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This paper was written by Shirley Gourgaud when she was working in the Commonwealth Department of Primary Industries and Energy.

THE USE OF THE EMERGY THEORY OF VALUE IN ENVIRONMENTAL ACCOUNTING

ABSTRACT

There are no standard definitions for environmental accounting techniques. Strong emphasis exists on monetary units as a method of environmental evaluation and the consideration of economic versus non-economic natural assets. Measures of value of environmental inputs and outputs into production systems utilise such procedures as accounting by means of energy, money, mass and labour.

Until now there has been no common unit of measurement of the value of environmental resources which can easily be linked to the value measurement of inputs from the economic system. This linkage is central for effective policy analysis.

An outline of the Emergy Theory of Value is given to show how this theory is eminently suitable for the resolution of the problems inherent in the discussed commonly used techniques of environmental accounting.

Published literature on the concepts of ecological sustainability, alternate land use, and environmental accounting have highlighted the inconsistencies besetting ecological economists, ecologists and physicists when discussing concepts related to ‘work’, ‘heat’, and ‘energy’. Appendix One addresses the differences between these concepts which are central to the understanding of the Emergy Theory of Value and its ease of application to the quantification of environmental accounting relating to ecological sustainability and alternate land use.

Introduction

Environmental problems associated with production processes include ozone depletion, pollution, desertification and soil erosion, deforestation, global warming, growing water shortages, population growth, the problems of toxic and energy wastes, and environmental diseases caused by environmental problems. (Gao, 1995)

Current thinking on environmental management places too much emphasis on the government and environmental lobby groups’ responsibilities in the formulation of workable policies to combat these problems. While the government can play a regulatory role via the tax system in controlling environmental pollution and dealing with environmental problems, the most efficient and effective solution would be for the manufacturing and agricultural sectors to face the major practical challenges of the development of better production techniques, more efficient use of resources, reduction of waste, recycling of waste, and energy conservation.

Government policy and consumer group pressure on the manufacturing sector will go some way to the adoption of these challenges. For the effects of the manufacturing and agricultural sectors to be fully appreciated by the governments and lobby groups concerned there is a need for an effective system of accounting for environmental inputs into the productive process.

At present, there are no standard definitions of environmental accounting. In accordance with Agenda 21 approved at the June 1992 Earth Summit, various national statistical offices are beginning to implement forms of green accounting. (Odum et al, 1983) Whether such documents are meaningful and useful to policy makers and analysts is most likely to be integral with the adoption of an adequate and realistic method of valuation of natural capital. Central to the problem of consistency with green accounting is the different weightings given to natural capital issues by resource rich net exporters and net importers. It is the quantification of pollution issues that presents the major challenge for statisticians for net exporters whereas resource depletion is an additional concern of the net exporters.

Environmental accounting being undertaken by the Australian Bureau of Statistics (ABS) takes into consideration the policy focus towards an integrated approach to national accounts aimed at sustainable development and away from consideration of economic, social and environmental policy as separate issues. In 1992, the Council of Australian Governments endorsed the National Strategy for Ecologically Sustainable Development which was the result of a two year process of consultation involving stakeholders and the wider community.

While the ABS will develop a range of resource, materials and wastes/emissions accounts in physical units by such methods as the assessment of satellite accounts, there is still a strong emphasis on monetary units as a method of environmental evaluation and the consideration of economic versus non-economic natural assets.

In the interests of greening the national accounts, statisticians tend to be concerned with the role of different valuation techniques for natural capital. Although the measurement issue is very important to the establishment of environmental accounting, it should not prevent experimental environmental accounting techniques from being developed.

It is recognised by economists that the system of national accounts (SNAs) treats the value of environmental systems, resources, and their role in the economy inconsistently. (Atkinson, 1995) Gross Domestic Product increases both when the quality of the environment is reduced by pollution, eg the Valdez Oil Spill, as well as when expenditures are made on pollution control.

