Eco-efficiency Indicators: Do They Suffice for Analyzing Economic-environmental Trade-offs?
Published: 23 October 2012
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The paper starts with a review of eco-efficiency definitions, measuring methods and indicators, and discusses their suitability for analyzing trade-offs between the economic and environmental components they are built of. Among the methods for measuring eco-efficiency, the production analysis techniques seem most promising for trade-off analysis, because they link production information with both the economic and the environmental outcomes. In particular one branch, i.e. the materials balance based (MBB) approaches, exploits the analytical power of treating the co-generation of economic added value and environmental burden as interlinked outcomes. In order to comply with thermodynamic laws, the materials balance condition is incorporated in the production function formulation. The paper shows how both the profit function and various emission functions can simultaneously be derived from the same physical production function. The consistency of environmental information with the physical production process and economic outcome allows for clarifying the conditions for pursuing economic-environmental win-wins and undergoing trade-offs. Win-wins are obtained when overall technical efficiency improves. Input substitutions lead to changes in allocative efficiency, which cause shifts from trade-offs to win-wins and vice versa. Starting from simple trade-off/win-win relationships, the operational difficulties to distinguish between trade-offs and win-wins are demonstrated when multiple environmental outcomes (and by extension also social outcomes) come into play. Traditional radial efficiency measures make differences between win-wins and trade-offs clear, but lack diagnostic power when the number of inputs and environmental outcomes increase. Trade-off analysis with alternative representations of the production function, such as the directional distance function, is suggested. Based on illustrations with a synthetic data set (that can also be made available on the Forum), the proposed MBB eco-efficiency measures are compared with current indicators and discussed in terms of their ability to bring a more differentiated trade-off analysis. The illustrative case treats the win-wins and trade-offs between profit , nutrient, energy and water efficiency in pig production. Operational models will be made available for verification and validation by Forum participants.