Economic Systems Research, 2011, Vol. 23(4), December, pp.

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THE INS AND OUTS OF WATER USE A REVIEW OF MULTI-REGION INPUT OUTPUT ANALYSIS AND WATER FOOTPRINTS FOR REGIONAL SUSTAINABILITY ANALYSIS AND POLICY
PETER L. DANIELSa , MANFRED LENZENb and STEVEN J. KENWAYc
a

Grifth University, School of Environment, Brisbane, Australia; bISA, School of Physics, A28, The University of Sydney, 2006 Australia; cAdvanced Water Management Centre, University of Queensland, Australia
(Received 17 August 2011; In nal form 17 October 2011)

This paper reviews current knowledge about water footprints (WFs) and the role of inputoutput techniques. We rst provide an overview of the prevailing bottom-up, process-based methods and their strengths and limitations. This overview leads to discussion of the benets of combining process-based water footprints with information from input output techniques. The central theme and proposition is that environmental multiregion input output analysis (E-MRIO) has a powerful capacity to establish the geography of embodied water, and to complement process-based approaches to WF by expanding their supply-chain coverage. Combining process and input output information provides valuable information for a diverse set of water planning and water policy objectives. A comprehensive and systematic outline of potential policy applications of E-MRIO (and process analysis methods) is presented. Keywords: Environmental multi-region inputoutput analysis; Water; Sustainability; Policy

1.

INTRODUCTION

This review is intended as a non-technical position paper for non-expert audiences with an interest in water footprints (WF), and their various analytic methods, comparative strengths and policy applications. It has the additional purpose of setting the context for this special issue on input output analysis and water. Environmental input output analysis (E-IO) and its multi-regional extensions have emerged as some of the most promising and popular frameworks for sustainability analysis in an increasingly globalised economic system (Wiedmann et al., 2011). E-IO enables assessment of the natural resources and pollutants embodied in goods and services during production and owing through intermediate trade along supply-chains into nal consumption. Multi-regional input output (MRIO) analysis enhances this capability by mapping the geography of resource use, emissions or other environmental effects. The ability to geo-position environmental pressure, and link it to regional environmental resource and socio-economic conditions, is vital for assessing sustainable scale and impacts for many environmental resources. For transboundary environmental issues,

Corresponding author. E-mail: p.daniels@grifth.edu.au

ISSN 0953-5314 print; ISSN 1469-5758 online # 2011 The International InputOutput Association http://dx.doi.org/10.1080/09535314.2011.633500

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such as greenhouse gas (GHG) emissions, the geography of environmental pressure is of less importance as their impacts do not depend on the particular location of resource extraction and use. However, it is more important for water because its sustainability, and appropriate management, must consider the location of resource extraction and release to nature. The central theme and proposition of this paper is that E-MRIO can establish the geography of embodied water and complement and enhance process-based methods of water footprinting (WF). The combined information can inform an extensive suite of strategic policy applications related to water. E-MRIO assumes a system-wide, top-down perspective, ideally suited to complement the process-specic detail provided by bottom-up methods (see Jeswani and Azapagic, 2011, for an extensive review). Geographical information has also been a major enhancement in the recent development of process-based WF methods that has targeted the improved evaluation of the environmental and social impacts of water use, in particular those facilitated by commodity trade linking (mostly urban) consumption centres with distant watersheds (Canals et al., 2009). This is evinced in the current development of the IS0 14046 series water footprinting standards for products, processes and organisations under a life-cycle assessment (LCA) framework. There has been considerable research into the development of formal hybrid models to synergise the relative strengths of process analysis and E-IO approaches for water and other environmental analyses. Major methodological advances achieved include improved consistency in model format and structure, concordance between process and input output (IO) systems, denition and coverage of processes and IO sectors, and allocation of detailed applications data to IO categories (Lenzen and Crawford, 2009; Strmman et al. 2009; Suh, 2004; Suh et al., 2004). However, the unique features and complementarities between E-MRIO and the process-based water footprints (WFs) in establishing the geography of ows of embodied water have not been well developed to date. The systematic identication of the methodological synergies and related information for potential policy applications is the overarching objective of this paper. Our discussion is motivated by three perceived deciencies in process-based water footprinting as an ideal informational tool for sustainable water management. These are (i) the need for knowledge and analysis that includes the comprehensive coverage of all relevant goods and services and their interconnections (as captured by economic system-wide methods), (ii) empirical water data for specic production locations, and (iii) the systematic delineation of policy applications. There have been few attempts at the comprehensive and systematic identication of potential policy applications for E-MRIO. Our paper is aimed at lling this knowledge gap. We also briey discuss two further issues with critical linkages and ramications for both E-MRIO and WFs the denition of water consumption and the need for meaningful spatial information boundaries. There have been a number of reviews on the relationship between bottom-up process analysis methods and top-down IO methods applied to environmental issues such as GHG emissions (Peters and Hertwich, 2008; Minx et al., 2009; Wiedmann, 2009). Why do we offer yet another review for this Special Issue? The signicant differences between localised environmental issues associated with water use, and trans-boundary issues associated with GHG emissions call for special attention to how E-MRIO can help understand and best manage freshwater resources. We argue that mapping the geography of production and consumption, and related direct and embodied ows, is more apposite for water than for GHG emissions. This is the result of many interrelated factors including the following:

