An approach of measuring environmental protection in Chinese industries: a study using input–output model analysis

Journal of Cleaner Production xxx (2016) 1e12

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An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis Yu Fan a, b, Shunze Wu a, b, *, Yuantang Lu b, Yutao Wang c, Yunhao Zhao b, Shunqing Xu b, Yujie Feng a a b c

School of Municipal and Environmental Engineering, Harbin Institute of Technology, Hei Longjiang 150001, PR China Chinese Academy for Environmental Planning, Beijing 100012, PR China Institute of Ecology and Biodiversity Shandong University, Shandong 250100, PR China

a r t i c l e i n f o

a b s t r a c t

Article history: Received 21 May 2015 Received in revised form 12 December 2015 Accepted 24 December 2015 Available online xxx

With a green economy making significant developments at a global scale, the environmental protection industry has become an increasingly important part of China's national economy. China's environmental protection industry is a strategic emerging industry and is expected to become a future pillar of the economy. To promote the environmental protection industry in China and to guide environmental protection activities in various sectors, the inputeoutput method was used to develop China's first environmental protection industry specifically using an externalized inputeoutput model. Various coefficients were measured and analyzed from the perspective of the industry chain. The results reveal that the development of environmental protection activities and related environmental investment should give priority to sectors with a current shortage of environmental protection industry input. Concentrating on these industries will provide relatively higher benefits. These industries include primary manufacturing industries, the wholesale and retail marketing industries, the financial industry and some sectors in second industries. In addition, the results of a demand and supply model reflect the fact that the environmental protection industry in China should actively promote the environmental finance and fund environmentally-friendly products. Finally, the model provides a useful tool that will allow government agencies to develop scientifically sound polices to simulate the economy and provide positive effects on investments. © 2016 Elsevier Ltd. All rights reserved.

Keywords: China Environmental protection industry Inputeoutput model Policy implications Value flow analysis

1. Introduction Globally during the past 20 years, the environmental protection industry (EPI) grew at an average annual rate of 10%, with total revenues rising from USD 250 billion in 1992 to more than 800 billion in 2010 (Li and Yuan, 2012; EBI, 2011). The United Nations Environment Programme (UNEP) established an Environmental Goods and Services Sector (EGSS) system to assist planners in

Abbreviations: EPI, environmental protection industry; UNEP, United Nations Environment Programme; EGSS, Environmental Goods and Services Sector; UN, United Nation; EU, European Union; EPAs, environmental protection activities; EBI, Environmental Business International; IO model, inputeoutput model; EPPS, environmental protection products and services. * Corresponding author. Chinese Academy for Environmental Planning, No. 10 Dayang fang Beiyuan Road, Chaoyang District, Beijing 100012, PR China. Tel./fax: þ86 010 84947765. E-mail address: [email protected] (S. Wu).

grasping the situation related to environmental goods and services during the development of environmental policies and economic planning (EUROSTAT, 2014). The EGSS system has become an important part of the Central Framework of the System of Environmental-Economic Accounting, and has also been developed in the Asia and Pacific regions (UNEP, 2013). In addition, the United Nation (UN) launched a series of research studies related to the connections between the environment, the global economy and employment, involving the effects of environmental policies on the economy (GHK, 2007). Countries have been actively developing EPI analyses and related green strategies to take advantage of the global EPI market (UNEP, 2014; U.S., 2015; Cai and Song, 2011). The output of EGSSs in the European Union (EU) grew by 50% between 2000 and 2012 (EUROSTAT, 2014). European counties measured the contribution of environmental protection activities (EPAs) to the region's economy and employment (Statistics Sweden, 2000; Statistics Netherlands, 2000; IFEN, 2000; PSO, 2000). In the U.S.

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Please cite this article in press as: Fan, Y., et al., An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis, Journal of Cleaner Production (2016), http://dx.doi.org/10.1016/j.jclepro.2015.12.114

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the Environmental Business International (EBI) usually published environmental industry research reports (EBI, 2015). These reports documented that the revenue of U.S. environmental industry rose from USD 211.2 to 316.3 billion from 2000 to 2010, respectively (U.S., 2012). The U.S. Environmental Protection Agency used the IeO table to externalize the EPI sector. They found EPI contributed 64% of GNP and 69% of total U.S employment in 1982 (Nestor and Pasurka Jr., 1995). South Africa developed an environmental engineering group environmental costing (EEGECOST) model which was combined with life cycle assessment and had two functions: accounting and investment appraisal (de Beer and Friend, 2006). Australia and Romania also put a considerable amount of effort in environmental accounting and analyzed its influence on the economy (Aurelia-Aurora and Sorina-Geanina, 2012; Dijk et al., 2014). In the era of green economy, China, as the largest developing country in the world, promoting EPI is a pressing demand related to both pollution control and economic development (Zhang et al., 2011). Serious environmental problems (Rodriguez et al., 2013; Chen et al., 2013) have restricted China's benefits and development in trade and diplomacy. In addition, the recent slowing of economic growth in China has caused the government to find new methods of stimulating economic growth. EPI is one of the choices; it has been defined as strategic industry (China, 2012) and the future pillar industry (China, 2013). As done in other countries, China independently promoted the development of its EPI. From the first statistical analysis of its EPI in 1988, China has expanded its EPI. In the latest EPI statistical investigation in 2011, the EPI created 3.2 million jobs and sales revenue reached RMB 199.7 billion (USD 31.6 billion). The EGSS system was also introduced to China with the goal of improving EPI analysis. However, compared with more well-developed countries, China's EPI is still in a period of growth and is less competitive (Ma, 2011; Gao, 2011). The mechanism involved in the development of the EPI in China remains unclear (Zhang and Shang, 2010). In addition, past studies related to green jobs and a green economy have generally focused on specific fields (Cai et al., 2011; Yi and Liu, 2015) rather than at the nation level. The government of China has focused on the influence of EPI in the entire national economy and the effects of policies and investment on it. Understanding the current state of the EPI in China and evaluating the role and function of the EPI as a part of China's economic development are urgently needed to allow the government to adjust China's industrial structure and develop appropriate management strategies. When considering the entire industrial chain, the inputeoutput model (IO model) is one of the most common economic models used to analyze economic conditions, simulate policy decisions, and make forecasts. In addition, the IO model is widely used to study the situation related to industrial development and the effects of interactions between resources, the environment, and the economy. Emerging industries and industries related to energy are important topics in the study of the IO method. Chun and Woo (2014) studied the effects of the construction of hydrogen energy research and development centers on the national economy. Results showed that the hydrogen energy industry was an intermediate basic production industry, and that the different technologies and market conditions would obviously affect industrial output in the future. These results were proven by comparing the development of the hydrogen energy industry in China and the United States (Lee et al., 2011). The IO model has also been used to model other emerging energy industries, such as renewable (Lehr et al., 2012), clean (Wei et al., 2010; Markaki et al., 2013), and traditional energy, such as petroleum (Tang and Zhang, 2011) and coalto-liquid industry (Qi et al., 2012). With the exception of the energy

