Analysis of resource efficiency: A production frontier approach

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Highlights

  • Exergy or emergy flows are used in the production frontier framework to quantify resource efficiency (RE).

  • New measures are qualitative and quantitative, whereas existing indicators are qualitative.

  • An empirical study shows that economies could reduce resource use by 30% without welfare reduction.

  • Several important determinants of RE variation are also identified.

Abstract

This article integrates the material/energy flow analysis into a production frontier framework to quantify resource efficiency (RE). The emergy content of natural resources instead of their mass content is used to construct aggregate inputs. Using the production frontier approach, aggregate inputs will be optimised relative to given output quantities to derive RE measures. This framework is superior to existing RE indicators currently used in the literature. Using the exergy/emergy content in constructing aggregate material or energy flows overcomes a criticism that mass content cannot be used to capture different quality of differing types of resources. Derived RE measures are both ‘qualitative’ and ‘quantitative’, whereas existing RE indicators are only qualitative. An empirical examination into the RE of 116 economies was undertaken to illustrate the practical applicability of the new framework. The results showed that economies, on average, could reduce the consumption of resources by more than 30% without any reduction in per capita gross domestic product (GDP). This calculation occurred after adjustments for differences in the purchasing power of national currencies. The existence of high variations in RE across economies was found to be positively correlated with participation of people in labour force, population density, urbanisation, and GDP growth over the past five years. The results also showed that economies of a higher income group achieved higher RE, and those economies that are more dependent on imports and primary industries would have lower RE performance.

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.

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