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The impacts of water extraction and use are primarily restricted to the regions of extraction and use. Hence, water-related problems are fundamentally different from United Nations Framework Convention on Climate Change (UNFCCC)-styled global environmental issues, and must therefore have a much stronger basis in region- and catchmentscale contexts. Water is a localised renewable resource drawn from natural systems with specic availability and use patterns. Similarly, there exist marked differences between water-using sectors with regard to their water quality requirements. Water demands from different regions and sectors cannot be simply summed and compared. Scarcity weighting by source region and perhaps even usage (for example crop or industry) type is typically required. While nations currently bear responsibility for GHG emissions, there will often be a mismatch between spatial boundaries relevant to water use and scarcity and geo-political entities (for example, the complex catchment shapes and extraction patterns spanning multiple nations or provinces such as in the case of the Nile and Murray Rivers). This calls for unique geographical detail as provided in MRIO-based sustainability analysis. Unlike for GHG emissions, the dominant users of water use are agricultural sectors, and hence MRIOs designed for water footprinting require sufcient detail for those sectors. There exists signicant short and long-term temporal variability in the availability of water, and hence estimating the impacts of water use must necessarily call for approaches that are different to those aimed at estimating the comparatively homogeneous, long-term impacts of GHG emissions.

E-MRIO provides a spatially-explicit framework that can assist in assessing environmental impacts, and ultimately human welfare. It enables comprehensive and systematic measurement of embodied water ows along complex supply-chains linking multiple regional economies (Wiedmann et al., 2011). As such, it provides a valuable tool to support, at a system-wide level, Chapagain and Orrs (2009, p. 1227) view that the local character of a products virtual water content must be made more transparent through the supply-chain in order to better understand the impacts of distant consumption on local water resources. In this paper, we rst review the key ideas and developments associated with processbased virtual water and water footprinting perspectives. From this review, we note that the specication of the spatial links between consumption, and local conditions in regions of water extraction (or release), is now a major focus in the new ISO 14046 standards for water footprinting. The geographical detail inherent in MRIO databases is then emphasised in the ensuing review, in Section 3, of the integration and data exchange benets for process analysis and E-MRIO methods. Section 4 describes how the combined application of process analysis and E-MRIO information could inform improved policy analysis and decision-making.

2. 2.1.

WATER FOOTPRINTS AND SUSTAINABILITY ANALYSIS Virtual Water and Early Water Footprint Approaches

In the early 1990s, the concept of embodied or virtual water was proposed to measure the total volume of freshwater required in the production of goods or services (Allan, 1998;

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Chapagain and Orr, 2009, Hoekstra, 2003). This water is described as virtual because it extends beyond water physically contained in the product. Trade between nations and regions has been of key interest in virtual water (VW) work. The VW work focused on analysis of global water ows (for example, see Hoekstra, 2003) but also upon policy implications by comparing VW trade in imports and exports. VW content and balances were estimated for major agricultural categories and evaluated in terms of the ability of virtual water ows to overcome differences in water availability between nations. The detailed mapping of embodied-water ows across entire economies and in trade was not of central interest. The focus on agriculture was justied considering the predominance of agricultural freshwater use in most watersheds. A consequence though is that VW analysis been generally restricted in focus to water abstraction and initial processing rather than full life-cycle implications (Chapagain and Orr, 2009). From a sustainability policy viewpoint, any measure of water use by humans (including VW and WFs) should accurately measure the quantity of water that has been precluded from alternative uses. Abstraction can be non-consumptive. For example, only a minor part of water abstracted for power generation is actually consumed and many industrial water uses result in wastewater discharge (Hoekstra and Chapagain, 2007). The distinction between water consumption and its impact on sustainability, as opposed to undifferentiated total use, was not a priority in early VW and WF studies and this oversight has been a source of criticism. To consume water and reduce its sustainability is generally seen to involve the reduction in volume of water of given quality levels, in natural cycle systems, which are available for economic and environmental ow purposes (Pster et al., 2011). In economic terms, this view of consumption adopts the opportunity cost concept where water has been removed from alternative activities with value (including the full range of private and social benets covered in notions of total economic value) (Pagiola et al., 2004). Consumptive water loss is often split into two main forms: evaporative and nonevaporative. Evaporative loss can be caused by human land use and economic activity. Non-evaporative losses can include degradation of water quality or reduced access due to relocation (Canals et al., 2009). A central aspect in establishing the consumptive use of water (and hence its impact on sustainability) is the source of water. This is partially denoted in the widely-adopted blue, green, and grey water schemata.1 Most blue water use involves water abstraction for irrigation. Blue water use also includes losses from evaporation associated with industrial and urban water supply and wastewater management. Green water covers use of rainwater stored in the soil used by plants and vegetation. Irrigated agriculture hence needs both green and blue water. Grey water represents water degraded by human pollutants and the term implies consumptive loss and opportunity costs. It is usually measured as the amount of water required to dilute the degraded water back to acceptable levels for discharge into freshwater systems. While blue and grey water have direct connections to actual consumption in the sense of opportunity costs or loss from alternative uses, it is more problematic to assess the impact of green water use. Green water evapotranspiration can comprise around two-thirds of

