1. National accounts Environmental accounts Economy-wide Material Flow Accounts – Importance and analysis of Indirect flows Aldo Femia, Donatella Vignani 10th London Group Meeting New York, 19-21 June 2006 Second day Session on Physical flow accounts and hybrid accounts

2. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 A global target for Natural Resource Use Total Material Requirement (TMR) The Italian Environmental Strategy Action Plan for Sustainable Development suggests, among others, the target of a reduction of natural resources exploitation by 25% within 2010: this target is fixed in reference to the TMR, possibly in comparison with Gross Domestic Product (GDP) TMR is the widest indicator in the EW-MFA as it measures the total “material base” of an economy.

3. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Empirical evidence for the long term-trend The TMR has grown by 21% from 1980 to 2003

4. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 … and its components? Direct and Indirect flows

5. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 They are the up-stream uses of resources necessary, in a life-cycle perspective, in order to realise the imported products, though not embodied in them. These are both used and unused natural resources that have been taken from the environment abroad. This matter has not been embodied in the products: it has been given back to the environment as residual matter (emissions to air and water, and waste). IF therefore also represent a proxy for the additional potential pressures activated by the demand for the products imported, avoided by the importing country. What are Indirect Flows associated to Imports

6. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 The growth of Indirect Flows Italy can contribute to the reduction of resource use worldwide mostly by putting under control the foreign components of its TMR Indirect Flows associated to Italian Imports, 1980-2004 Slowdown of growth in 1993 - 2004: + 5,3 % 1980-2004 + 80%

7. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Analytical setting: effects decomposition IF  (IF/I p ) * (I p /I v ) * (I v /Y) * Y Imports’ penetration (globalisation) Imports’ Indirect Flows Level of economic activity (economic growth) Average IFs activation per Imports’ physical unit Average Imports’ weight per unit value

8. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Focus: physical determinants Let us split the identity in two parts: IF tot  (IF tot /I p )*I p and I p  (I p /I v )*(I v /Y)*Y We will focus on the first part, and in particular on its first factor, after a quick look at the change of I p and the way its drivers contributed to its change

9. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Contributions of IF intensity and of Imports’ growth to overall IF growth Cumulated contribution, million tons of IF intensity of Imports (IF/Ip) of Imports’ growth (Ip) Overall change of Imports’ IF The cumulated contribution of IF intensity has peaks in 1993 and 1998, then decreases rapidly and in 2004 explains only 10% of overall IF growth. The tendency of Import’s growth contribution is quite steady. Both components grow until the beginning of the 1990s.

10. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Macro driving forces of physical Imports Economic growth + 53,4 % 1980-2004 Imports’ penetration (globalisation) + 62,9 % 1980-2004 -37,3 % 1980-2004 Average Imports’ weight per unit value (tertiarisation)

11. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 IF Intensity: two sub-periods Ratio between indirect flows associated to imports and actual import flows, Italy, 1980-2004 (tons per ton) The IF intensity of imports has grown throughout the 1980s. It reached a peak in 1993 and then decreased, though not going back to the initial values. This is at the origin of IF’s growth slowdown from 1993 onwards.

12. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 How to decompose IF intensity The overall IF intensity can be seen as a weighted average: IF/I p   i (IF/I p ) i * (I p i /I p ) The disaggregation helps understanding the reasons for the trend Average IF intensity of component i of the Imports Share of component i on total Imports

13. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 We analysed the following sub-periods: 1988-1993: overall IF intensity grows from 3,11 to 4,15 1993-2004: overall IF intensity falls from 4,15 to 3,13. What kind of changes determined this evolution? We tried to understand it by breaking down the Imports and their respective Indirect Flows: by kind of material (i : B,F,M,P) by geographical origin (i : countries) (for selected commodities only). by use destination (i : intermediate/final/mixed) Dimensions of the analysis

14. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Analysis by kind of material on average 16% of imports and 9% of IFs on average 59% of imports and 14% of IFs on average 24% of imports and 76% of IFs on average 1% of imports and 1% of IFs Biomasses and products thereof Fossil fuels and products thereof Minerals and products thereof Composite products

15. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Composition and intensity by material Sources of overall Imports’ IF intensity change 1988-1993 (yellow) and 1993-2004 (red) The two sub-periods display opposite trends. It is the change within the groups that explains most of the story. In the second sub-period the change in composition between the groups gives a tendency towards higher IFs.

16. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 but the intensity of their contribution to indirect flows had the opposite dynamics Minerals’ IF intensity The main component: minerals The share of minerals in Imports first decreased and then increased 1993

17. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Analysis of specific commodities’ IFs A subset of Minerals and products thereof : ores and precious metals representing 0,9 % of total Imports, to which are associated 28,9 % of total IFs on average in 1993-2004 Indirect Flows associated to Ores and precious metals’ Imports, million tons These flows decreased significantly

18. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 First-level determinants Profile of the overall volume of direct imports and of the average IF intensity of ores and precious metals

19. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Overall shift-share effects on IF intensity The change is due almost only to the shift between products, towards ores and minerals with lower average coefficients. Is this change also connected to changes in the countries that supply them? Effect of changes of average IF intensities of individual commodities (due to the change of supplying country) Effect of changes of composition by commodity

20. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Changing the sources of materials The sources of these materials have sensibly changed: more than 70% of the change in average intensity is due to the shift between continents

21. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Change of continent Share in the italian Imports of ores and precious metals

22. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Average intensity of ores’ imports from Africa As the share of quantities imported from Africa fell, their unitary upstream flows increased dramatically Cumulated contribution of the shift within African countries as suppliers to the change of the average intensity for ores and precious metals, tons per ton

23. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Analysis by use destination Contributions to overall Imports’ IF intensity change 1993-2004 The change in composition by use destination by commodity favoured the growth of IFs. However, the overall tendency has been dominated by the changes within rather than between the groups. 3 kinds of possible uses of imported goods: intermediate, final, both

24. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006 Conclusions and discussion issue Indirect flows are an important component, that should not be disregarded in a sustainability perspective for the globalised world In spite of the uncertainties connected to their calculation, IFs have great communication power It is possible to look behind macro-aggregated indicators (such as total IFs) and try and understand the dynamics that determine their evolution. How should these be handled in the upcoming revision of the SEEA?

25. National Accounts Environmental accounts A. Femia - D. Vignani, 10th London Group meeting, New York, 19-21 June 2006