paper extends this approach to deal with sectors that use a natural resource and those that supply it. We take, as a case study, public water use and supply in Wales. The analysis shows how the proposed method, using both the quantity input-output model and the associated price dual, can be used to investigate the economy-wide implications of the deviation between expenditures on the output of the water sector and actual physical water supplied. The results indicate that the price paid for water varies greatly amongst different uses; in particular, household consumption is charged at a higher price than intermediate industrial demand. We argue that decision makers (in this case, policy makers and industry regulators) require such analysis and information in order to understand the demands on and supply of water resources and their role in supporting economic expansion, whilst simultaneously adopting appropriate strategies for achieving water sustainability objectives.