For good descriptions and discussion of the water source colour classication see Bayart et al. (2010), Canals et al. (2009), Chapagain et al. (2006), Chapagain and Orr (2009), FAO (2006) and Ridoutt and Pster (2010).

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total water use in agricultural production (Hoekstra and Chapagain, 2007). As soil water evapotranspiration is signicant under most land use conditions, this quantity of water is a dubious measure of reduction in availability. Most of the evapotranspiration would occur even without human activity in the watershed under study. A critical issue for establishing consumptive versus non-consumptive uses of water is the ability to have a reference base so that actual loss from the natural water cycle can be ascertained. The net green water concept has been proposed as an appropriate way to more accurately calculate green water use from an opportunity cost perspective. Net green water is the difference between soil water evaporating from a given agricultural production system and the water that would have been evaporated from the same land under natural vegetation conditions (SABMiller Plc and WWF-UK, 2009). While this perspective has its own challenges, it provides a more realistic measure of actual change in availability. The limited alternative uses (and hence opportunity costs) of green water are also compounded by its in-situ nature it is essentially conned to the location where it exists (Canals et al., 2009; Horlemann and Nubert, 2006). Unlike blue water, it does not ow across catchments and is much more difcult to extract, transport and utilise beyond its natural storage location. National VW use has been measured as blue water use calculated from actual water withdrawal (Hoekstra and Hung, 2005). The concept of VW should cover all three types of water but, in practice, green and blue water have been difcult to reliably disentangle, and grey water components have also undergone limited assessment.2 The dependence upon modelled estimates of total green and blue water, and variations in VW content measurement approaches reduce consistency and comparability of assessments. Accurately identifying actual water consumption is vital for effective sustainable water policy. Most VW ows are estimated using quite generalised techniques; largely from the FAOs CROPWAT model combined with region-specic yields (see Hoekstra and Chapagain, 2007, for details). The importance of actual local conditions is recognised in some, more detailed, regional context or eld-based studies measuring VW content (e.g. Chapagain and Orrs (2009) study of Spanish tomatoes). In 2002, the notion of water footprints was introduced. A WF was dened as a specic estimate of the VW of the goods consumed by a population (Hoekstra and Hung, 2003). The WF and VW concepts have much in common and they generally utilise the same methodologies for calculating water use. Water footprints aim to measure the embodied water in the nal goods and services demanded by residents. Consequently, they also account for VW demand in trade. Although VW is primarily intended as a measure of water consumed in the production regions, it is translated into WFs through trade. Arguably, WFs are considered to include more spatial (and temporal) information than the initial VW approaches. However, both concepts are concerned with the specic site where water is consumed for production (Chapagain and Hoekstra 2004; Chapagain and Orr 2009) even if restricted to rather generalised national-level data for a small set of agricultural outputs. One of the most distinctive developments around WFs is probably the growth in interest in the spatial differentiation and links between production and consumption. Indeed, the evolution of WF methods has been one of increasing emphasis upon the identication of what impact a regions or entitys consumption of goods and services

Exceptions for the latter include Chapagain et al. (2006) and Chapagain and Hoekstra (2004).

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has upon water use and sustainability in other regions by examining inter-regional trade (and also consumption impacts on water demands within its own water system boundary). WFs have tended to cover a limited range of physical processes associated mainly with food and other agriculture-based output including cotton, tea and coffee, meat products and tomatoes (see Ridoutt and Pster, 2010). However, WF estimates for entire nations have been derived in a bottom-up fashion by aggregating virtual water in household goods, and also by a top-down analysis of international trade (Hoekstra and Chapagain, 2007). As WFs take a consumption perspective, that is water footprint domestic production water use virtual water exports + virtual water imports, they parallel similar economic measures where consumption is dened as production minus net exports. The WF of a region can be split into its internal footprint from water that has been consumed from within its spatial boundaries, and an external footprint from water embodied in imports. However, the impact upon the sustainability of water resources within the region cannot be gauged with the footprint concept, because exported VW from the region is not included. This requires measures of overall domestic water use calculated as the sum of the internal water footprint and VW in exports (van Oel et al., 2009). Until recently, denitions of WFs have been similar to those of VW. VW and WFs must be recognised as explicitly production and consumption measures, respectively zquez et al., 2011). This confusion has limited the full potential for policy develop(Vela ment of the measures. Furthermore, total blue and green water were also confounded because the specic regional impacts of water types had not been considered. This has led to criticism regarding the wide range of WF estimates and the attribution of very high values from green water use. The need for regional geographic assessment based on empirical water accounts is reafrmed by the large variations in WF estimates obtained when localised water availability and irrigation are taken into account (Pster and Koehler, 2009; Ridoutt and Poulton, 2010). Effectively applying information from both E-MRIO and process analysis requires an accurate denition of what constitutes the consumptive use of water, as well as the ability to support modelled estimates with actual empirical data.