According to Norgaard (1989), the existing SNAs cannot be extended to include environmental quality factors as they are themselves based on illogical assumptions:

The SNAs evolved from two logically inconsistent theories, neoclassical microeconomics and Keynesian macroeconomics;

A common denominator or unit of measurement is needed for assessing environmental information and aggregating diverse information;

Even with adequate indicators, we do not currently have a model of how economies interact with environmental systems that could be used to guide us to sustainable interactions between the economy and the environment.

Measures of value of inputs and outputs into production systems have utilised such procedures as accounting by means of energy, money, mass, labour etc. There has been no common unit of measurement of environmental resources which can be easily linked to the economic system. We intend to show in this paper that the methodology of the Emergy Theory of Analysis is not only capable of overcoming this particular problem of measurement of natural capital but can be used as a stand alone ‘green’ environmental accounting technique.

EMERGY ANALYSIS – THE THEORY

The basic stumbling block for those trained in either the biological or physical sciences in the comprehension of the Emergy Theory of Value lies in the basic understanding of, and in particular the differences between the concepts of ‘work’, ‘heat’, and ‘energy’ as they are used in the thermodynamic context. An analysis of these concepts may be found in Appendix One. This analysis clarifies the distinctions between these concepts which have been the cause of some confusion in scientific circles especially where their accurate description is required for an understanding of energy analysis as it relates to environmental accounting.

Solar transformity and solar emergy (Odum 1988) are the basis for systems analysis methodology, being a measure for determining the best alternatives in resource use and environmental impact. Energy Systems Diagrams depicting real processes in the earth’s geobiosphere are called “Energy Systems” as all processes are defined by their energy content as well as the energy gained or lost in any transformations occurring from one state to another. The symbol language used to describe processes diagrammatically in this paper are given below in Figure One. (Odum 1994)

FIGURE ONE

Figure 1aEnergy Circuit: A pathway whose flow is proportional to the quantity in the storage or source upstream.

Figure 1bOutside source of energy delivering forces according to a program controlled from outside; a forcing function.

Figure 1cTank: A compartment of energy storage within the system storing a quantity as the balance of inflows and outflows: a state variable.

Figure 1dHeat Sink: Dispersion of potential energy into heat that accompanies all real transformation processes and storages; loss of potential energy from further use by the system.

Figure 1eInteraction Interactive intersection of two pathways coupled to produce an outflow in proportion to a function of both; control action of one flow on another; limiting factor action; work gate.

Figure 1fConsumer: Unit that transforms energy quality, stores it, and feeds it back catalytically to improve inflow.

Figure 1gProducer: Unit that collects and transforms low-quality energy under control interactions of high-quality flows.

Figure 1hBox: Miscellaneous symbol to use for whatever unit or function is labelled.

Figure 1iTransaction: A unit that indicates a sale of goods or services (solid line) in exchange for payment of money (dashed line). Price is shown as an external source.

Figure Two depicts the Sun – Earth system as a thermodynamic unit with the geobiosphere defined as a closed system ie one in which only energy can be transferred together with the sun-earth system as an isolated system ie one in which no energy or matter are interchanged with the surroundings.

The only independent source of energy into the earth’s geobiosphere is that of the solar insolation. Every useful energy transformation process which occurs in the geobiosphere is dependent on this fundamental energy source. As a logical consequence of the solar insolation being the fundamental building block of all other useful energy transformation processes, it is inherently logical to use this unit as the unit by which all other energy processes can be calculated.

