EIPOT Final Project Report - Stockholm Environment Institute

ERA-NET SKEP Project EIPOT (www.eipot.eu)
“Development of a methodology for the assessment of global environmental impacts of traded goods and services”
decision-makers about recent impacts and to provide a relevant basis for scenario analysis.
Furthermore, for the purpose of historical analysis and to derive relationships helpful for forecasting, it
is desirable to have time series of all relevant data. Structural decomposition analysis (SDA), a very
useful technique to identify the driving forces behind change, requires a time series of constant price
tables (recently a number of studies used SDA in a national context to identify the underlying causes
for changes in emissions, some of them including trade, such as de Haan 2001, Peters and Hertwich
2006, Wilting et al. 2006, Guan et al. 2008, Yamakawa and Peters 2008, Minx et al. 2009,
Wachsmann et al. 2009, Wood et al. 2009).
A common problem in compiling and updating input-output tables and environmental accounts is
incomplete data. Missing matrix elements may be due to costly and incomplete industry surveys, or
the suppression of confidential information. External data points can be used to formulate a system of
equations that constrain the unknown matrix elements. However, unknowns usually outnumber
external constraints, resulting in the system being underdetermined. Undetermined here means that
the data exhibits too many degrees of freedom to be solved analytically. The two most prominent
numerical approaches for reconciling such an underdetermined system are probably the RAS method,
and constrained optimisation. During the past 40 years, both approaches have successfully tackled a
number of challenges, leading to several useful features. Ideally, the technique should:
• incorporate constraints on arbitrarily sized and shaped subsets of matrix elements, instead of only
fixing row and column sums;
• allow consideration of the reliability of the initial estimate;
• allow consideration of the reliability of external constraints;
• be able to handle negative values and to preserve the sign of matrix elements if required;
• be able to handle conflicting external data.
Lenzen et al. (2006, 2009) present a new RAS variant (referred to as KRAS) able to handle conflicting
external data and inconsistent constraints. This was achieved by introducing standard error estimates
for external data. The authors apply this method to the 1993-94 Australian National Accounts.
(Wiedmann et al. 2007b) use the KRAS method to construct a time series of IO tables for the UK from
1992 to 2004 (Wiedmann et al. 2008b).
A new method of updating and projecting input-output tables, called the "Euro" method, has also been
described by Eurostat (2008, p461). The basic idea of the approach is to derive input-output tables
consistent with official macroeconomic forecasts for GDP but avoiding arbitrary adjustments of input
coefficients to ensure the consistency of supply and demand.
The following assumptions form the basis of the new Euro update procedure: Substitution processes
change inputs (rows), production effects influence outputs (columns) and price effects affect inputs
and outputs. Euro corresponds to the basic idea of the RAS approach. However, it encompasses all
the elements of an input-output table and, consequently, all quadrants of an input-output table in an
activity analysis approach. In this interpretation, the columns of the input-output table represent basic
activities which are treated on an equal basis. The new method only uses official macroeconomic
forecasts as exogenous input for the iterative procedure. Column and row vectors for intermediate
consumption and final demand are derived as endogenous variables, rather than accepted as
exogenous variables from unspecified sources.
Eurostat will update input-output tables based on this new method to cover the time lag between the
last reported SIOT and the latest set of national accounts from member states. Limited data
requirements, low costs and the potential for greater automation are the main benefits of the Euro
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