industry, some countries preferred using an IO model to analyze investment and the industrial structure of some important industries, such as wild-stock fisheries and aquaculture sectors (Kwak et al., 2005; Morrissey and O'Donoghue, 2013; Morrissey et al., 2014) as well as the port sector (Lee and Yoo, 2014). As noted in the previously cited references, the IO method can provide a basic model for the analysis of industries and for stimulating policy creation, which can satisfy the requirements of the Chinese government. Therefore, this paper uses the IO method to evaluate the role and function of the EPI as a part of China's national economy. This paper is structured as follows. First, the definition and statistical investigation on the EPI in China was analyzed. Then, by combining the basic data from the 2011 China EPI investigation (MEPC, 2011), an EPI-IO model structure was developed, and the methods and principles that drive the model were proposed in the present study. Next, based on the EPI-IO model, some coefficients were proposed. The effects on and contributions of the EPI on other industries were measured, and the demand and supply of the EPI flow rates were analyzed. This study is the first to analyze the situation related to EPAs in different business sectors in China from the perspective of the industrial chain. In addition, the EPI-IO model allows the structure of the EPI in China to be measured to help guide EPI development. That is, the EPI-IO model can also be used by policymakers and for studies related to the effects of investments. This study may also provide a reference for other developing countries as they develop their own EPI research methods. 2. Conditions for model building 2.1. Definition on EPI This section clarifies and defines the scope of the EPI. The EPI provides environmental protection products and services (EPPS) and is the supplier of environmental protection activities (EPAs). Connecting EPAs and the EPI offers a good perspective and a definition that can be easily understood. The System of Integrated Environmental and Economic Accounting (De Haan and Keuning, 1996; Ayres and Kneese, 1969; Victor, 1972) has specifically defined EPAs in all industry sectors. Fig. 1 shows the process of how EPI is connected to EPAs. The definition of the EPI includes two parts, 1) the value of products and services for EPAs and 2) the subsidiary production value for these products and services. 2.2. Statistical investigation on the EPI Statistical analysis is an important process that will provide basic data for classifying various aspects of the EPI to make decisions related to retaining or splitting it from the traditional market sectors. Fig. 2 presents the process of statistical investigation and analysis in China's 2011 EPI. This figure shows the entire process was divided into three parts: Definition, Statistical analysis and the classifying of the various parts of the EPI (on the right side of Fig. 2). The statistical analysis provides data related to the value of EPI output, profits, exports, and employees in traditional market sectors (Li, 2012). 3. Method and data 3.1. Structure of an EPI-IO model In the entity-value tables, the study split the various parts of the EPI from traditional sectors and then combined them as a single new industry. The other sectors were retained and combined into 33 sectors (China, 2011). Therefore, the EPI was treated as a

Please cite this article in press as: Fan, Y., et al., An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis, Journal of Cleaner Production (2016), http://dx.doi.org/10.1016/j.jclepro.2015.12.114

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Fig. 1. Definition of the processes involved in the environmental protection industry.

Fig. 2. Statistical analysis of the process used to classify the environmental protection industry in China.

separate sector; thus, another line and column were added as shown in Table 1. The n þ 1 line represents the EPPS consumed by other sectors, as well as the final demand. The n þ 1 column represents the materials needed by the EPI and the value-added construction. As a result, Y, V, and X become the final use, added value, and output, respectively. The subscript we is added to traditional sectors where environmental protection is not a part of those sectors, and the subscript e is added to vectors related to the EPI.

The intermediate use of each sector was divided into the ej following four parts: Xijei , Xij , Xijm , and Xijwe represented the products and services value for j sector to carry out EPAs, for EPI production, for EPI to conduct EPAs, and the intermediate use without EPPS, respectively. Tables 1 and 2 show the Xij separation and the EPI-IO structure, respectively.

