Beyond GDP: National Accounting in the Age of Resource Depletion (Lecture Notes in Energy Book 26)

This book uses the metaphor “The economy is society's metabolism” as a springboard to develop a rigorous theoretical framework for a better system of national accounts which goes “Beyond GDP” and is relevant to the age of resource depletion. Society is entering a new era in which biophysical limits related to natural resource extraction rates and the biosphere's waste assimilation capacity are becoming binding constraints on mature economies. Unfortunately, the data needed for policy-makers to understand and manage economic growth in this new era are not universally available. All stakeholders need a new way to understand our economy in the context of the biosphere’s ability to provide essential natural capital, and we suggest that detailed information about materials, energy, embodied energy, and energy intensity should be routinely gathered, analyzed, and disseminated from a centralized location to provide markets and policymakers with a more comprehensive understanding of the biophysical economy. However, a firm theoretical foundation is needed before proceeding along this new path, which this book is intended to provide. After arguing that the stock of manufactured capital is an important driver of material and energy demands imposed upon the biosphere, a new accounting framework is derived from the laws of thermodynamics to reflect the fact that material and embodied energy accumulate within the capital stock of economic sectors. This framework extends the Energy Input-Output (EI-O) techniques first developed by Bullard, Herendeen, and others to estimate energy intensity of economic products. Implications from the new framework are discussed, including the value of economic metrics for policy-making, the need for physically-based rather than product-based EI-O formulations, a re-assessment of the concept of economic “growth,” and an evaluation of recycling, reuse, and dematerialization. The framework also provides an opportunity to assess an array of definitions for Daly's “steady-state economy” in relation to the ideal of a sustainable economy. The book ends with a list of steps to be taken in creating a more comprehensive system of national accounts: * National accounting agencies worldwide should develop and maintain balance sheets of both natural and manufactured capital in addition to national income statements * All stocks and inter-sector flows should be provided in physical as well as financial units * In the US, the Bureau for Economic Analysis (BEA) should restart detailed Capital, Labor, Energy, Material, and Services (KLEMS) reporting * National accounting agencies should routinely estimate the energy intensity of economic products, and all of the above should be estimated and disseminated on an annual basis. Preface 7 References 8 Acknowledgments 10 Prologue 11 References 13 Contents 14 List of Figures 18 List of Tables 20 List of Symbols 21 Chapter 1 Introduction: The End of an Era 24 1.1 (Mis)measuring the Wealth of Nations 27 1.2 Nations at Risk 29 1.3 Understanding the Biophysical Economy 29 1.3.1 Coupling Between Energy and the Economy 30 1.3.2 Stalled Growth Is Related to Nonrenewable Stocks 35 1.3.3 Stalled Growth Is Related to Capital Stock 39 1.4 Consumption-Driven Solutions Are Unsustainable 40 1.5 Change Is Needed! 41 References 43 Chapter 2 Accounting for the Wealth of Nations 45 2.1 Three Eras 46 2.1.1 Era of Abundance 46 2.1.2 Era of Energy Constraints 49 2.1.3 Age of Resource Depletion 53 2.2 The Economy is Society's Metabolism 54 2.2.1 Anabolism (Capital Formation) 56 2.2.2 Catabolism (Energy Production) 57 2.2.3 Autophagy (Recycling) 57 2.2.4 Issues of Scale 58 2.2.5 Benefits of the Metabolism Metaphor 60 2.3 New National Accounting 61 2.4 Structure of the Book 63 References 63 Part I Material and Energy 66 Chapter 3 Stocks and Flows of Materials 67 3.1 Methodology 70 3.1.1 Accounting in Everyday Life 70 3.1.2 Product, Resource, Short-lived, and Capital Flows 72 3.2 Example A: Single-Sector Economy 74 3.3 Example B: Two-Sector Economy 81 3.4 Example C: Three-Sector Economy 87 3.5 Materials in the US Auto Industry 93 3.6 Summary 96 References 96 Chapter 4 Flows of Direct Energy 99 4.1 Methodology 100 4.2 Example A: Single-Sector Economy 101 4.3 Example B: Two-Sector economy 104 4.4 Example C: Three-Sector Economy 107 4.5 Direct Energy in the Auto Industry 109 4.6 Summary 109 References 110 Chapter 5 Stocks and Flows of Embodied Energy 111 5.1 Methodology 113 5.1.1 Total Energy Accounting 113 5.1.2 Embodied Energy Accounting 115 5.2 Example A: Single-Sector Economy 116 5.2.1 Simplification of the Embodied Energy Accounting Equation 116 5.2.2 Substitution of First Law into the Embodied Energy Accounting Equation 118 5.2.3 Physical Depreciation 119 5.3 Example B: Two-Sector Economy 120 5.4 Example C: Three-Sector Economy 123 5.5 Embodied Energy in the US Auto Industry 125 5.6 Summary 127 References 127 Part II Economic Value and Energy Intensity 128 Chapter 6 Stocks and Flows of Economic Value 129 6.1 Subjective Theory of Value 129 6.2 Methodology 132 6.3 Example A: Single-Sector Economy 133 6.3.1 Economic transactions 135 6.3.2 Value Added 135 6.3.3 Value destruction 136 6.3.4 GDP 136 6.4 Example B: Two-Sector Economy 137 6.5 Example C: Three-Sector Economy 137 6.6 Stocks and Flows of Economic Value in the US Auto Industry 140 6.7 Summary 143 References 143 Chapter 7 Energy Intensity 145 7.1 Background 145 7.2 Methodology 150 7.3 Example A: Single-Sector Economy 151 7.4 Example B: Two-Sector Economy 152 7.5 Example C: Three-Sector Economy 153 7.5.1 Total Energy Accounting Equation 153 7.5.2 Matrix Formulation 154 7.6 What is Endogenous? 