Integrated Sustainability Analysis
@ The University of Sydney

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Input-Output Conference 2010

Economic Systems Research

Research on economic systems and how they are linked with the physical world underpins our approaches to applied fields such as Triple Bottom Line / Sustainability Reporting, Ecological Footprints or Environmental Impact Assessment.

Examples for systems studies include

  • International carbon trade flows: In order to achieve equitable reduction targets, international trade has to be taken into account when assessing nations responsibility for abating climate change. Especially for open economies such as Denmark, greenhouse gases embodied in internationally traded commodities can have a considerable influence on the national greenhouse gas responsibility. We have constructed a five-region interindustry model including Denmark, Germany, Sweden and Norway in order to calculate CO2 multipliers and trade balances. In the case of Denmark, carbon trade feedback between these countries results in a carbon deficit, that is, Denmark imports more carbon than it exports. From a methodological point of view, both the type of model and the degree of aggregation are crucial parameters when calculating CO2 responsibilities of countries. Considering consumer rather than producer responsibility for carbon emissions could have a major bearing in international negotiations. This study is carried out in collaboration with AKF Institute of Local Government Studies in Copenhagen, Denmark, and funded by the Danish Energy Agency.

  • Linkages and key sectors: We have extended traditional work on linkages, fields of influence and structural paths in order to include environmental and natural resource parameters, and developed the theoretical basis for the generalisation of all three concepts. Applying these extended linkage and key sector concepts to recent Australian empirical data on energy consumption, land disturbance, water use, and emissions of greenhouse gases, NOx and SO2 reveals the interdependence of industries in the Australian economy in terms of environmental pressure and resource depletion. Grazing industries, electricity generation, metals, chemicals, textiles, meat and dairy products, wholesale and retail, non-residential building, and hospitality exhibit above-average linkages. A considerable part of environmental and resource pressure is also exerted along paths for providing exports. As an example, the figure below shows an economic landscape representing the field of influence of transactions between industries in the Australian economy, in terms of greenhouse gas emissions. Two clusters of strong linkages in greenhouse terms can be identified: Cluster 1 represents emissions caused by land clearing and agriculture that become embodied in products of the food manufacturing sector; Cluster 2 contains energy-related emissions associated with supplies from heavy industries and power plants to other manufacturing sectors.

    Economic landscape of the Australian economy, in terms of greenhouse gas emissions.

  • Upstream convergence and cross-overs in ranking and benchmarking: As impacts propagate in an upstream direction through economic systems, their magnitude diminishes, and the total impact converges to a final value, representing system completeness. There is strong evidence for differential convergence of impacts towards system completeness. This differential convergence can cause cross-overs at second- and higher-order upstream production layers in the ranking of impacts for products, projects or companies (see the example below for the employment impact associated with the alternative options of buying a new car versus car repairs). The exclusion of higher-order upstream impacts can be responsible for these ranking cross-overs going unnoticed. In this case, an incomplete conventional process-type assessment of two alternative products, projects or companies can result in preferences and recommendations to decision-makers that are different from preferences and recommendations concluded from a complete, whole-supply-chain assessment. In order to provide fair comparisons and benchmarking, misleading effects of ranking crossovers have to be detected. This is only possible if the entire upstream supply chain of products, projects or companies is taken into consideration.

    Convergence of cumulative labour requirements for a A$1,000 expenditure on a new vehicle and on vehicle repairs, in units of employment-hours (emp-h).

  • Structural Path Analysis: Methods for TBL Reporting, Ecological Footprints, Life-Cycle Inventories or Environmental Impact Assessment employing input-output analysis have advantages over conventional approaches. A technique called Structural Path Analysis can "unravel" TBL impacts, ecological footprints etc into single contributing supply paths. It gives extensive detail of the impact of a product, process, project, company or sector. It allows investigating the location of impacts within the supply chain. This technique was applied to recent Australian data in order to determine environmentally important input paths in terms of energy consumption, land disturbance, water use, and emissions of greenhouse gases, NOx, and SO2, for all Australian industry sectors. Due to the complexity of inter-industrial transactions, up to third-order paths can be top-ranking. The identification of such paths is usually beyond the capability of conventional techniques.

  • Uncertainty calculus and error propagation in input-output systems: Conventional process-analysis-type techniques for compiling TBL Reports, Ecological Footprints, Life-Cycle Inventories or Environmental Impact Statements suffer from a truncation error, which is caused by the omission of resource requirements or pollutant releases of higher-order upstream stages of the production process. The magnitude of this truncation error varies with the type of product, process, project, company or sector considered, but can be in the order of 50%. One way to avoid such significant errors is to incorporate input-output analysis into the analysis framework. Using Monte-Carlo simulations, it can be shown than uncertainties of input-output-based assessments are often lower that truncation errors in even extensive, third-order process-type analyses.

For further information contact us for copies of journal articles on

  • Linkages and key sectors: Lenzen M, Environmentally important linkages and key sectors in the Australian economy, Structural Change and Economic Dynamics, 14 (1), 1-34, 2002,
  • Convergence and crossovers in upstream life-cycle inventories: Lenzen M and Treloar G, Differential convergence of factor requirements towards upstream production stages Implications for life-cycle assessment, Journal of Industrial Ecology 6 (3-4), 137-160, 2002,
  • Developing Structural Path Analysis: Lenzen M, A guide for compiling inventories in hybrid LCA: some Australian results, Journal of Cleaner Production, 10, 545-572, 2002,
  • Uncertainty calculus and error propagation within input-output systems: Lenzen M, Errors in conventional and input-output-based life-cycle inventories, Journal of Industrial Ecology 4 (4), 127-148, 2001.

Dr Christopher Dey
School of Physics, A28
The University of Sydney NSW 2006
+61 (0)2 9351-5979,