2.2.

Recent Developments

Development of VW and WF methodologies is currently being addressed within a LCA framework in the ISO 14046 series.3 In the past, freshwater use and impacts have not been adequately dealt with in LCA (Koehler, 2008; Canals et al., 2009). While water is considered in established LCA impact categories, such as water use, eutrophication and aquatic eco-toxicity, the coverage and depth assigned to water as an elementary input and output ow has been limited by a lack of systematic data reporting in life cycle inventory (LCI) databases and failure to differentiate consumptive and non-consumptive water uses. A central theme in the recent developments in WF methodology is the incorporation of regional conditions to help determine the impacts of water use. The primary tool
3 It is anticipated that the new standards will incorporate many of the methodological and conceptual revision themes advocated by major protagonists in the eld (see Canals et al., 2009; Chapagain and Orr, 2009; Koehler, 2008; Pster and Koehler, 2009; and Pster et al., 2011).

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developed for this purpose is the water stress index (WSI); a withdrawal-to-availability (WTA) ratio measure, intended to reect local water scarcity (Smakhtin et al., 2004). Hence, source regions are differentiated according to the LCA notion of damage characterisation factors (Cooney, 2009; Pster et al., 2010). While the WSI can be applied at any spatial level, there is a natural logic in assessment at a watershed- or catchment-based level. Water availability to humans is meant to represent sustainable water use and is typically calculated as the total water available in the basin minus that required for environmental ows and healthy ecosystem functioning. The WSI is used to differentiate impacts of water use in regions after considering a range of climatological, geographical and economic features. Mapping production and consumption linkages for water is a core theme in the development of the water stress index (WSI) and other extended impact methods that are central to the emerging ISO 14046 water footprinting standards. Although there has been substantial recent progress in the development of VW and WF methods, some signicant gaps still exist that constrain their potential support for sustainable water management policies. First, there are unresolved conceptual and methodological issues in dening and measuring water consumption to assess sustainable use of this resource. Other more general challenges (developed from ideas in Jeswani and Azapagic, 2011), include (1) the generalised nature (if improving detail) of regional sustainability water balance assessment and system boundary issues, (2) the reliance on measurement of water use based on modelled crop water needs and climatic conditions rather than empirical measures, and (3) economic system interdependence, which has been neglected leading to the truncation of analyses of embodied resources owing through the production system and its supply chain.

3. COMPLEMENTARY ASPECTS OF INFORMATION FROM E-MRIO AND PROCESS-BASED WATER FOOTPRINT APPROACHES This section provides an overview of the strengths of E-MRIO and process analysis approaches, and their potential for complementary exchange of information about water requirements throughout the life cycle of goods and services. The focus is upon the assessment of freshwater consumption and information for policy and decision-making. The following discussion emphasises the potential positive contribution of E-MRIO in WF research. This is not intended to ignore the many issues associated with E-MRIO that will act to constrain the ready combination and coordination of its data with those from process analysis-based approaches. E-MRIO must still be evaluated in terms of many of the well-known limitations of IO analysis and its assumptions for example, those related to supply constraints, neglect of general equilibrium feedback effects, and xed technology and resource coefcients. In addition to consistency and concordance issues surrounding the compilation of extensive and accurate E-MRIO databases, Wiedmann et al. (2011) note problems associated with heavy resource requirements in setting up, compiling, computing and updating IO tables, limits in sector disaggregation and time series data availability, reliability and uncertainty issues in IO data, and difculties in trade and transport margin data and impact allocation. IO data are also seldom available for relevant bio-geographical units (usually watersheds). Many of these issues are being addressed notably with the surge in development of global E-MRIO models (see

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Wiedmann et al., 2011). However, it is recognised that simple process-based measures of VW and WFs will often be best suited to specic cases and policy issues. 3.1. Strengths of E-MRIO

