Economics of Industrial Ecology: Materials, Structural Change, and Spatial Scales edited by Jeroen van den Bergh and Marco A. Janssen

Economics of Industrial Ecology: Materials, Structural Change, and Spatial Scales , edited by Jeroen van den Bergh and Marco A. Janssen . Cambridge , MA : MIT Press , 2005 , 388 pp., ISBN 0262220717 , $50.00/£32.95

This book is a collection of essays that provides a rigorous treatment of how economic analysis and models can be applied to better understand the driving forces of material use. By bridging the gap between descriptive studies of material flows and formal economic models, this book charts a path for future research integrating socioeconomic analysis with industrial ecology.

After an introductory overview chapter, the two editors provide an excellent survey of the literature on the interface between industrial ecology and economics. Their discussion is comprehensive, dealing with a range of topics, from the microeconomics of mass-balance-consistent production function to macroeconomic models, such as input–output analysis and empirical equilibrium allowing substitution. This chapter also provides an insightful economic analysis of dematerialization, the factor-of-four debate, and a variety of innovative policies designed to promote a more efficient and environmentally sound use of materials.

The book then proceeds with two chapters on historical analysis of how structural changes in the economy affect material use. The first chapter in this section, by Ayers, Ayers, and Warr, provides rather convincing evidence refuting the dematerialization hypothesis. The authors argue instead that rising per capita consumption of many materials offsets rising resource productivity, which implies a rather powerful policy recommendation that government intervention is necessary to ensure sustainable development. The chapter also offers an intuitive and understandable definition of exergy, which is another important contribution but seems almost tangential to the core analysis of this chapter.

In the next chapter, Hoekstra and van den Bergh conduct a more formal analysis using structural decomposition analysis (SDA) to understand trends in material use. They find, contrary to Rose, Chen, and Adams (1996), that technological change and final demand mix effects contribute to increases in physical inputs, although this discrepancy could be due to the SDA based on a hybrid input–output model introducing arbitrary results because of the mixing of monetary and physical units.

The next four chapters describe methods used to project structural changes in the economy and how they influence material use. The chapter by Ruth, Davidsdottir, and Amato applies systems dynamics to three industries: pulp and paper, iron and steel, and ethylene. Unlike large-scale computable general equilibrium (CGE) models, these models include capital vintages and, therefore, a more gradual turnover of the capital stock. This is an important feature, because these rigidities raise the cost of meeting ambitious emission reduction goals. The chapter by Foran and Poddy describes a physical–economic model for Australia with explicit consideration of energy and material flows, unlike many CGE models of the economy. This model, like the previous systems dynamics model developed by Ruth and his colleagues, does not model material supply and demand clearing on the basis of price. Hence, the economic content of these models is limited.

The chapter by Mannaerts is an attempt to fill this void with the substance throughput related to economic activity model (STREAM), which is a partial equilibrium model for steel, aluminum, petrochemicals, paper, nitrogen, phosphate, and potassium flows in Europe. The model includes equations for material demand as well as primary and secondary materials, material costs and prices for new vintages, mineral and scrap prices, and trade relations. An explicit constraint that ensures input-equals-output mass flows, however, does not appear in the model.

The last chapter of section 3 describes another model, dubbed the dynamic input–output model to study the impacts of technology-related innovations (DIMITRI). Unlike the STREAM model, described in the previous chapter, changing materials supplies, demands, and prices are beyond the scope of the DIMITRI, as the authors note. Overall, the projective models described in section 3 demonstrate considerable progress modeling the complex interactions between the physical and monetary dimensions of the economy, but there remains the task of simulating the equilibration of supply and demand and the implicit material balance constraints across material production chains as mineral and material markets clear on the basis of their respective prices. The STREAM model blazes a trail in this direction.

The fourth section of the book contains two chapters dealing with waste management and recycling. The chapter by Bartelings, Dellink, and van Ierland presents a general equilibrium analysis of unit-based tax and upstream taxes to reduce waste generation and promote recycling. From an economic standpoint, this chapter has a high degree of theoretical and empirical rigor. The authors provide a clear discussion of how they formulated, calibrated, and simulated their model under various policies. Contrary to work published by Fullerton and Kinnaman (1995), Bartelings and colleagues found that unit-based pricing was more efficient than an upstream tax, even considering the costs of illegal dumping. Overall, this chapter represents an excellent piece of analysis. The second chapter in section 4, written by van Beukering, addresses the international trade in recycled materials. The author provides a nice overview of the trade and an insightful discussion of policy choices facing governments, recommending the removal of economic and technological obstacles to recycling rather than direct intervention.

Section 5 contains two chapters on the dynamics of eco-industrial parks. The chapter by Jacobsen and Anderberg provides an insightful summary of previous research on Kalundborg; by comparing this case with a nearby eco-industrial park, Avedore Holme, the authors argue that good communication from the bottom up, based on strong networks between people who live and work in the same community, is essential in creating a successful industrial symbiosis. The identification of the human factors and social institutions involved with industrial ecology provides a refreshing backdrop to the previous technical chapters. In the second chapter, Boons and Janssen also examine Kalundborg, providing a very interesting history of the eco-industrial park concept and noting a rumor that the success of Kalundborg stems from frequent gatherings of managers at a local pub. Perhaps it is no coincidence that the authors present a collective action model to describe the payoffs from repeated interactions of the principal agents. Their findings reinforce the results from the previous chapter and suggest that top-down design of eco-industrial parks is unlikely to be successful.

The book concludes with a chapter exploring the insights that could be gained from the economics of industrial ecology. After comparing the various methodologies discussed in the previous chapters, the authors argue for a pluralistic approach that includes systems dynamics, partial equilibrium analysis, applied general equilibrium analysis, input–output analysis, and organizational analysis. They propose a sustainability policy in which producers of scarce natural resources, such as tin, regulate supply and boost prices to ensure availability for future generations. The international tin cartel did precisely this during the mid 1980s and crashed into bankruptcy. One of the key factors contributing to this debacle was significant new supply from alluvial deposits that were made economic by the high prices. The lesson is that resources availability is often redefined by changes in technology or markets.

Waste policy issues are also insightfully examined. The authors make a convincing case that the systems approach using general equilibrium models presented in this volume is more comprehensive than the partial equilibrium studies of waste management published in the environmental economic literature. While the total material requirement based on weight proposed by the Wuppertal Institute makes little economic sense, the authors still recommend physical-based measures of sustainability, such as those presented by Ayers, because monetary valuation of economic damages assumes rational agents and perfect information. They go on to argue that price instruments will be less efficient than the economic literature suggests. The authors also contend that the concept of an optimal economic level of environmental regulation, in which the marginal costs of abatement are balanced against the avoided marginal damages, is an illusion. A convincing case for this latter position, however, remains to be made. Nevertheless, these positions provide fertile ground for debate and additional research, and if this is a measure of performance, this book should be considered a success.