Balance issues in input–output analysis: A comment on physical inhomogeneity, aggregation bias, and coproduction

Abstract

. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ Recently, Merciai and Heijungs (2014) demonstrated that monetary input-output (IO) analysis can lead to system descriptions that do not conserve mass when the assumption of homogeneous prices is violated. They warn that this violation of basic balance laws can lead to biased estimates of environmental impacts, and they therefore recommend performing IO analysis in a physically accounted framework.We take a broader scope on this issue and present price inhomogeneity as a special case of product mix inhomogeneity. We demonstrate that even a fully physically accounted IO analysis or lifecycle assessment will violate balance laws if it suffers from inhomogeneous aggregation. The core issue is not whether a system is described using monetary or physical units, but rather whether product groups are too aggregated to allow for the concurrent respect of energy, mass, financial and elemental balances.We further analyze the link between the violation of physical balances and the introduction of biases. We find that imbalances are neither a necessary nor a sufficient condition for the presence of systematic errors in environmental pressure estimates.We suggest two ways to leverage the additional explanatory power of multi-unit inventory tables to reduce instances of imbalances and aggregation biases.

Methodology for the Construction of Global Multi‐Regional Hybrid Supply and Use Tables for the EXIOBASE v3 Database

“…Obviously, the multilayer balance approach introduces more computational complexity compared to monetary models. Contrarily, the monetary models lack general consistency in terms of other balances than economic flows (Majeau-Bettez et al 2016;Merciai and Heijungs 2014), and further basic physical requirements to production functions are not checked, for example, that sufficient feedstock materials are available to justify production. In other words, monetary tables may bear an uncertainty that is hard to quantify.…”

“…; Majeau‐Bettez et al. ; Merciai and Heijungs ; Weisz and Duchin ): the possibility within each activity, and for all the products, to perform balances in different units. In our case, we have imposed in the algorithm the mass and energy balances .…”

“…Therefore, EXIOBASE MR-HSUTs are the first ever compiled and published global multiregional hybrid tables. Among many others, there is one important advantage of constructing SUTs in different layers, each with different units, and then combining these into a hybrid mixed-units framework (Hawkins et al 2007;Majeau-Bettez et al 2016;Merciai and Heijungs 2014;Weisz and Duchin 2006): the possibility within each activity, and for all the products, to perform balances in different units. In our case, we have imposed in the algorithm the mass and energy balances.…”

Choice of Allocations and Constructs for Attributional or Consequential Life Cycle Assessment and Input‐Output Analysis

“…Each technological recipe is assumed to be associated with a single, distinct, homogeneous product (Leontief ; Konijn and Steenge ; Viet ; Bidard and Erreygers ; Weisz and Duchin ; Majeau‐Bettez et al. ). Consequently, activities that supply more than one product—such as a grain farmer coproducing wheat and straw, or the electronics sector coproducing laptops and cellphones—prove challenging for life cycle calculations.…”

“…In practice the concept of two products being identical is largely a question of level of resolution and the level of homogeneity of product groups, see Majeau‐Bettez et al. ().…”