3.2. Steps and principles related to building the EPI-IO model Table 1 Separation of the intermediate use. j i

Xijwe Xijei

Xije ¼ Xijej þ Xijei þ Xijm

Xijej Xijm

Fig. 3 shows the specific steps required to split the EPI from traditional market sectors. First, the gross output (Xnþ1) and final use (Ynþ1) of the EPI were accounted and split. Secondly, to calculate Vnþ1, Xnþ1j and Xinþ1. Finally, the EPI-IO table was adjusted. The principles and assumptions of intermediate use accounting and splitting were as follows:

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Table 2 Structure of the environmental protection industry-input/output model. EPI-IO

Intermediate use

Intermediate use 1…n

nþ1 initial input Total input

V XT

1…n Xijwe

Pn

Pn

Pn

V1we X1we

Vjwe Xjwe

Vnwe Xnwe

ei i¼1 Xi1

ei i¼1 Xij

ei i¼1 Xin

nþ1 Pn ej j¼1 X1j Pn ej X j¼1 ij Pn ej j¼1 X Pn Pnjn Xm i¼1 j¼1 P ij e Vnþ1 ¼ nj¼1 Vnþ1 Pn e Xnþ1 ¼ j¼1 Xnþ1

Final use

Total output

Y Y1we Yiwe

X X1we Xiwe

Ynwe Ynþ1 ¼

Pn

e i¼1 Yi

Xnwe Xnþ1 ¼

Pn

e i¼1 Xi

Fig. 3. Steps of building an EPI-IO table.

(1) The proportion of production and pollution control investment in both traditional parts and the EPI parts were the ej same in the same sector, Xijwe =Xijei ¼ Xij =Xijm . (2) In the same sector, the cost expense proportion index and parameter values were the same (CBNEAD, 2007). The proportion was calculated as Xijej =Xijwe ¼ Xijm =Xijei ¼ Pn Pn Pn Pn ej m we ei ð i¼1 Xij þ i¼1 Xij Þ=ð i¼1 Xij þ i¼1 Xij Þ ¼ k. (3) a was the proportion of pollution control facilities operating cost on the 2010 total. The data were from the 2010 China Environmental Yearbook (NBSC, 2010). P P Xnþ1j ¼ a  (Xnþ1 e Ynþ1) and Xnþ1j ¼ ni¼1 Xijei þ ni¼1 Xijm . (4) Xije ¼ Xijej þ Xijei þ Xijm were the parts related to the EPI, also provided the input from different sectors for the EPI. In some important sectors, the data come from practical analysis. The others are from the proportion of EPI output in each sector.

3.3. Data sources and processing The 2010 extended China IO table was used as the base table, and the China economy industry classification (China, 2011) was used for sector classification. The 2011 China EPI investigation provided the main data source. The values of EPI output, profits, exports, and employees were processed into 2010 EPI data, using the growth rate from 2004 to 2011 EPI investigation data. The EPI investigation included four parts: environmental protection

products, resource recycling products, environmental services and environmentally-friendly products (MEPC, 2011; Sheng and Zhu, 2015). (1) Total output accounting and splitting Based on the proportion of the EPI to traditional sectors from the 2011 China EPI investigation (Table 3), the EPI total output was obtained. (2) Final demand accounting and splitting First, the data related to EPI capital formation were from the 2011 China Statistical Yearbook of investment in fixed assets. In 2010 the EPI had a total capital of RMB 47.1 billion. The government's and residents' consumption of the services of the EPI were valued at RMB 51.4 billion and RMB 179.9 billion, respectively, according to the 2011 EPI statistical analysis. EPI export data was amounted to RMB 303.9 billion in 2010. Tables 3 and 4 show the final demand data of the EPI. (3) Initial input accounting and splitting Employee remuneration was calculated from the number of EPI employees found in the 2011 analysis and the per-capita wage in 2010 was from the Statistical Yearbook of China Labor. The EPI

Please cite this article in press as: Fan, Y., et al., An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis, Journal of Cleaner Production (2016), http://dx.doi.org/10.1016/j.jclepro.2015.12.114

Sectors

EPI total output EPI export proportion proportion

EPI residents consumption proportion

EPI employee remuneration proportion

EPI operating surplus proportion

EPI net production tax proportion

EPI fixed assets k depreciation proportion

a

Agriculture, forestry and fishing industry Mining industry Food production and tobacco processing industry Textile and leather products manufacturing industry Wood processing and furniture manufacturing industry Paper printing and stationery and sporting goods manufacturing industry Oil processing and coking and nuclear fuel processing industry Chemical industry Non-metallic mineral products industry Metal smelting, steel rolling processing industry Metal products industry General equipment manufacturing industry Special equipment manufacturing industry Transportation equipment manufacturing industry Electrical machinery and equipment manufacturing industry Computers, communications, and other electronic equipment manufacturing industry Instrument manufacturing industry and cultural office machinery manufacturing industry Arts and crafts, and other manufacturing industry Electricity, heat, gas and water production and supply industry Construction industry Transportation, warehousing, and postal service Information transmission, computer services, and software Wholesale and retail Accommodation and catering industry Financial industry Real estate industry Services industry Research and experimental development industry Water resources, environment, and public facilities management Education, health, social security, and social welfare Culture, sports, and entertainment Public administration and social organization