157 7.7 Choice of Energy Input Vector 158 7.8 Energy Intensity in the US Auto Industry 159 7.9 Summary 161 References 161 Part III Implications and Summary 163 Chapter 8 Implications 164 8.1 Metrics 164 8.2 Implications for the I-O Method 165 8.2.1 Product-Based vs. Physical Approaches 166 8.2.2 Capital Flows and Stock 167 Waste Flows 170 Simplification via Capital Stock Accounting Equation 171 8.2.3 Energy Input from Society 172 8.2.4 Recommendation 172 8.3 Implications for Economic Growth 174 8.4 Implications for Recycling, Reuse, and Dematerialization 176 8.5 Comparison to a Steady-state Economy 177 8.5.1 Constant Level of Capital Stock 178 8.5.2 Constant Material Throughput 179 8.5.3 Constant GDP 180 8.6 Summary 181 References 182 Chapter 9 Next Steps 184 Reference 186 Appendix A Value Flows for the US Auto Industry 189 References 191 Appendix B Infinite Series Representation of Energy Intensity 193 Appendix C Proof of Eq. 7.31 195 Appendix D Estimating the Input–Output Matrix (A) 196 Appendix E Column vs. Row Vectors in Energy Intensity Equations 198 References 199 Glossary 200 Bibliography 202 Index 213 This book uses the metaphor The economy is society's metabolism as a springboard to develop a rigorous theoretical framework for a better system of national accounts which goes Beyond GDP and is relevant to the age of resource depletion. Society is entering a new era in which biophysical limits related to natural resource extraction rates and the biosphere's waste assimilation capacity are becoming binding constraints on mature economies. Unfortunately, the data needed for policy-makers to understand and manage economic growth in this new era are not universally available. All stakeholders need a new way to understand our economy in the context of the biosphere s ability to provide essential natural capital, and we suggest that detailed information about materials, energy, embodied energy, and energy intensity should be routinely gathered, analyzed, and disseminated from a centralized location to provide markets and policymakers with a more comprehensive understanding of the biophysical economy. However, a firm theoretical foundation is needed before proceeding along this new path, which this book is intended to provide. After arguing that the stock of manufactured capital is an important driver of material and energy demands imposed upon the biosphere, a new accounting framework is derived from the laws of thermodynamics to reflect the fact that material and embodied energy accumulate within the capital stock of economic sectors. This framework extends the Energy Input-Output (EI-O) techniques first developed by Bullard, Herendeen, and others to estimate energy intensity of economic products. Implications from the new framework are discussed, including the value of economic metrics for policy-making, the need for physically-based rather than product-based EI-O formulations, a re-assessment of the concept of economic growth, and an evaluation of recycling, reuse, and dematerialization. The framework also provides an opportunity to assess an array of definitions for Daly's steady-state economy in relation to the ideal of a sustainable economy. The book ends with a list of steps to be taken in creating a more comprehensive system of national accounts: National accounting agencies worldwide should develop and maintain balance sheets of both natural and manufactured capital in addition to national income statements All stocks and inter-sector flows should be provided in physical as well as financial units In the US, the Bureau for Economic Analysis (BEA) should restart detailed Capital, Labor, Energy, Material, and Services (KLEMS) reporting National accounting agencies should routinely estimate the energy intensity of economic products, and all of the above should be estimated and disseminated on an annual basis. " This book uses the metaphor "The economy is society's metabolism" as a springboard to develop a rigorous theoretical framework for a better system of national accounts which goes "Beyond GDP" and is relevant to the age of resource depletion. All stakeholders need a new way to understand our economy in the context of the biosphere's ability to provide essential natural capital, and the authors suggest that detailed information about materials, energy, embodied energy, and energy intensity should be routinely gathered, analyzed, and disseminated from a centralized location to provide markets and policymakers with a more comprehensive understanding of the biophysical economy. After arguing that the stock of manufactured capital is an important driver of material and energy demands imposed upon the biosphere, a new accounting framework is derived from the laws of thermodynamics to reflect the fact that material and embodied energy accumulate within the capital stock of economic sectors. This framework extends the Energy Input-Output (EI-O) techniques first developed by Bullard, Herendeen, and others to estimate energy intensity of economic products. Implications from the new framework are discussed, including the value of economic metrics for policy-making, the need for physically-based rather than product-based EI-O formulations, a re-assessment of the concept of economic "growth," and an evaluation of recycling, reuse, and dematerialization. The framework also provides an opportunity to assess an array of definitions for Daly's "steady-state economy" in relation to the ideal of a sustainable economy. The book ends with a list of steps to be taken toward creating a more comprehensive system of national accounts: · National accounting agencies worldwide should develop and maintain balance sheets of both natural and manufactured capital in addition to national income statements, · All stocks and inter-sector flows should be provided in physical as well as financial units, · In the US, the Bureau for Economic Analysis (BEA) should restart detailed