FIGURE TWO

Figure 2

Emergy is a measure of the recordable available energy of every process which has gone into the generation of a given product of nature or service in the economy. Emergy is a measure of not only the measurable energy currently contained in the product or service but also the totality of the available energies that have been consumed or degraded in each energy transformation that has contributed to the development of that product or service in its current form. The unit of emergy is the emjoule. This consumed available energy is a property inherent in the smaller, higher quality energy which now characterises the product or service. Odum refers to emergy as “energy memory”. (Odum 1996)

The transformity (previous name transformation ratio) is the emergy of one type of energy required to make a unit of energy of another type through a useful energy transformation. The transformity of solar insolation is defined to be unity. Tidal actions through lunar gravitational processes and independent deep heat sources within the earth comprise the two other inputs into the total emergy flux of the geobiosphere. The solar insolation is the only independent source of energy into the earth’s geobiosphere. The reasons for defining the transformity of this fundamental energy input as unity have been discussed above where it is recognised that the solar insolation is the only outside energy source available to the geobiosphere. All other transformities can be compared to this unit value. The magnitude of the transformity is a measure of energy quality or concentration compared with that of the solar insolation.

Solar emergy has the units of solar emergy joules (sej). Solar transformity has the units of solar emergy joules per joule (sej/J) or the unit of solar emergy joule per gram (sej/gm). From this point forward the terms solar emergy and solar transformity will be referred to as emergy and transformity.

In any useful energy transformation, many joules of low transformity (low quality) energy are required to produce a lesser quantity of higher transformity (higher quality) energy. The energy generated by the work of transformation constitutes a higher level in the series of transformations. The output of any one energy transformation contributes and converges energy to produce an even smaller output at the next higher level in an energy transformation chain. (Figure Three, Odum 1996)

FIGURE THREE

Figure 3

Networks of energy transformations comprise an energy hierarchy. According to Odum, the universe is hierarchically organised and represents a manifestation of distinct energy levels such as are found in atomic and subatomic physics. The transformity of the energy of a given system or substance is a quantitative measure of its place in the energy hierarchy.

The First Law of Thermodynamics states that energy entering a system is neither created nor destroyed. Energy flowing into a system is either stored within the system or leaves the system through the appropriate pathways. Although energy is conserved within a system, useful energy transformations (work) necessitate that the energy as it participates in these transformations changes its transformity or essential quality. Energies of different qualities or transformities are not additive. A joule of electricity is of a higher transformity than that of a joule of coal as is exhibited in its transportability and its ability to do work. This distinction is a major breakthrough by emergy analysis from that of the traditional energy analysis, sometimes used in environmental accounting techniques, where energy of different types and qualities are deemed to be additive.

The logic behind Odum’s concept of embodied energy or emergy is based on the logic behind the Second Law of Thermodynamics which may also be known as the law of the dissipation or degradation of energy resulting in an increase in entropy. In Figures 2 and 4, the degraded energy, in the form of heat, is seen to be of inferior quality and unable to do work.

Examples of real wealth are the products of useful energy transformations, work, such as clothes, books, food, minerals, fuels, information, art, technology, electricity, biodiversity etc. Everything which is considered as real wealth is produced or maintained by work processes with inputs from the environment and economic goods and services as diagrammatically depicted in Figure 4.(Odum, 1996) The act of production is a work process or useful energy transformation.

FIGURE FOUR

Figure 4

It is not coal but the combustion of coal which causes a steam engine to operate. One system affects other systems as a consequence of the changes which are going on within it. A system far removed from its equilibrium condition is the one chosen if the object is to harness its processes for the performance of useful work. If the Second Law of thermodynamics is spoken of as the law of the dissipation of energy, no loss in energy is meant, but rather a loss in the availability of energy for the performance of useful energy transformations or work. It is preferable not to speak of the dissipation or degradation of energy but rather to speak of the degradation of the system as a whole. (Pitzer et al 1961)

Energy in one form is not equivalent in its ability to undergo useful energy transformations as energy in any other form. It was recognised by Tribus and McIrvine (1971) that energies of different types are not equal in their ability to do work. Thus electrical energy is seen to be of superior quality to that contained in a fossil fuel such as oil. The small amounts of energy resulting from the conversion to the new forms after an energy transformation carry the embodiment of larger amounts of lower-quality energy used in the energy transformation process. Tracing of embodied energies and emergies through webs enables flows and products to be quantitatively related to energy sources.