0.0030 0.0122 0.0233 0.0141 0.0365 0.0855

0.0010 0.0000 0.0024 0.0013 0.0024 0.0203

0.0027 0.0000 0.0239 0.0162 0.0337 0.0139

0.0004 0.0416 0.0233 0.0204 0.0624 0.1026

0.0000 0.0287 0.0369 0.0360 0.0463 0.0982

0.0019 0.5309 0.4887 0.4063 0.1554 0.2270

0.0446 0.3267 0.1163 0.2796 0.0957 0.2057

0.0056 0.004 0.0236 0.0122 0.0343 0.0906

0.013 0.0236 0.0288 0.0183 0.0168 0.0357

0.0035

0.0002

0.0002

0.0130

0.0064

0.3496

0.1077

0.003

0.0095

0.0708 0.0352 0.0413 0.0059 0.0193 0.0265 0.1966 0.0581

0.0068 0.0057 0.0032 0.0005 0.0076 0.0015 0.0116 0.0098

0.0273 0.0038 0.0000 0.0031 0.0000 0.0046 0.2734 0.0478

0.0942 0.0564 0.0257 0.0098 0.0168 0.0351 0.0678 0.0697

0.1100 0.0617 0.0332 0.0074 0.0306 0.0453 0.3563 0.1249

0.5465 0.1614 0.3447 0.1474 0.1563 0.1623 0.4891 0.3924

0.4891 0.1207 0.3927 0.1081 0.0992 0.0978 0.2944 0.3132

0.0229 0.0317 0.045 0.0055 0.0191 0.0016 0.2446 0.056

0.0524 0.0311 0.0667 0.017 0.0307 0.0162 0.2135 0.0365

0.0804

0.0208

0.1448

0.0575

0.1262

0.3498

0.4531

0.0698 0.0415

0.1813

0.0030

0.1740

0.1474

0.2572

0.2196

0.1708

0.2355 0.0078

0.0871 0.2306

0.0015 0.0088

0.0000 0.0020

0.0864 0.3976

0.0335 0.4973

0.0897 0.2821

0.0344 0.4833

0.1493 0.0098 0.1614 0.0404

0.0018 0.0000 0.0002

0.0005 0.0000 0.0000

0.0059 0.0000 0.0000

0.0021 0.0001 0.0004

0.0029 0.0000 0.0002

0.1366 0.1306 0.0700

0.0524 0.2646 0.1982

0.0017 0.0783 0 0.0375 0.0021 0.0096

0.0021 0.0000 0.0000 0.0000 0.0283 0.0061 0.1479

0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000

0.0019 0.0000 0.0000 0.0000 0.0010 0.0000 0.0028

0.0002 0.0000 0.0000 0.0000 0.0603 0.0127 0.1780

0.0002 0.0000 0.0000 0.0000 0.0358 0.0075 0.2306

0.2141 0.1031 0.1086 0.1361 0.2402 0.0417 0.0440

0.0600 0.1195 0.0229 0.3254 0.2928 0.1132 0.1835

0.0051 0 0 0 0.0118 0.0034 0.1455

0.0004 0.0004 0.0003

0.0000 0.0004 0.0003

0.0000 0.0000 0.0000

0.0003 0.0003 0.0004

0.0001 0.0008 0.0019

0.0141 0.0895 0.0046

0.1701 0.1324 0.1106

0.0006 0.0135 0.0004 0.0032 0 0.0113

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Table 3 Total output of the environmental protection industry and the initial and intermediate input distribution.

0.0076 0.0092 0.0066 0.0064 0.0407 0.0022 0.0064

Note. The definition of ‘k’ and ‘a’ were presented in the 3.2 part (2) and (3).

5

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Table 4 Fixed assets of the environmental protection industry and government consumption distribution. Fixed assets distribution

Proportion

Government consumption distribution

Proportion

Special equipment manufacturing industry General equipment manufacturing industry Electrical machinery and equipment manufacturing industry Instrument manufacturing industry

1.43% 2.29% 0.10% 0.96%

Leasing and business services Research and experimental development industry Comprehensive technical services water resources, environment and public facilities management

9.79% 1.62% 6.26% 13.25%

profits from the 2011 EPI statistical investigation were treated as operating surplus. Fixed-asset depreciation and net production tax were both calculated from fixed-asset depreciation and net production tax coefficients multiplied by the value of the output of the EPI. Table 3 presents the initial input structure data of the EPI. (4) Intermediate use accounting and splitting Table 3 shows the coefficients for accounting and splitting Xij. Xij ej is from the 2010 China IO extended table, the Xijm , Xij , and Xijei calculation equations follow. ej

(1)

Xijm þ Xij þ Xijei ¼ Xije

ej

(2)

Xijwe ¼ Xij  Xije

(3)

  Xijej ¼ k  Xij  Xije

(4)

Xijm þ Xij þ Xijei þ Xijwe ¼ Xij

Xijei ¼ Xije 

k X 1 þ k ij

Xijm ¼ k  Xije 

kk X 1 þ k ij

(5)

(6)

(1) The EPI input model First, this study used the direct EPPS consumption coefficient (i.e., the value of EPPS directly consumed to produce one unit of a product or service by the jth industrial sector) to reflect the demand for EPPS from each industrial sector. The coefficient could also reflect the situation of direct pollution reduction and cleaner production in each industrial sector. For this vector represented by W, the formula was as follows:

Xnþ1j ; j ¼ 1; 2…n Xj

(8)

where BW was the row vector of complete EPPS consumption (bwj). Thus, this formula indicated the degree of demand for EPPS by the industrial sector. I was a unit matrix and A was a matrix of direct consumption coefficients. The EPPS consumption multiplier was the ratio of the complete EPPS consumption coefficient for the jth industrial sector to the direct EPPS consumption coefficient, which reflected the demand for EPPS from the entire national economy, as motivated by the change in production of a unit final product or service by the jth sector. The multiplier was calculated as:

rj ¼

bwj ; j ¼ 1; 2…n wj

(9)

