Revealing the economic channels of natural impacts: an extended input–output subsystems application to GHG gases and water use

While a small set of economic activities generates most of the direct environmental burdens, the complexity of connections within an economic system requires consideration of the effects caused by the interdependences between its different agents. To date, however, the input–output (I–O) subsystems literature has been limited to uncovering the intersectoral linkages of direct and indirect environmental impacts within an economy and the connections between sectors and private consumption have thus not attracted much attention. This paper proposes an I–O subsystems model that endogenously incorporates not only production sectors but also household consumption to capture the entire channel of environmental impacts. The empirical application focuses on carbon dioxide equivalent (CO2-eq.) emissions and water use associated with production sectors and households defined in the I–O table for a Spanish region, Extremadura. The results highlight the key role of the effects induced by private consumption on the environmental burdens of services.