An integrated IO and CGE approach to analysing changes in environmental trade balances

Abstract

The application of multi-region environmental input-output (IO) analysis to the problem of accounting for emissions generation (and/or resource use) under different accounting principles has become increasingly common in the ecological and environmental economics literature, with many applications at the international but fewer at the interregional sub-national level. As an accounting framework, IO tables and IO demand-driven multiplier techniques are absolutely appropriate for conventional pollution attribution analyses because they provide all the required information on pollution embodied in intersectoral interactions and interregional trade flows. However, as a model of how the economy moves from one equilibrium to another in response to a marginal change in activity, IO is unlikely to be appropriate because it is only a very special case of a wider set of general equilibrium approaches. Here, we combine IO accounting with interregional computable general equilibrium (CGE) modelling, adopting Scotland and the rest of the UK as an example. We use the CGE framework to model the impacts of a change in activity and IO analysis for the accounting/attribution analysis of pollution embodied in interregional trade flows (and the interregional CO2 „trade balance‟) before and after the change is introduced.