(2) EPI output model This study established output models from the viewpoint of added value. In the output model, the direct EPPS consumption value-added coefficient (i.e., the EPPS directly consumed by the jth industrial sector to create a unit of newly increased value added) reflected the ability of the EPI to create economic benefits. The coefficient was calculated as:

gj ¼

Xnþ1j ; j ¼ 1; 2…n Vj

(10)

The complete EPPS consumption value-added coefficient referred to the EPPS needed for the jth industrial sector to add value to the entire economic system, including the value added directly and indirectly by the industrial sector and by other industrial sectors, respectively. The calculation formula was:

3.4. Value inputeoutput model for EPI and the economy

Wj ¼

BW ¼ WðI  AÞ1 ;

(7)

Second, the complete EPPS consumption coefficient (i.e., the total value of direct and indirect EPPS consumed for the jth industrial sector to add one unit) was used to reflect the demand for EPPS consumed by production or service expansion within each industrial sector. The complete EPPS consumption consisted of both direct and indirect consumption. Indirect consumption referred to the EPPS input into the production processes of the products and services of other industries. Calculation of the complete EPPS consumption coefficient was conducted based on the following:

4j ¼ gj ðI  AÞ1 ; j ¼ 1; 2; …n

(11)

The EPPS consumption value-added multiplier (i.e., the increase in value added of the entire economic system resulting from a unit increase in value added through EPPS consumption by the jth industrial sector) could be used to reflect the influence of changes in value added resulting from an increase in EPPS consumption by industrial sector j on total value added. The multiplier was the ratio of the complete EPPS value-added coefficient to the direct EPPS value-added coefficient, which was calculated as:

cj ¼

4j ; j ¼ 1; 2…n gj

(12)

(3) EPI demand structure model Intermediate and final uses constituted the total output of a society. Intermediate use was a process that reflected consumption

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through sector production, whereas final uses were purposedriven. Understanding the demand structure of the EPI would be meaningful for adjusting the industry structure and related investments. Therefore, some coefficients had been established as follows:

Mj ¼

Xnþ1j j ¼ 1; 2; …n Xnþ1

Pnþ1 j¼1

Xnþ1j

Xnþ1

j ¼ 1; 2; …n

Yr nþ1 ; r ¼ 1; 2; 3; 4 Xnþ1

r¼1 Yr nþ1

Xnþ1

(16)

(4) The EPI supply structure model

(14)

The EPI final demand flow coefficient was established as Dr (r ¼ 1, 2, 3, 4). The four parts of the final use were calculated, including export (D1), government consumption (D2), residents' consumption (D3), and capital formation (D4).

Dr ¼

P4 d¼

(13)

where Mj was the intermediate flow coefficient, which reflected the intermediate demand structure during the process of creating value and the different sector contributions to the EPI, and m was the proportion of the sum of intermediate uses on the total output.

m¼

7

The total input of an industry consisted of material supply and initial input. Si was established to represent supply flow coefficient, as given by:

Si ¼

(17)

where s was the proportion of the sum of intermediate uses to the total input.

Pnþ1 s¼

Xnþ1i Xnþ1

i¼1

(18)

The initial input constituted four parts, namely, fixed-asset depreciation (b1), employee remuneration (b2), net production tax (b3), and operating surplus (b4).

(15)

d was established to express the final use proportion on the total output.

Xnþ1i ; i ¼ 1; 2; …n Xnþ1

br ¼

Vr nþ1 ; r ¼ 1; 2; 3; 4 Xnþ1

(19)

Fig. 4. Analysis of environmental protection products and services (EPPS) consumption coefficients. Note: Wj, direct EPPS consumption coefficients; BWj, the complete EPPS consumption coefficient (bwj); Rj, the EPPS consumption multiplier (rj).

Please cite this article in press as: Fan, Y., et al., An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis, Journal of Cleaner Production (2016), http://dx.doi.org/10.1016/j.jclepro.2015.12.114

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Fig. 5. Analysis of environmental protection products and services (EPPS) consumption value-added coefficients. Note: 4, the complete EPPS consumption value-added coefficients; gj, the direct EPPS consumption value-added coefficients; cj, the EPPS consumption income multiplier.

4. Results 4.1. EPI input analysis Our results show that direct EPPS consumption coefficients (Wj) vary significantly across industrial sectors (Fig. 4). The ratio of the largest to the smallest is 23.77. The transportation equipment manufacturing industry had the largest coefficient (0.083), and the paper printing and stationery goods manufacturing industry had the second largest (0.0361), followed by the water resources, environment, and public facilities management industry (0.0343). In contrast, the primary industry EPPS input only accounted for 0.37% of the total input value, which is the second smallest. Some manufacturing industries, such as oil processing, coking, nuclear fuel processing industry, and textile and leather product manufacturing, directly consume less EPPS than other industries. EPPS consumption is significantly higher in secondary industries than in primary and tertiary industries. The complete EPPS consumption coefficient (BWj) varies widely across industrial sectors, although this variation is less than that of the direct EPPS consumption coefficient. The industries with higher complete EPPS consumption coefficients are almost similar to the direct EPPS consumption coefficients ranks (Fig. 4). Industries with smaller complete EPPS consumption coefficients are from the tertiary and primary sectors. By comparing the direct and complete EPPS consumption coefficients, this study can obtain the EPPS consumption multiplier (rj). All multipliers exceeded 1, especially those in the oil processing, coking, nuclear fuel processing industry (5.904), textile and leather products manufacturing industry (5.538), primary industry

