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Sustainability is a balancing act

Balancing Act: Frequently asked questions

Frequently asked questions about the CSIRO report - Balancing Act: A triple-bottom-line analysis of the Australian economy

  • 1 July 2005 | Updated 14 October 2011

Methodology

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How are the upstream impacts calculated, or in other words, how are the sectoral supply chains traced accurately?

The generalised input-output analysis framework is based on the input-output (I-O) tables compiled and published by the Australian Bureau of Statistics (ABS). The method by which the ABS constructs Australia’s I-O tables both ensures that the extremely complex interdependencies between sectors are described in a complete and detailed way, and that there is consistency in this description across all sectors. All the upstream linkages (the supply chains) are therefore encapsulated in the I-O tables.

Are there other ways of calculating sectoral TBL performance?

Generalised input-output analysis is the most appropriate methodology for calculating the TBL performance of individual economic sectors. Other methods, such as conventional life-cycle analysis, are not comprehensive because they are affected by so-called “truncation errors” that result from setting an arbitrary finite system boundary.

Is I-O analysis applicable to non-financial issues?

The aim of generalised I-O analysis is to incorporate non-financial indicators into the structure of the economy in a consistent way. As long as impacts from different supply chains can be added up, our generalised I-O analysis is a comprehensive accounting framework that tracks physical, social and financial flows in an identical way, so that all indicators are comparable.

What is a dollar of final consumption?

Final consumption is the “end point” of the economic system. Supplying final consumption is the ultimate function of the industries of an economy. Using final consumption as a reference enables meaningful comparisons to be made on the same basis.

But how can you compare a dollar of final consumption of alumina production with that of hairdressing?

Different sectors clearly perform different functions in the economy. Income from commodity exports helps Australia to offset the cost of its imports. Also, processors and manufacturers in the value-adding chains can capitalise on the sometimes poor environmental and social performance associated with the supply of raw materials from the resource sectors. Nevertheless, using final consumption to explore the links between industrial sectors and their relative impacts can help achieve efficiency improvements by informing socio/economic/environmental policy development. Note that alumina production workers get their hair cut too!

Is there double counting?

No. Each TBL account refers to a particular portion of final demand, and these portions are mutually exclusive and add up to total final demand. In our input-output analysis, total TBL factor use is re-allocated and re-distributed from producers first to industrial consumers of goods and services, and finally to final demanders. At no stage in the input-output calculus do factor flows leak out of the system, or are factor flows added. The factor budgets of all mutually exclusive portions of final demand add up to the national total.

Would there be double counting for companies?

If a company is treated as a final consumer there is double counting. However, in most applications a company’s data will be assessed as being embedded in the national data. This company is then treated as if it were an additional economic sector: it interacts with the rest of the economy just like all existing sectors do. Furthermore, the supply-chain input-output method allows responsibility for each industrial flow to be assigned to both producers and purchasers of intermediate inputs, and can thus be used to evaluate the principle of shared responsibility.

What are the limitations of this analysis?

The methodology is complete in the sense that all impacts upstream from final consumption are included. However, downstream impacts, such as those associated with the use of products by consumers are not yet included (see next question). Impacts which occur overseas and which are embodied in imports are also not assessed in this application, but could be assessed by incorporating data from foreign economies. This is part of the current research of the ISA team at the University of Sydney. The sectoral reports describe the areas where these limitations are most important. The methodology here is also static and cannot provide substantial information on changes that might occur from changes in prices, different tax regimes, etc. However, this is not a limitation for reporting. The current analysis applies at a national level so there is no detail of regional impacts. The techniques are however, applicable at regional level (see question below).

Are downstream impacts assessed?

No. Downstream impacts of sectors (eg the environmental and health impacts of the use and disposal of products) are very important but are outside the scope of the current analysis. The ISA team at the University of Sydney is currently developing a robust methodology for dealing with downstream impacts in a consistent way.

Can the methodology and results be sensibly applied at a sub-national scale to deal with local and regional issues?

The methodologies used for this report are applicable at a regional level. The main requirement is that inter-regional economic data be compiled. The ISA team at the University of Sydney is currently scoping work for expanding the national TBL framework to the State and Territory level.

How would this study be updated and how might this report be used as a benchmark?

Now that the methodology, data sources and understanding are established, a model update is straightforward, and needs only a recent set of input-output and TBL factor data. All these data are compiled regularly by various agencies for a variety of other users. The data is usually collected and compiled in a standardised way, so results would be comparable between different years (also see questions in the indicators section).