The potential for E-MRIO to augment process analysis was rst demonstrated in tier hybrid models designed for energy analysis (e.g. Bullard et al., 1978 and van Engelenberg et al., 1994). The best parts of each method can be combined by assessing (i) the most important processes and direct environmental demands using process analysis and (ii) the remaining processes using IO (Suh et al., 2004). Vringer et al. (2010) describe how this procedure combines the rapidity of the input output analysis with the accuracy of process analysis. In summary, E-MRIO has the following additional specic strengths. Extension of the System Boundary Extension of the system boundary is one of the most widely-acknowledged benets of combined process and IO-based methods (Suh et al., 2004; Bullard et al., 1978). Process analysis approaches theoretically provide detailed information on the major environmental ows associated with specic goods and services. However, the resource-intensive analysis approach often forces the restriction of the boundary of measured material and energy and ows (Vringer et al., 2010). Typically, only secondor third-order effects are considered. Tightening the analysis boundary leads to omitting ows that are potentially signicant (Suh et al., 2004). Extended supply chain ows can contain up to 50% of the water consumption volumes (Lenzen, 2009). The lower the order of effects covered in process analysis, the greater the potential for truncation errors (Tukker and Jansen, 2006). E-MRIO ensures that the activity in question is assessed within a broader economic system. It helps identify and capture indirect ows that are still part of the consequences of the production and sale of a good or service, but more than two or three steps removed from the nal production or consumption. Consequently, E-MRIO can help in completing truncated process analyses (Lenzen and Dey, 2000; Suh, 2004). Impacts hidden in these higher-order ows are likely to be more substantial in more complex economies, for example with high levels of manufacturing and intricate trade ows. While the IO augmentation of process analysis can involve double-counting of process and supply chain ows into the production system under study, these issues are being addressed in the more sophisticated methodologies of integrated hybrid models (see Suh, 2004; Strmman et al., 2009; Lenzen and Crawford, 2009). Accounting for Interdependence and Feedbacks Often, economic and biophysical feedback loops exist between major agricultural activities within a region and its associated urban and industrial areas. The partial and relatively independent measures from process analysis do not facilitate the holistic assessment of water ows to and from these regions. For example, while agricultural product may ow to neighbouring cities, a myriad of manufactured goods, each containing small

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amounts of embedded water, may ow from the urban and industrial areas, back to agricultural regions. While assessment of these feedback loops is a time-consuming exercise in process analysis, it is inherent in the nature and structure of MRIO. The detail of intersectoral and inter-regional ows and feedbacks enabled through E-MRIO is limited only by the geographic and sectoral data available.

Location-specic Information on Economic Flows and Environmental Impacts E-MRIO complements the construction of water stress indices (WSI) by providing detailed mapping of the consumption to production, and trade-ow pathways. This is the heart of the geographic capabilities of E-MRIO, because it utilises and links economic and environmental data from across relevant regions. In order to fully reap this benet, it would be necessary to align the functional categories of E-MRIO to the WSI spatial focus upon catchments.

A More Complete Range of Environmental, Economic and Social Impacts Current WF approaches founded on conventional LCA approaches have a limited range of impact categories. It is not always easy to use them to understand the multiple, and often interactive, resource and other societal triple bottom line (TBL) effects of an economic function (Pster et al., 2009). Decision-making related to water use and related welfare requires more comprehensive information beyond embodied water consumption. The typical structure and format of process-based WF analysis cannot be easily matched to economic data. Hence, it is difcult to augment process-based results with relevant socio-economic analysis (Lewandowksa and Foltynowicz, 2004). IO approaches use categories designed to interface with a wide range of other economic, environmental and social accounting data. This supports the biophysical and economic valuation of impacts such as those associated with the range of biophysical and health externality mid-point indicators emerging from LCA (Foran et al., 2005; Nijdam et al., 2005).4 For example, in the evaluation of alternative major regional water supply options, joint water and energy consumption implications would need to be assessed.

Screening for More Detailed Process Studies E-MRIO and related techniques such as structural path analysis are well-suited as screening devices to identify supply chain stages and sectors or products for costeffective and more detailed process analysis and other sustainability tool assessment at product (or farm, enterprise, or brand) levels. This can lead to prioritised targets for action for corporate or government decision-makers and revised strategies for regional water or land resource management (Pster et al., 2011; Wood and Lenzen, 2003).
4

Computable general equilibrium models that utilise data from E-MRIO would play an important role here.

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E-MRIO can provide detailed local data useful for normalisation as required in the process analysis methodology. This is necessary to calculate the total environmental load of consumption. Detailed local data can also help in complex allocation situations when a functional unit in LCA feeds into multiple outputs. These capabilities would be enhanced with data that are relevant to the production system under study and take into account the natural and other local water cycle conditions that affect its availability (and hence water stress levels and sustainability). 3.2. Strengths of Process Analysis Approaches