(4.762), and wholesale and retail industry (4.631). Although these industries directly consume small quantities of EPPS, their indirect consumption is high. The EPPS consumption multipliers in the transportation equipment manufacturing industry (1.856), water resources, environment, and public facilities management industry (1.937), and paper printing and stationery goods manufacturing industry (1.948) were relatively small. 4.2. EPI output analysis The ability of each industrial unit to add value through the consumption of EPPS was calculated based on the formulas (10e12) (Fig. 5). The direct EPPS consumption value-added coefficients (gj) vary significantly across industrial sectors, indicating that the added value created by each industrial sector through EPPS consumption varies greatly. The transportation equipment manufacturing industry had the highest coefficient (0.433), followed by the paper printing and stationery goods manufacturing industry (0.176), and the wood processing and furniture manufacturing industry (0.126). The primary and some of the tertiary industries add little value through direct consumption of EPPS. The complete EPPS consumption value-added coefficient (4j) for each industrial sector is greater than its direct EPPS consumption value-added coefficient, which indicates that a part of the value added by these industrial sectors comes from using EPPS and other relevant products as intermediate products. The top two are the same sectors with the highest direct EPPS consumption valueadded coefficient. The third is the computer, communications, and other electronic equipment manufacturing industry.

Please cite this article in press as: Fan, Y., et al., An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis, Journal of Cleaner Production (2016), http://dx.doi.org/10.1016/j.jclepro.2015.12.114

Y. Fan et al. / Journal of Cleaner Production xxx (2016) 1e12

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Table 5 Coefficients of environmental protection industry demandesupply flows. Sectors

Mj

Agriculture, forestry and fishing industry

0.0115 0.0262 Instrument manufacturing industry and cultural office machinery manufacturing industry 0.0209 0.0285 Arts and crafts, and other manufacturing industry 0.0255 0.0113 Electricity, heat, gas and water production and supply industry 0.0162 0.0176 Construction industry 0.0149 0.0143 Transportation, warehousing, and postal service 0.0316 0.0218 Information transmission, computer services, and software

0.0087 0.0359 0.0695 0.0332 0.0086

0.0148 0.0263 0.0009 0.0228 0.0036

0.0084 0.0465 0.0276 0.0592 0.0151 0.0272 0.0144 0.1894 0.0324 0.0368

0.0067 0.0081 0.0058 0.0057 0.0361 0.0020 0.0057 0.0120 0.0029 0.0100

0.0229 0.0053 0.0113 0.0024 0.0160 0.0039 0.0012 0.0014 0.0011 0.0001

Mining industry Food production and tobacco processing industry Textile and leather products manufacturing industry Wood processing and furniture manufacturing industry Paper printing and stationery and sporting goods manufacturing industry Oil processing and coking and nuclear fuel processing industry Chemical industry Non-metallic mineral products industry Metal smelting, steel rolling processing industry Metal products industry General equipment manufacturing industry Special equipment manufacturing industry Transportation equipment manufacturing industry Electrical machinery and equipment manufacturing industry Computers, communications, and other electronic equipment manufacturing industry

si

0.0116 0.0547 0.0207 0.0853 0.0185 0.0419 0.0054 0.1066 0.0228 0.0356

Sectors

Wholesale and retail Accommodation and catering industry Financial industry Real estate industry Services industry Research and experimental development industry Water resources, environment, and public facilities management Education, health, social security, and social welfare Culture, sports, and entertainment Public administration and social organization

Mj

si

0.0070 0.0080

Note: Mj, the intermediate flow coefficient; si, represent supply flow coefficient.

Instrument manufacturing and office machinery manufacturing are next. These four sectors obtain comparatively large amounts of benefits when using EPPS. As shown through the EPPS consumption income multiplier (cj), industrial sectors, such as transportation equipment manufacturing (1.778) and paper printing and stationery goods manufacturing (2.202), usually drive the added value directly. Comparatively, the primary (10.18) and tertiary (such as wholesale and retail and financial services) industries have a strong ability to indirectly create value in these industrial sectors. 4.3. EPI demand value flow analysis The intermediate demand coefficient of the EPI is 0.8869 and the final demand coefficient is 0.1365. The intermediate demand of the EPI is significantly greater than the final demand. Government consumption, residents' consumption, capital formation, export, and other uses accounted for 2.31%, 8.08%, 2.12%, 1.14%, and 2.33%, respectively. The EPI value flows to export and government are relatively small, indicating that the export ability of EPPS is not good and that the government does not perform well in buying EPPS. There are significant differences between intermediate sectors on demand value flows. The ratio of the largest to the smallest is 97.07 (Table 5). The main demand sectors are transportation equipment manufacturing (0.1894) followed by architecture (0.0695), metal smelting and steel rolling processing (0.0592), and chemistry (0.0516). Only 1.15% of the EPI value flows to the primary industries. The tertiary industries contribute only 5.26% to the EPI value. 4.4. The EPI supply value flow analysis The analysis of the EPI supply value flow is intended to decompose the EPI input. The intermediate supply accounted for 71.62% of the EPI value, while initial input made up 28.38%. Supply flow coefficients show that the sectors tending to supply for the EPI materials are transportation equipment manufacturing (0.1066), metal smelting and steel rolling processing (0.0853), and chemistry (0.0547) (Table 5). Clean energy cars are well-known environmentally-friendly products, so the transportation equipment manufacturing industry is the main supply sector. Metal smelting

and steel rolling processing can provide materials for the manufacturing of environmental protection equipment. The initial input values consists of four parts, namely, proportions of fixedasset depreciation, employee remuneration, net production tax, and operating surplus are 13.97%, 44.72%, 10.31%, and 31%, respectively.

