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Thermodynamics and process analysis for future economic scenarios

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  • Robert Ayres

Abstract

Economists are increasingly interested in forecasting future costs and benefits of policies for dealing with materials/energy fluxes, polluting emissions and environmental impacts on various scales, from sectoral to global. Computable general equilibrium (CGE) models are currently popular because they project demand and industrial structure into the future, along an equilibrium path. But they are applicable only to the extent that structural changes occur in or near equilibrium, independent of radical technological (or social) change. The alternative tool for analyzing economic implications of scenario assumptions is to use Leontief-type Input-Output (I-O) models. I-O models are unable to endogenize structural shifts (changing I-O coefficients). However, this can be a virtue when considering radical rather than incremental shifts. Postulated I-O tables can be used independently to check the internal consistency of scenarios. Or I-O models can be used to generate scenarios by linking them to econometric ‘macro-drivers’ (which can, in principle, be CGE models). Explicit process analysis can be integrated, in principle, with I-O models. This hybrid scheme provides a natural means of satisfying physical constraints, especially the first and second laws of thermodynamics. This is important, to avoid constructing scenarios based on physically impossible processes. Process analysis is really the only available tool for constructing physically plausible alternative future I-O tables, and generating materials/energy and waste emissions coefficients. Explicit process analysis also helps avoid several problems characteristic of ‘pure’ CGE or I-O models, viz. (1) aggregation errors (2) inability to handle arbitrary combinations of co-product and co-input relationships and (3) inability to reflect certain non-linearities such as internal feedback loops. Copyright Kluwer Academic Publishers 1995

Suggested Citation

  • Robert Ayres, 1995. "Thermodynamics and process analysis for future economic scenarios," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 6(3), pages 207-230, October.
  • Handle: RePEc:kap:enreec:v:6:y:1995:i:3:p:207-230
    DOI: 10.1007/BF00705980
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    References listed on IDEAS

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    2. Sciubba, Enrico, 2003. "Extended exergy accounting applied to energy recovery from waste: The concept of total recycling," Energy, Elsevier, vol. 28(13), pages 1315-1334.
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    4. Jeanneaux, Philippe & Latruffe, Laure, 2016. "Modelling pollution-generating technologies in performance benchmarking: Recent developments, limits and future prospects in the nonparametric frameworkAuthor-Name: Dakpo, K. Hervé," European Journal of Operational Research, Elsevier, vol. 250(2), pages 347-359.
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    7. Aldanondo, Ana M. & Casasnovas, Valero L. & Almansa, M. Carmen, 2016. "Cost-constrained measures of environmental efficiency: a material balance approach," MPRA Paper 72490, University Library of Munich, Germany.
    8. Ayres, Robert U., 1998. "Eco-thermodynamics: economics and the second law," Ecological Economics, Elsevier, vol. 26(2), pages 189-209, August.
    9. Krysiak, Frank C. & Krysiak, Daniela, 2003. "Production, consumption, and general equilibrium with physical constraints," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 513-538, November.
    10. Beltrán-Esteve, Mercedes & Picazo-Tadeo, Andrés J., 2017. "Assessing environmental performance in the European Union: Eco-innovation versus catching-up," Energy Policy, Elsevier, vol. 104(C), pages 240-252.
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    12. Hoang, Viet-Ngu & Rao, D.S. Prasada, 2010. "Measuring and decomposing sustainable efficiency in agricultural production: A cumulative exergy balance approach," Ecological Economics, Elsevier, vol. 69(9), pages 1765-1776, July.

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