3.2.1. Detail Beyond Average Conditions The ability to detail and disaggregate impacts is the most commonly recognised contributing benet of process-analysis. E-IO tables use average levels for economic and environmental ows for its component sector or product categories. These averages are based on total activity in the sector within the national or regional economic system boundary. Hence, it is not possible to distinguish between the environmental demands (per dollar of nal demand) of sub-categories, such as synthetic versus cotton clothes. For singleregion IO analysis, these values are also applied for ows from outside the system boundary. As a result, the ability of IO to capture actual supply chain relations and accompanying environmental resource ows depends upon the level of resolution of the base IO tables. Differences in water resource-intensities can be very marked from region to region, even within the same economic sector. Life-cycle inventory process data can tease apart some of the intra-sectoral and locational inuences of averaging because it has a disaggregated functional (and potentially geographic) focus. This facilitates more accurate quantication of environmental resource content and subsequent impacts of consumption choices (Vringer and Blok, 1995; Wiedmann et al., 2011). The augmentation of processbased LCA with IO techniques typically involves the addition of sectors to standard IO tables and requires modelling at levels that are adequately detailed and precise for allocation to nal demand categories (Tukker and Jansen, 2006). E-MRIO needs process data if it is to be used for product-specic analysis (Vringer et al., 2010; Wiedmann et al., 2009). Incorporating process data into IO analysis would help specic sub-sectors and individual companies benet from using IO, rather than relying on process analysis alone. However, while process data could add detail to IO, such data are not always regional-specic or empirically based. Inaccuracy in identifying water consumption for disaggregated products or brands in specic locations can be partially addressed by E-MRIOs ability to map ows in complex regional relations but, again, its ability to do so is dependent upon its level of spatial and sectoral disaggregation, as well as access to empirical data. 3.2.2. Improved Environmental Data for IO Satellite Accounts With better modelling and specic process data on water consumption, process analysis using empirical water accounts could provide more accurate and region-specic blue and green water consumption data for the improvement and validation of aggregated

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satellite account data for E-MRIO. An additional advantage of hybrid methods is that the reliability of environmental ow estimates can be tested by shifting the boundary between detailed process analysis and input output assessments and comparing results for selected functional categories (van Engelenberg et al., 1994).

3.2.3. More Complete Life-cycle Stage Coverage of Specic Economic Functions in IO Analysis While environmental IO approaches have tended to focus upon the supply chain up to the point of sale, a life-cycle perspective can help identify and add economic sectoral demands in use, waste disposal and recycling stages of goods and services, technologies and infrastructure. This approach is employed in the hybrid economic IO and LCA tool (EIOLCA) developed by the Green Design Institute at Carnegie-Mellon University (Hendrickson et al., 2006).

4. POLICY APPLICATIONS FROM E-MRIO AND PROCESS-BASED WATER FOOTPRINTS Many of the respective strengths of process- and E-MRIO-analysis are complementary. However, to date there have been few detailed attempts at compiling a comprehensive scheme of potential policy applications of either approach, let alone a combined analysis oriented to water management policy. As a somewhat experimental step in this direction, a broad range of potential policy use application areas has been identied (see Table 1). Table 1 is structured according to the responsible decision-making agent. It attempts to cover all of the potential applications of E-IO rather than just those associated with water, or E-MRIO and combined E-MRIO and WF approaches. However, E-IO may only be able to contribute to some of these policy areas and may well require other approaches (such as process analysis) to effectively do so. The classication of applications highlights how combined information from process- and E-MRIO WF analysis might be used. The policy areas in the table that are best served by jointly considering information from E-MRIO and process analysis WF methods are 1A, 1B, 2 and 3. Where government planning inuences regional consumption (Policy area 1A) there is a need for information on the total demands on environmental resources; both within and outside the region. Private sector (consumer) information policy (3) requires data on the total environmental demands of specic goods and services to inform choices by consumers within the region. Government planning for territorial resource sustainability (1B) must assess environmental demands from production activity within the region. Direct water consumption levels are the key focus for production. Hence, accuracy in water consumption measurement and the support of empirical water accounts are paramount. E-MRIO provides a major potential contribution to both regional production and consumption sustainability policy objectives (1A and 1B) by effectively linking these two realms of economic activity. Private sector (producer enterprise) information (area 2) has an intermediate consumption aspect and is mainly concerned with identifying the total environmental

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TABLE 1. Potential policy application areas for environmental extensions of inputoutput analysis. Decision entity 1. Government (economywide focus) (1A) Planning for regional consumption Typical concerns and example policy issues Economy-wide focus.1 Sources and levels of impacts from regional consumption; consumption vulnerability. EXAMPLE: What types of consumption (e.g. diet, construction, transport) have the greatest impact on water consumption? From which regions is embodied water sourced in regional consumption? Territorial sustainability; sectoral pressures; industrial ecology potential; system resilience. EXAMPLE: What activities (e.g. dairy, power generation) have the greatest impact on water consumption? How much water ows in feedback loops and trade? How vulnerable is production in the region to changes in resource availability and price? Monitoring of trends in environmental resource pressures and the impact of environmental and economic policy. EXAMPLE: How is the total water consumption and intensity changing in sectors and regions? Environmental-economic policy impacts and scenario impact assessment. EXAMPLE: What is the likely impact of a reduction in water availability or an increase in carbon/energy costs on output, costs and competitiveness for sectors in different a regions? Information needs include: Total (direct and embodied) water (and other environmental) loads across products and sectors. Resource ows or pressures from source region-sectors and their impacts on the production source region.

(1B) Planning for regional production

Major existing production activities that contribute to regional, and broader environmental pressures. Supply chain and feedback loop inuences on environmental loads from a region and the inuence of related economic activities.