5. Discussion and policy implications Fig. 4 shows the intention of various industries to carry out EPAs. Primary industries are basic industries in any country that contributes considerably to environmental pollution, such as soil erosion, heavy metal and water pollution (Wang et al., 2014, 2015). However, the results show that primary industries do not pay much for EPAs directly, and they consume EPPS mainly from indirect consumption in China. In addition, as a part of the entire national economy, the demand for EPPS is relatively high (rj ¼ 4.762). However, this sector is not positively involved in pollution control (Collins et al., 2014). In China, primary industries usually transfer the responsibility of pollution treatment to the government. Incentives for promoting clean agricultural production technologies and policies mechanism should be promoted (Ma and Han, 2013; Luo et al., 2014). For secondary industries, significant variation exists. From the entire national economy, the demand for EPPS in oil processing, coking, and nuclear fuel processing industry as well as the textile and leather products manufacturing industry were greater than for other sectors, and the EPPS consumption multiplier was 5.904 and 5.538, respectively. However, the two sectors directly carried out a relatively small amount of EPA; from the view of the industrial chain, the indirect consumption of EPPS was the main source. The reasons are as follows: the oil processing, coking, and nuclear fuel processing industry became the important pollution control industry in China's twelfth five-year plan (2011e2015), and the EPAs have only recently started. The other phases of oil processing, coking, and nuclear fuel processing may need additional EPAs, for example, the packaging of the final product consumes additional energy and materials (Nucci et al., 2014). For textile and leather products manufacturing industry, the small mill type enterprises in China may lead to the low level of benefits and lower EPPS consumption. Because the small scale enterprises in the tertiary industry are typically widely distributed, the EPAs are limited.

Please cite this article in press as: Fan, Y., et al., An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis, Journal of Cleaner Production (2016), http://dx.doi.org/10.1016/j.jclepro.2015.12.114

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Cleaner production in leather and textile sectors and green textiles technology should be developed in China (Leonard et al., 2014; Moreira et al., 2015). In contrast, the transportation equipment manufacturing industry conducted large amounts of EPAs both directly and indirectly. With the worsening of air pollution in China, it is not surprising that the transportation equipment manufacturing industry consumed the greatest amount of EPPS. Media pressure and environmental pollution have forced enterprises to become more involved in clean energy and to develop more stringent clean production standards in the transportation equipment manufacturing industry (Liu et al., 2014). Fig. 5 shows the ability of each sector to create benefits from the consumption of EPPS. From the entire national economy, some sectors in tertiary and primary industry sectors have the potential to create more benefits from the consumption of EPPS. However, these sectors that both directly and indirectly bring the benefits from EPAs are not prominent in China because EPAs did not very well used in these sectors. Environmental finance and funding has not been developed and put into effect in China, and the environmental protection related activities and products in the primary industries were not considered as part of the trend. In contrast, sectors that create positive benefits from both direct and indirect consumption of EPPS are the transportation equipment manufacturing industry, the paper printing and stationery goods manufacturing industry and the wood processing and furniture manufacturing industry. These sectors all produce environmentally-friendly products, such as clean energy vehicles, recycled paper and wooden furniture made from recycled materials. This means environmentally-friendly products can create greater benefits than industries creating traditional environmental equipment products. These sectors have effectively involved EPPS in their production processes, and they can rely on environmental products and services to add value. So environmentally-friendly products are good choices for industries. By comparing the results in Figs. 4 and 5, one can see that the differences between EPPS input and output can guide investment in environmental protection and the implementation of clean production processes. The transportation equipment manufacturing industry has the highest environmental protection input, both direct (0.0832) and complete (0.1545), and brings the greatest benefits among all sectors (0.4325). This result shows that a sector, especially the clean-car manufacturing industry, can effectively transform EPPS input into benefits. The cleaner production standards for car manufacturing and current heavy smog conditions may be the reasons behind these results. However, some sectors have higher EPPS input and relatively lower output potential, such as water resources, environment, and public facilities management as well as the electricity, heat, gas, and water production and supply and service industry. These sectors provide considerably greater public benefit, so the outputs are relatively backward. Comparatively, secondary industries, such as the oil processing, coking, and nuclear fuel processing industry, the textile and leather products manufacturing industry, the chemical industry, and the food production and tobacco processing industry, have better output than input. In addition, they have a greater demand for EPPS. Therefore, investment in these industries and providing them with clean production techniques should be given priority in these sectors, which will benefit and boost the national economy, as well as generate positive results for public health and the environment. Based on the demand and supply flow coefficients (Table 5), we can determine the EPI market potential and industry structure in China. The results related to demand flow show the secondary industries contribute to the EPI value more than the tertiary industries, followed by the primary industries. This means potential

