Input-output analysis and the study of economic and environmental interactions

This thesis is an attempt to apply the technique of input-output analysis to the study of the relations between an economy and the environment which supports it. The opening chapter contains a brief justification of the use of input-output analysis for this purpose. It is argued that input-output models, which recognise many of the interactions among consumers and producers, can be extended so that they also take account of some of the interactions among consumers, producers, and the natural environment. Emphasis is placed upon the flow of materials between the environment and the economy. Waste products flow from the economy to the environment and 'free' goods flow in the opposite direction. There follows, in the second chapter, a review of the work of three writers who have explored the possibility of using general equilibrium and input-output models to study man's impact on the environment. The models presented by these economists are each found to possess unsatisfactory features. The theoretical core of the dissertation is an adaptation of two recently developed input-output models. Waste products and 'free' goods are introduced into both models in several different ways. The data requirements of the various models differ considerably and only the simplest of the models can be applied to the data on waste products and 'free' goods that are currently available. Canadian data, much of which were collected especially for this study, and the methods used in its estimation, are described in the fourth chapter. Chapter five is a summary of the results obtained from using the data on waste products and 'free' goods in conjunction with the Canadian input-output accounts for 1961. These results include estimates of the wastes produced and 'free' goods used in the production and consumption of one dollar's worth of each type of commodity manufactured in Canada. The results also include estimates of the Provincial distribution of waste products and 'free' goods that were associated with Canadian economic activity in 1961. Furthermore, an attempt is made to rank the commodities produced and consumed in Canada, in terms of the relative impact on the environment of their production and consumption. The final experiment illustrates a method of estimating the ecologic implications of changing the pattern of Canadian consumption. To show this an estimate is made of the effects of transferring 50 per cent of Canadian passenger car travel to public transportation. The last chapter of the thesis is a discussion of the uses to which the models and results might be put in formulating Government policy. Various methods are examined of bringing the production of wastes and use of 'free' goods within the realm of the market economy. It is argued that although it is generally more efficient to price the wastes and 'free' goods directly this policy can only serve as a long term goal. In the short term it is suggested that, for administrative reasons, emphasis should be placed on levying taxes on commodities so that their market prices reflect the ecologic cost of their production and consumption. A schedule of the relative sizes of such taxes is estimated using a model developed for the purpose together with the data collected as part of this study. In conclusion, the overall purpose of the dissertation is to suggest a method of analysis rather than to present comprehensive results. The results which are obtained are intended to be no more than indicative of what would be possible if more accurate and comprehensive data were available.