(1C) Monitoring

Measurement of change in direct and indirect environmental demands associated with a regions consumption and production patterns including pressures upon the region itself and from sectors in other areas. Prediction of economic, environmental and social effects upon regions from (1) existing resource use patterns in production and consumption (2) major anticipated changes (e.g. climate or policy change). This application is typically covered by extending E-IO information into CGE models.
(Continued )

(1D) Prediction

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TABLE 1. Continued. Decision entity (2) Private Sector Production enterprise Typical concerns and example policy issues Economic function focus. Company or organisational footprints. EXAMPLE: What are the total water requirements from the intermediate inputs and value-added activities of a vegetable processing factory, university, or airport in the focus region?

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Information needs include: Triple bottom line effects data for raw materials and intermediate inputs. Direct operations and production activities. Ecoefciency objectives, product eco-labelling, standards. Assessment of producer vulnerability to resource input changes.

(3) Private Sector Consumer

Economic function focus. Direct and indirect Consumer footprints; consumer environmental and other triple information. EXAMPLE: What bottom line (TBL) effects of are the total water requirements specic choices by consumers of organic versus cage eggs in a region, and the location of consumed by the regions those pressures. residents? Mixed economy-wide and Direct and indirect TBL effects economic function focus. of major infrastructure and Infrastructure and major public program decisions strategic investment assessment. affecting water and energy. EXAMPLE: What are the water and energy consequences of increasing regional water supplies from desalination or increased public transport? Mixed economy-wide and The assessment of regional economic function focus. economic structure and What are the consequences of technology changes that regional economic structure and would be more sustainable broad technology/R&D options under existing resource for regional sustainability? conditions and likely future EXAMPLE: What are the scenarios. consequences for total water consumption of growth in biotechnology, or teleworking? General contributions, methods National, urban, household and and information for awareness activity environmental and development and support of footprint calculations, strategies and policy measures. resource productivity EXAMPLE: Regional measures, material ow consumption-based accounting accounts and indicators. for GHG emissions and other environmental resources for education, trade, climate change and other issue planning and policy

(4) Government and Private Sector - Infrastructure and major strategic investment

(5) Private Sector and Government Sustainable regional economic structure

(6) Science Community

See Daniels and Moore (2001) for a description of economy-wide versus specic economic functional sustainability assessment or physical economy tools.

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demands of inputs into specic production activities or functions within the region. The separation of water sourced from within the region and that from other specic regions can be very relevant. Many other policy areas are also of considerable relevance for example, infrastructure planning (area 4) and government planning policy monitoring (1C). Infrastructure evaluation can be seen to involve disaggregation of projects into sectoral or product and service components over their life cycle, including the ongoing operational consumption needs. E-IO analysis provides the biophysical basis required for policy monitoring and for computable general equilibrium (CGE) modelling prediction (e.g. 1D). LCA has been directed towards evaluation required for private sector (consumer) information (2) and also for private sector (producer) information about the impacts of supply chains linked to their activities (3). The economy-wide scope of E-IO analysis provides a comprehensive information framework basis quantifying ows across the full range of economic activity within regions (including actual embodied resources in imports to the region for multi-region versions). This information is contained in E-MRIO and is critical for establishing the geographical and functional relations between production and consumption that underpin sustainable resource management. At national, international or regional perspectives, the impacts of nal demand or consumption that have taken priority in footprint studies can be seen to be intrinsically linked to the regional production conditions important for water. Both production and consumption information are needed for effective strategic analysis and policy. Production and resource efciency issues are generally focused on water accounts or process-based data on water consumption. These data measure direct water use for value-added in regions economic activities. E-IO, with its upstream-looking supply chain effects emphasis, has been considered of limited relevance in the past. The measurement of water consumption in upstream economic functions in process analysis approaches identies in-situ demands for water in the production of selected goods and services in particular regions. This analysis will be enhanced with more accurate modelling or empirical measures of actual blue and net green water consumption from regional activities. With E-MRIOs comprehensive coverage of all economic functions and related supply chain links within and between regions, integrated process and IO analysis approaches will present unprecedented potential for mapping ows connecting locally consumed or produced products to the appropriation of water resources from regions across the world. Heretofore, this has not been possible in the classic processbased water use indicators and their delimited focus on individual goods and services rather than economy-wide analyses.5 Together, process and E-MRIO analysis provide the information required for better resource efciency and the minimisation of environmental impacts. Combined information from process and E-MRIO WF analysis also provides data for producers who can better assess the embodied water in their supply chain (area 2 and 1.B). At the regional level, it is critical to have an information basis for decisionmaking that captures economic interdependencies but can also target sustainability of water and other bioregional resources from within its own borders. From a regional planning perspective, combined WF approaches could reveal how to reduce vulnerability to

However, total water footprints have been calculated at national levels (e.g. Hoekstra and Chapagain, 2007).

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water-stressed regional sources and shape policy and strategies to congure consumption patterns and intermediate needs to help optimise regional water resource efciency.

5.