environment protection markets exist for the tertiary and primary industries. The environment protection potential markets were also influenced by policies in China. The transportation equipment manufacturing industry has the highest demand flow coefficient, because it involves the use of ternary catalysts and clean energy in its production. This market is expected to grow with the implementation of China's Plan for Controlling Air Pollution (Wang et al., 2012). Besides, green supply chain practices should be introduced as a key approach for enterprises seeking to become environmentally sustainable (Tseng et al., 2015, 2013). The results also show the intermediate industries contribute more than the final demand, which means the EPI is the intermediate input type of basic industry. Government demand for the EPI is less than that of residents. In addition, China's EPI are not very competitive in the export market, because the final demand is the power driving the upgrading of industrial structure (Ciaschini and Socci, 2007). Thus, strengthening government consumption of EPPS should be encouraged. Enlarging exports is also an important task. Original production, creative ability, and technological innovation should be encouraged to allow China to take advantage of the international EPI market. From the supply side, China's EPI remains small to medium-sized, and it mainly relies on human labor, not on equipment and technology. Mergers and acquisitions should be encouraged to build larger enterprises. Based on the above analysis, some policies are recommended. First, pollution created by primary industries in China deserves increased attention, because their consumption of EPPS lags far behind other market sectors. Environmentally-friendly products (such as organic and green food) in the primary industry are good choices. Therefore, developing pollution source control in the primary industries may benefit both the environment and industrial output. Second, pollution control in the secondary industries should be focused and thorough, and the stringent clean production and emission standards are recommended. Transportation equipment manufacturing industry is a good example; it successfully transform from EPPS consumption into providing benefits, because its energy structure adjustment and stringent clean production standards contribute greatly to improving environmental conditions. The oil processing, coking, and nuclear fuel processing industry and textile, leather products manufacturing industry are sectors that should give priority to stringent pollution control and clean production standards. It would be helpful for adjusting China's energy structure if small and irregular textile and leather production companies are forced to merge or undergo bankruptcy. Stringent standards will not be meaningful without environmental monitoring and supervision (Wang et al., 2013). Publishing the situation related to EPAs on government or company websites for inspection by the media and to provide public oversight may be a useful method of controlling pollution produced by these companies. Third, environment services also need to be promoted for the tertiary industries that are not doing well in EPAs. A PublicePrivate Partnership model should be encouraged for increasing the EPI market activity and driving the development of environment services. In conclusion, based on the structure of EPI in China, environmentally-friendly products should be recognized and supported by government. For example, government should take the initiative to purchase as well as to reduce taxes on environmentally-friendly products. In addition, it would be helpful for EPPS exports, if China tries to include EPPS in the construction of infrastructure. Considering that expenditure in China for environmental protection have accounted for 1.6% of total GDP in 2010 (Askci, 2013), while the number for the UN was 2.25% in 2009 (Eurostat, 2012), China can demand and force the adjustment of industry structure. Therefore, environmental protection

Please cite this article in press as: Fan, Y., et al., An approach of measuring environmental protection in Chinese industries: a study using inputeoutput model analysis, Journal of Cleaner Production (2016), http://dx.doi.org/10.1016/j.jclepro.2015.12.114

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expenditures should be increased to promote EPAs and support environment technology innovation and education (Wang et al., 2013, 2011).

6. Conclusions This study is the first to construct an EPI-IO value model for China within the overall economy based on data from the 2011 EPI Statistical Investigation in China, using the 2011 China Statistical Yearbook of investment in fixed assets, and other relevant documents. Some coefficients were designed to analyze the status of the EPI in China from the perspective of the industry chain. This was different from accounting for environment activities and green accounting. This study can outline the situation related to the EPAs and benefits from EPAs in different sectors using modeling of direct and indirect production processes and based on the entire national economy, and the EPI-IO model. The results reveal that some sectors with higher input shortage and relative higher output should strengthen EPAs and be the main environmental investment sectors, such as, the primary industry sector. In addition, this also applies to some sectors in the tertiary industry (such as the wholesale and retail industry, and the financial industry) and some sectors in the second industry (oil processing, coking, and nuclear fuel processing industry and textile, leather products manufacturing industry). The transportation equipment manufacturing industry was the good example for improving EPAs and it produce additional benefits. It should be learned that the introduction of cleaner production methods and related policies for promoting the EPPS that have been applied in the transportation equipment manufacturing industry. In addition, from the demand and supply flow model, the structure of the EPI in China can be understood. The results reveal that organic and green products in the primary industry and the environmental finance and fund should be promoted to increase the size of the EPI market and create additional benefits. To promote consumption from residents, the government and export markets, the production of environmentally-friendly products should be encouraged. Because the EPI data has limitations, the model only reflects the situation of 2010 in China. However, it can be updated based on more recent data, using the RAS method (Lee et al., 2011). Therefore, the EPI-IO model can be used as a tool to help government officials to grasp the current situation related to EPI in China. According to this model, it can accurately show that China's EPI was in a stage of development as an emerging industry in 2010, because the EPI output of China was 2.23 trillion RMB, accounting for 1.78% of the total national economic output. The EPI added value of 632 billion RMB, accounting for 1.57% of the total national economic value added. More importantly, the EPI can provide technological support for government policies. For example, the model was applied to quantitatively simulate the potential economic impacts of China's National Action Plan for Prevention and Control of Water Pollution (NAPPCWP). The results show the NAPPCWP will bring about an increase of 5.7 trillion CNY of GDP and 1.9 trillion CNY in EPI output (MEPC, 2015).

Acknowledgments The fund for Major Science and Technology Programs for Water Pollution Control and Treatment (2012ZX07601003) supported this work. The authors wish to thank the Chinese Academy for Environmental Planning (CAEP) and China Association of Environmental Protection Industry (CAEPI) for providing the data related to the environmental protection industry.

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