Industrial input-output analysis: implications for industrial ecology.

Industrial ecology will need to develop fundamentally new approaches to reducing, reusing, and recycling wastes. Industrial ecology will also require an analytic framework for examining the implications for the economic system as a whole of each potential web of industrial changes. A suitable framework is furnished by structural economics, which situates the economy within the physical world. This approach is based on dynamic analysis rather than static concepts of equilibrium, and optimization assumptions are used selectively rather than as the general solution mechanism. Input-output economics, an important formal model within structural economics, can trace the stocks and flows of energy and other materials from extraction through production and consumption to recycling or disposal. An input-output computation, including wastes, is presented; it illustrates the separate but integrated analysis of physical stocks and flows and of prices and costs. This paper also describes the major advances that have been made in the last decade in the extension of input-output economics to address increasingly complex questions, notably the fully dynamic physical/price/income model and the engineering/input-output data base. Economists need to be able to assess the costs of cleaning up and to develop incentive schemes to increase the likelihood this will happen. To do this, economists need to take on the difficult "how" questions that concern industrial ecologists since the cost, and indeed the wider implications, of cleaning up depends upon how it is done. Structural economics, and modern input-output models and data bases, in particular, can help meet this challenge.