Analysis of resource efficiency: A production frontier approach
Introduction
Natural resources are fundamental for human welfare since they provide raw materials, land, water, energy, food, and environmental services. However, natural resources are scarce and there is increasing evidence that human society is approaching a limit to the supply of many types of resources (Allwood et al., 2011). Hence, sustainable use of natural resources is essential to the sustainability of our human welfare.
Unfortunately, the consumption of natural resources in most economies throughout the world has been increasing. The global extraction of fossil fuels, metal ores, industrial and construction minerals, and biomass increased by 65% from around 36 billion tonnes in 1980 to 60 billion tonnes in 2007 (Krausmann et al., 2009a). The extraction, processing, and consuming of energy and materials has dramatic impacts on the environment. Adverse impacts include undesirable emissions to air, water and land, and the consumption of other important ecosystem services (Allwood et al., 2011, Matthews et al., 2000). Therefore, each and every economy has to increase efficiency in using natural resources to achieve sustainable development.
Empirically, analyses of resource efficiency (RE) aim to provide useful information for the development of natural resource management and environmental policies (OECD, 2008b). The reliability of such analyses depends how appropriately RE is measured. Material flow accounting and analysis (MFA) has been established to quantify the use of natural resources in national and international contexts (Behrens et al., 2007, OECD, 2008b). The concepts and methods of MFA have been increasingly standardised and aggregate material and energy flows are now an integral part of environmental reporting systems in many countries (Steinberger et al., 2010, Eurostat, 2007). Data on these aggregate flows for many economies have been made available by different organisations (CSIRO and UNEP, 2011, SERI, 2011, EuroStat, 2011). Data have also been used to construct resource efficiency indicators (REIs) such as gross domestic product (GDP) per domestic material consumption, GDP per total material requirement, and GDP per direct material input (OECD, 2008a, OECD, 2008b, Eurostat, 2007). Recently, several empirical studies have used these data to investigate the variations of RE across different economies (Krausmann et al., 2009a, Steinberger et al., 2010, Weisz et al., 2006, UNEP, 2011, Steger and Bleischwitz, 2011).
Regardless of differences in the research objectives, geographic scales, and time dimensions, these studies share two important common features. Firstly, they provide strong and consistent evidence of increasing consumption of resources in most economies, even in those economies that have focused their policies on dematerialising economic growth. Secondly, these analyses confirm high variations in the levels of resource consumption across economies. However, existing REIs have two important limitations. Firstly, REIs are built on aggregate mass flows of differing materials and this is questionable because mass content fails to reflect the differing quality of a variety of materials. Secondly, REIs are not able to provide ‘quantitative’ interpretations. For example, analysts cannot express by how much a particular economy can improve its efficiency in using resources.
To overcome these limitations, the present study proposes to use the exergy or emergy content rather than mass content of differing resources in the MFA and integrate the MFA into the production frontier framework. The literature has argued that it is more precise to use the exergy or emergy content than to use the mass content in aggregating differing resource types into aggregate flows (Wall, 1987, Ayres, 1995, Odum, 1996). Also, the production frontier framework has been used extensively in empirical micro- and macroeconomic studies. The expected results can provide decision makers with useful information regarding how economies can improve their efficiency, given a production technology that is technically feasible and currently available to economies. By using the production frontier approach, the derived RE measures are both ‘quantitative’ and ‘qualitative’. Interpretations from these efficiency measures are much more practically meaningful. For example, by how much can an economy reduce its consumption of resources without any reductions in the quantities of goods and services produced and consumed? These new RE measures also allow relative comparisons of efficiency performance across economies and over time.
The remaining parts of the present article are structured into four sections. Section 2 reviews the relevant empirical studies in the field of material efficiency. Section 3 proposes an analytical framework to derive a new RE measure. Section 4 illustrates an empirical application using a dataset of 116 economies in 2000. Section 5 concludes the paper.
Section snippets
Literature review
The MFA is useful in quantifying the use of natural resources (OECD, 2008b, Weisz et al., 2006). The mass contents of different types of materials and energy are used in aggregating differing material/energy flows into aggregate flows. These aggregate flows are then used to derive resource efficiency indicators (REIs). The official REIs link macroeconomic output indicators (such as GDP or value added) to economy-wide material flows and are constructed to provide information about the material
The physical basic of modern economies
Recent studies into the physical and economic growth of modern economies have modelled a typical economy as a system consisting of a physical basis and a market superstructure (Lindenberger and Kümmel, 2011, Ayres and Warr, 2009). The physical basis produces goods and services by converting energy and materials into commodities while economic actors trade these commodities in the market superstructure. Fig. 1 presents the physical flows of natural resources in this simplified system. All
Data description and measurement technique
This paper uses the National Environmental Accounting Database (NEAD) to construct physical flows of 116 economies in 2000 (Center for Environmental Policy, 2009).4
Conclusion
This article has proposed an integration of material/energy flow analysis into the production frontier framework to measure resource efficiency. Particularly, the paper used the emergy content (rather than mass content as done in MFA) contained in various inputs to aggregate them into several input terms. In an input-orientated framework, the new RE measure is derived by contracting all exergy/emergy-based aggregate input terms given the fixed level of a single aggregate output measured in
Acknowledgement
I am grateful to Associate Professor Shunsuke Managi for useful comments. Special thanks to Duc Cuong Vu for his research assistance work.