CONCLUSIONS

Water footprints determined using process- and EIO-based methods have different scope, but also different objectives for which their scope may be adequate. Separately, they do not provide the comprehensiveness necessary for current water policy challenges. By combining their strengths, the two approaches can address many of their individual shortcomings. If institutions with spatially-nested authority for governance (such as urban councils within broader provinces or nations) coordinated their strategies, then alternative, more water-efcient and sustainable, regional trading patterns could be identied. The ability to optimise regional ows would have benets for each level of government, including knowledge about potential impacts (and the regions vulnerability to these impacts) resulting from regional economic activity and policy strategies in areas such as housing, transport, power supply, and other major infrastructure and technology. For example, establishing the geography of embodied water ows associated with a planned economic activity or policy option, through the connecting supply-chain network, to the ultimate point of water extraction, would provide the foundation. Once the spatial and sectoral patterns of water use are compared to environmental, technological and social conditions within that geography, insights will be gained into environmental and social impacts and appropriate policy responses. E-MRIO can assist a regional government in assessing the implications of its economic structure, infrastructural and technological choices on the sustainable use of water, energy and other regional resources. Using E-MRIO tools to analyse the environmental ow-on effects of economic activity within a region builds upon the knowledge of functional interdependence within the regional economy. For instance, if private transport (personal car use) is planned as being a signicant part of a future regional economy, then it must be recognised that it has its own network of service points, fuel supplies, and road support. In turn, these demands will have signicant implications for the local economy and also for the sustainability of local natural capital. While footprint measures are usually derived from environmental-intensity measures based on sales or nal demand in a region, the production structure of the regional economy (measured by value-added) will have a role in assessing how interdependencies, ows, and feedback loops between sectors and regions affect the efciency and optimal allocation of a regions environmental resources. An understanding of the structural linkages between regional consumption, the supporting industrial and technological infrastructure, and the ensuing environmental impacts, would provide the basis for well-informed decision-making. This is clearly relevant for regions, even if a substantial part of water and other resources are sourced from outside that region. Wherever comprehensive IO information is available for spatially-nested regions, it is possible to analyse and pursue optimisation goals, using comparative assessments of water stress, resource use efciency and productivity across sectors. Process-based and empirical consumption data that accurately represent water use from specic regions would be valuable for this goal.

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Given limitations in assessing water use with partial factor productivity measures such as water-intensity, such a meta-regional analysis could help improve the regional and sectoral allocation of water consumption. Guiding objectives would be greater economic efciency and reductions in resource vulnerability, as well as minimising total social costs at national, state and component regional levels.6 An approach combining process analysis and E-IO strengths would support effective regional water policy at a macro level. Local, site-specic and detailed economic functional data from process analysis, coupled with consistent economy-wide water account data, could feed comprehensive detailed E-MRIO tables capable of identifying relevant water ows (see Suh, 2004). With improved data, this interconnected analysis could be extended to global levels. There are many relevant methodological developments underway with this aim (Wiedmann, 2009; Wiedmann et al., 2011). The E-MRIO framework not only promises comprehensive analysis of water ows via complete supply and use chains, but also opens the door to connect water use to other environmental indicators from a wide range of triple-bottom-line categories. Unfortunately, IO data are generally not yet available as spatial frameworks that are consistent with catchment boundaries and the geographic focus of recent water footprint studies. In the interim, appropriate customisation of IO models to match catchment boundaries will be required. The demand-pull impacts of consumption that have taken priority in both process- and E-MRIO analysis are linked to the regional production conditions that are so important for understanding water use. This is evident in contemporary water footprinting developments and matches E-MRIOs ability to trace consumption back to production and resource use sources with region-specic data on environmental-intensities. Detailed assessment of catchment-specic hydrological processes and assets would provide the nal missing piece for a comprehensive data system underpinning strategic planning for water sustainability. The result should be a powerful integrated information network depicting the environmental-economic ows required for assessing and optimising regional water consumption. Ideally, this should be supported by empirical water accounting data and material ow accounting analyses. Further renement in the denition and measurement of consumptive water use would also be essential. An inter-connected framework for WF analysis has many potential benets. These include the potential for increased resource efciency, reduced water stress in regions, and the ability to introduce economic welfare measures (via its consistency with standard national accounting frameworks). The information path from local production sources (and associated water consumption type and social cost impacts) to nal demand (and hence, welfare measures) would be complete. In conjunction with valuation and other economic analyses of the true net social welfare returns from economic activities, there

Economic efciency consequences (assessed in terms of full social costs and benets) would depend upon aspects such as the relative scarcity and opportunity cost of water including ecosystem impacts, water stress, elasticity of demand, returns from competing alternative economic options for water use, labour mobility, the economic diversity of users, and variation in technical efciency based on geographic, technological, socio-economic and other regional factors. There would also be important general equilibrium effects and hence a role for CGE models in evaluating economic (and environmental resource) implications of change and policy for regional production and consumption. However, the basic elasticities would be subject to criticism given the absence or distorted nature of the cost of water as a production input.

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