The Application of Multi-regional Input-Output Analysis to Industrial Ecology

Consumption causes environmental impacts in two different ways. Direct environmental impacts result from consumption when consumers directly burn fossil fuels; for instance, from the petrol used for personal transportation or wood used for space heating. Significant environmental impacts also occur indirectly in the production of consumable goods. When production occurs in the same country as consumption, then government policy can be used to regulate environmental impacts. However, increasing competition from imported products has led to a large share of production occurring in a different country to consumption. Regulating the resulting pollution embodied in trade is becoming critical to stem global pollution levels. Due to increased globalization of production networks, there is increasing interest in the effects of trade on the environment (Jayadevappa and Chhatre 2000; Copeland and Taylor 2003).

With the increased interest in trade and the environment research activity is focusing on methods of accurately calculating the pollution embodied in traded products. Early studies in this area assumed that imports were produced with the same technology as the domestic economy (e.g. Wyckoff and Roop 1994; Lenzen 1998; Kondo et al. 1998; Battjes et al. 1998; Machado et al. 2001), however, using this assumption large errors may result when the countries have diverging technology and energy mixes (Lenzen et al. 2004; Peters and Hertwich 2006a, c).

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This stimulated research in the use of multi-regional input-output (MRIO) models.