Environmental interregional input -output models

Karen R. Polenske (*)

Pollution problems have become of increasing concern to policy makers in most

industrialized countries. In the l'nited States, pollution issues are handled at the

national level primarily by the l'. S. Fnvironmental Protecion :Agency (I TA). Many

different state, regional, and private groups are also concerned with pollution. such

as state environmental agencies, the Sierra Club, the Audubon Society. etc.

Currently, there are regulations for air, water, and solid waste. The main purpose of

this paper is to review an analysis conducted in 1979 by Pai, who examined the

economic impacts of the regulations imposed under the 1974 Clear Air Act. I'ai

extended the l.eontief ( 1970) national environmental model to the regional level to

account for the interregional and interindustrial economic impacts of these national

enyironniental regulations. To accomplish this, he modified the mul(iregional input-

output t\lRIO) model that had been developed under the direction of Polenske

( I970). He used the modified \IRIO model to determine both the gains in output

created by investment in pollution-abatement technology and the losses in output to

he expected from the price effects of emission control. The regions and industries that

benefit from the additional investment are generally not the same as those that must

internalize the costs.Between 1971 an 1977, 109 plants closed in the I sited States, leaving 20,517

employees without jobs as a result of what were claimed to he environmentally

related causes. These closings were concentrated in four industries: primary metals,

food. chemicals, and pulp and paper. Although the number of plant closings and joh

losses was relatively small, the number would certainly increase with stricter

enforcement. Pollution-abatement expenditures in 1975 were S29.2 billion and in

1976 S32.8 billion, representing approximately two percent of the gross national

product (GNP). I)uring this part ofthe I970s. pollution-abatement expenditures were

increasing at about 10-1 I percent per year.

(') Professors deLand and Urban Planning, Massachussets Institute of technology.

234

Pai's 11979) model was formulated to he directly applicable for policy analyses.

This is in contrast to the models formulated by Ayres and Kneese ( 1969) and

Cumherland ( 1966). Ayres and Kneese recognized that their model was almost

impossible to implement because of the data collection and computational problems(1969, p. 295). Cumberland fails to account for the relationship between economic

activity and net environmental repercussions. His model can therefore mainly he

used as an accounting device: however, it should be noted that it does not contain an

internal consistency in the accounting units.Daly ( 1968) also constructed a model that failed to maintain an internal

accounting consistency. No market prices can he attributed to the ecological

commodities. Isard et al. ( 1968) overcame some of the problems with Dalv's model

by using a commodity-by-industry set of input-output accounts instead of anindustry-by-industry set. Again, however, the data for the ecological sector arenonexistant. In both models, pollutant discharges into the environment are associatedwith the economic outputs, while the inputs from the environment are treated as partof the industrial inputs.

Leontief (1970) reversed these relationships. In his model, the amount 01'pollution produced by each industry is assumed to he a function of the total output ofthe industry, while the inputs required to produce antipollution goods becomes partof the costs of production. In contrast to Isard et al. and Daly, Leontief thereforetreats the latter as part of the intermediate, rather than final, demand. AlthoughLeontief omits the environmental sector by this reversal, the antipollution industry isintroduced, which allows economic impacts to be determined. All of the othermodels tend to have an environmental bias. The analysts were concerned with thegeneration of pollution and its costs to the environment, rather than with the costsand benefits to the economy, as measured by the direct and indirect changes inoutput, employment, interregional trade, investment, thus changes in economicgrowth of regions and industries.

Pai ( 1979) examined these economic costs and benefits by extending the Leontiefmodel to the interregional level and then examining the inflationary impacts andregional disparities that would result from the implementation of the 1974 Clean -firregulations at an arbitrarily chosen level of control. To implement the model, heexpanded the Leontief model to a multiregional level. The Leontief model is shownin Figure I. lie used both the primal and the dual form of the NIRIO model. TheNIRIO data for 1963 were aggregated from 79 industries and 51 regions to 19industries and 9 regions. For each round of calculations, the NIRIO model waspartially closed with respect to households: thus, wages and salaries of thesehouseholds are shown as the 20th industry in each of the following tables.

In addition to the MRIO 1963 data, three other sets of data were obtained,namely emission coefficients, abatement-cost coefficients, and data to construct theXs, where the latter are calculated as the proportion of the total amount of pollutiongenerated by an industry that is removed by the same industry. These data wereprovided by the Resources for the Future (RFF). There were obtained from theirORSA, B.74 version of the Strategic Environmental Assessment (SEAS) model,which used 1975 base-year data to project industrial-output, emissions-generation,and emissions-ahatement data for 1971, 1975, 1985, 2000, 2010, and 2025,assuming the 1974 performance standards would he implemented by states by 1977.Data were supplied for particulates, sulfur oxides, nitrogen oxides, hyrdocarhons,and carbon monoxide. Their 1985 data were selected for the present study. Inaddition, staff at the Interindustry Forecasting at the University of Maryland

235

(I NI ORI \11 project. working under the direction of AInum. prodded the pelasticity data from their I\FORI AI model.