References (45)
- et al.
Material efficiency: a white paper
Resour. Conserv. Recycl.
(2011) - et al.
Emergy as a function of exergy
Energy
(2007) - et al.
The material basis of the global economy: worldwide patterns of natural resource extraction and their implications for sustainable resource use policies
Ecol. Econ.
(2007) Is the entropy law relevant to the economics of natural resource scarcity? Yes, of course it is!
J. Environ. Econ. Manag.
(1992)- et al.
Hyperbolic efficiency and return to the dollar
Eur. J. Oper. Res.
(2002) - et al.
Measuring and decomposing sustainable efficiency in agricultural production: a cumulative exergy balance approach
Ecol. Econ.
(2010) - et al.
Growth in global materials use, GDP and population during the 20th century
Ecol. Econ.
(2009) - et al.
Energy and the state of nations
Energy
(2011) What drives environmental policy?
Glob. Environ. Change
(2006)- et al.
Emergy and exergy analyses: complementary methods or irreducible ideological options?
Energy
(2005)
Drivers for the use of materials across countries
J. Clean. Prod.
Global patterns of materials use: a socioeconomic and geophysical analysis
Ecol. Econ.
Exergy conversion in the Swedish society
Resour. Energy
Energy use and economic development: a comparative analysis of useful work supply in Austria, Japan, the United Kingdom and the US during 100 years of economic growth
Ecol. Econ.
The physical economy of the European Union: cross-country comparison and determinants of material consumption
Ecol. Econ.
Thermodynamics and process analysis for future economic scenarios
Environ. Resour. Econ.
Production, consumption, and externalities
Am. Econ. Rev.
The Economic Growth Engine: How Energy and Work Drive Material Prosperity
The evolution of growth empirics
Microeconometrics Using Stata
Profit, directional distance functions, and Nelovian efficiency
J. Optim. Theory Appl.
Cited by (17)
Ecosystem Services Production Efficiency of Longleaf Pine Under Changing Weather Conditions
2019, Ecological EconomicsCitation Excerpt :Thus, it is imperative to analyze the impacts of different forest management approaches coupled with changing weather conditions on the sustainable flow of ecosystem services. Likewise, analysis of the efficiency in use of natural resources, for example the maximum amount of ecosystem services that can be produced given a combination of inputs, provides critical information for the formulation of natural resource management and environmental policies (Hoang, 2014). A typical productivity measure of technical efficiency is the output-input ratio, i.e. units of outputs per unit of input.
Cross-constrained Measuring the Cost-environment Efficiency in Material Balance Based Frontier Models
2017, Ecological EconomicsAssessing the productivity change of water companies in England and Wales: A dynamic metafrontier approach
2017, Journal of Environmental ManagementCitation Excerpt :Hence, productivity assessment allows water companies to analyse whether their performance has improved or worsened over a period of time. Moreover, some productivity indices, such as the Malmquist productivity index (MPI), the Luenberger productivity indicator and the Hicks–Moorsteen productivity index, can be decomposed as sub-indices which allow water companies to identify the drivers of productivity change (Hoang, 2014; Molinos-Senante et al., 2016a). From the regulatory point of view, assessment of productivity change is essential in countries or regions where the process of setting water tariffs is based on yardstick competition, as is the case in England and Wales, Colombia and some states in Australia (Marques et al., 2011).
Natural resources utilization efficiency under the influence of green technological innovation
2017, Resources, Conservation and RecyclingA comprehensive review of data envelopment analysis (DEA) approach in energy efficiency
2017, Renewable and Sustainable Energy ReviewsA bibliometric review on natural resource accounting during 1995–2014
2016, Journal of Cleaner ProductionCitation Excerpt :Meanwhile, few articles combined three different methods. For instance, Hoang (2014) integrated emergy, exergy and MFA to quantify resource efficiency. The total publications of the top 10 most productive countries account for 82.6% of the total investigated publications, reflecting their prominent interests on natural resources accounting.