Capital, Labor, Energy, Material, and Services (KLEMS) reporting, · National accounting agencies should routinely estimate the energy intensity of economic products, and all of the above should be estimated and disseminated on an annual basis This book uses the metaphor "The economy is society's metabolism" as a springboard to develop a rigorous theoretical framework for a better system of national accounts which goes "Beyond GDP" and is relevant to the age of resource depletion. All stakeholders need a new way to understand our economy in the context of the biospheres ability to provide essential natural capital, and the authors suggest that detailed information about materials, energy, embodied energy, and energy intensity should be routinely gathered, analyzed, and disseminated from a centralized location to provide markets and policymakers with a more comprehensive understanding of the biophysical economy. After arguing that the stock of manufactured capital is an important driver of material and energy demands imposed upon the biosphere, a new accounting framework is derived from the laws of thermodynamics to reflect the fact that material and embodied energy accumulate within the capital stock of economic sectors. This framework extends the Energy Input-Output (EI-O) techniques first developed by Bullard, Herendeen, and others to estimate energy intensity of economic products. Implications from the new framework are discussed, including the value of economic metrics for policy-making, the need for physically-based rather than product-based EI-O formulations, a re-assessment of the concept of economic "growth," and an evaluation of recycling, reuse, and dematerialization. The framework also provides an opportunity to assess an array of definitions for Daly's "steady-state economy" in relation to the ideal of a sustainable economy. The book ends with a list of steps to be taken toward creating a more comprehensive system of national accounts: · National accounting agencies worldwide should develop and maintain balance sheets of both natural and manufactured capital in addition to national income statements, · All stocks and inter-sector flows s hould be provided in physical as well as financial units, · In the US, the Bureau for Economic Analysis (BEA) should restart detailed Capital, Labor, Energy, Material, and Services (KLEMS) reporting, · National accounting agencies should routinely estimate the energy intensity of economic products, and all of the above should be estimated and disseminated on an annual basis This book uses the metaphor The economy is society's metabolism as a springboard to develop a rigorous theoretical framework for a better system of national accounts which goes Beyond GDP and is relevant to the age of resource depletion. All stakeholders need a new way to understand our economy in the context of the biospheres ability to provide essential natural capital, and the authors suggest that detailed information about materials, energy, embodied energy, and energy intensity should be routinely gathered, analyzed, and disseminated from a centralized location to provide markets and policymakers with a more comprehensive understanding of the biophysical economy. After arguing that the stock of manufactured capital is an important driver of material and energy demands imposed upon the biosphere, a new accounting framework is derived from the laws of thermodynamics to reflect the fact that material and embodied energy accumulate within the capital stock of economic sectors. This framework extends the Energy Input-Output (EI-O) techniques first developed by Bullard, Herendeen, and others to estimate energy intensity of economic products. Implications from the new framework are discussed, including the value of economic metrics for policy-making, the need for physically-based rather than product-based EI-O formulations, a re-assessment of the concept of economic growth, and an evaluation of recycling, reuse, and dematerialization. The framework also provides an opportunity to assess an array of definitions for Daly's steady-state economy in relation to the ideal of a sustainable economy. The book ends with a list of steps to be takentoward creating a more comprehensive system of national accounts: ℗ʺ National accounting agencies worldwide should develop and maintain balance sheets of both natural and manufactured capital in addition to national income statements, ℗ʺ All stocks and inter-sector flows should be provided in physical as well as financial units, ℗ʺ In the US, the Bureau for Economic Analysis (BEA) should restart detailed Capital, Labor, Energy, Material, and Services (KLEMS) reporting, ℗ʺ National accounting agencies should routinely estimate the energy intensity of economic products, and all of the above should be estimated and disseminated on an annual basis Front Matter....Pages i-xxvii Introduction: The End of an Era....Pages 1-21 Accounting for the Wealth of Nations....Pages 23-43 Front Matter....Pages 45-45 Stocks and Flows of Materials....Pages 47-78 Flows of Direct Energy....Pages 79-90 Stocks and Flows of Embodied Energy....Pages 91-107 Front Matter....Pages 109-109 Stocks and Flows of Economic Value....Pages 111-126 Energy Intensity....Pages 127-144 Front Matter....Pages 145-145 Implications....Pages 147-166 Next Steps....Pages 167-171 Back Matter....Pages 173-201 Society is entering a new era in which biophysical limits related to natural resource extraction rates and the biosphere's waste assimilation capacity are becoming binding constraints on mature economies. Unfortunately, the data needed for policy-makers to understand and manage economic growth in this new era are not universally available. This book outlines the new methods needed to understand our economy in the context of the biosphere's ability to provide essential natural capital