To implement the model , three assumptions were made in addition to the usualinput-output assumptions.

1. Pollution is not traded from region to region.2. Pollution generated hu the pollution - abatement sector is zero.3. The emission coefficient for each industry equals the coefficient times A,

where A varies between 0 and I depending upon the exogenous variableunder consideration.

T he relationships among these data are shown in }- figure 2.The As were calculated by determining for each industry the total emission of the

5 pollutants generated and dividing this total into the figure for the total emissionsabated . Ratios for this variable ranged from a low of .27 for the food industry to ahigh of . 98 for the primary nonferrous metal manufacturers . with a weightedaverage of . 90. The emissions coefficients were calculated for each industry bydividing the tons of the total of the 5 pollutants emitted on an annual basis by thethousands of dollars of output . These coefficients were zero for agriculiore,construction , and a few other industries , and ranged from a low of 0.0003 for-machinery and equipment to a high of 2.0098 for electric utilities . The abatement-cost coefficients were calculated for each industry by dividing the thousands ofdollars spent on pollution abatement on an annual basis by the tons of pollutionabated . ' I hese were zero for all agricultural , mining, and construction industries andranged from a low of 0.00 13 for primary iron and steel manufacturers to a high of'48.8774 for machinery and equipment . Because of lack of data , the same coefficientswere used for each region.

Figure 3 illustrates how the calculations were made . Relative prices werecalculated using the NI RIO price model (Table H. These changes in relative priceswere then used to adjust the consumption expenditures . and a partially - closed -w ith-respect-to-households version of'the \i RIO model was implemented to determine thechanges in output resulting from the price effects ( Table 2 ). The pollution-ahatenientexpenditures were allocated to regions. and the partially closed model was again usedto determine output changes resulting from the increased expenditures ('fable 3).Finally . the two effects were summed to obtain the net effect (' fable 4).

As can be seen from the tables, a number of conclusions can he drawn from thisstudy . For the economy as a whole output would increase by about I . 4 percent, orapproximately 20 billion dollars by the implementation of the clean air stand a rds.Sonic industries and regions benefits and others lose. Industries with significantlinkages to the production of abatement technology , especially the machinery andequipment industries , showed the largest increases in output . If industries were eitherlarge polluters but had low linkages to the abatement industry or if they wereindustries that were strongly affected by the induced expenditures in consumptionexpenditures , they experienced low increases in output . It is interesting to note thatalthough petroleum is one of the largest pollution industries , it had substantial gainsin output because of the strong link with abatement expenditures.

At the regional level, the main result is that the implementation of the stricterenvironmental controls would aid the industrialized , older regions of the countrv themost. This occurs even though these regions in the Fast also had higher levels of 'industrial pollution . .As noted, the model formulated by Pal is based upon the \IRIOmodel . The basic framework could be adapted for use investigating water-pollution,acid-rain , and other environmental issues at a detailed regional and industrial level.

236

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C'umherland, John 11. 1966. "A Regional Interindustry Model for the ,Analysis ofDevelopment Objectives". Rc,eiunal .Scicncc A^suciuli ,I 1'apcv \ ol. 16, pp. 69-94.

Daly, Herman F. 1968. "On Economics as a Life Science". Journal of Political

non Vol. 76 (may'/june), pp. 392-407.Isard, Walter, F., and others. 1968. "On the Linkage of Socio-Economic .rnd

l'.cologic Systems". Regional .Scic'nccc .4 ociation 1'a/h'rs. A ol. 21, pp. 79-99.

I.eontief, AVassily W. 1970. "E.nvironmental Repercussions and the EconomicStructure: An Input-Output :Approach". Rcr'ic„ o/ 1:'cunumic.^ aml S7atiti( v. Vol. 52.No. 3. pp. 262-271.

Pai, Gregory G. 1. 1979. "Environmental Pollution Control Policy: AnAssessment of Regional Economic Impacts". Ph. 1). Dissertation. Cambridge, NIA:\lassachusetts Institute of 'I echnology, Department of Urban Studies and Planning.

Polenske, Karen R. 1970. ''A \lultiregional Input-Output Model for the UnitedStates". Report No. 21. Prepared for the Economic Development Administration, l'.S. Department of Commerce.

Polenske. Karen R. 1980. Pic I'. S. Multire, Tonal Input-Qutlwt Accotnu.ti andIfoc!(,l. Lexington, Al:A: Lexington Books. I). C. Ileath and Company.

244