In order to overcome the problems inherent in such theories as the energy analysis of value sometimes used in environmental accounting, energies of any form must be able to be expressed in a common unit. Odum’s (1996) theory expresses all forms of energy contributions into a product in terms of units of the solar energy that would be required through each useful energy transformation to generate all of the inputs into that product.

Solar emergy, expressed as solar emjoules, is the available solar energy directly and indirectly required to made a service or product

Transformity is a dimensionless ratio. It is a direct and quantitative measure of energy quality or concentration ie its ability to perfrom work. A product’s transformity is the emergy divided by its energy (Tribus et al, 1971; Odum, 1976) (Figures 5 & 6, Odum 1996)

FIGURE FIVE

Figure 5

FIGURE SIX

Figure 6

The higher the number of useful energy transformations that contribute to a product or service, the higher is its transformity value as at each transformation, available energy is consumed in order to produce a smaller quantity of energy of another form with higher quality. With each useful energy transformation, the total emergy increases with consequent decrease in contained energy. As the emergy per unit energy increases with each successive useful energy transformation involved in the production process so does the associated transformity increase and with it the quality or concentration of the energy remaining.

By defining emergy in terms of the summation of all previously used energy inputs, the extensive data on the energy value of inputs can be applied via the transformities to obtain the emergy value.

When transformations are arranged with different emergy flow inputs, different combinations of speed and efficiency of the system result. The transformity that correlates with optimum efficiency and maximum power transfer has a theoretical lower limit that open systems may approach after a long period of self-organisation. Empower transformations with the optimum efficiencies occur in systems that have been in environmental and economic competition for a long time. (Odum, 1994)

Ecosystem studies lead to the energy transformation rules for the natural energy hierarchies developed by the various systems of self-organisation. The energy contained in solar insolation is successively transformed into higher energy qualities contained in the energies implicit in plant organic matter, herbivore, carnivore etc. (Figures 2 & 4)) At each stage in this latter process, energy is degraded as a necessary part of transforming a lower quality energy to a higher quality energy with less quantity of energy. The energy transformation hierarchy results from large flows of low-quality energy being converged and transformed into smaller and smaller volumes of higher and higher energy qualities. The energy hierarchy tells us that it is wrong to confuse energy with work. A joule of solar insolation is comparable to much less than a joule of carnivore when it comes to utilising useful energy in work, work being defined as a useful energy transformation.

An energy transformation is useful only if it converts energy to a higher quality or transformity . Work will not become part of a real world ecosystem unless it results in transformation to a product that can reinforce another flow ie act as feedback. Neither available (potential) energy or Gibbs free energy can be used to measure the ability to do work if we are comparing items of different transformities.

Newly formed systems may require more emergy for the same output as they are not operating at the maximum efficiency which correlates with maximum power. This maximum efficiency has been empirically observed to be in the order of 50% of capacity. In the case of newly formed systems, higher transformities may be observed than the thermodynamic minimum. Where there are several transformities measured for the same process, the one with the lowest value for its transformity can be taken as the transformity for the most efficient process.

Self-organising systems develop autocatalytic storages to maximise useful power transformations. As shown in Figure 7 (Odum 1996), energy systems contain energy storages, consumer units etc autocatalytically coupled to energy transformation processes. The energy feedback into the system is always of a higher quality and is used by the system to disperse energy faster, maximising the rate of entropy production by developing autocatalytic dissipative structures.

FIGURE SEVEN

Figure 7

Useful energy transformations in self-organising open systems involve concepts of self-development in energy terms. During the initial stages of self-organisation individual components of the system are being selectively reinforced as more energy becomes available to those systems designs that autocatalytically feed products of useful energy transformations back in to increased production. The higher quality but smaller quantity energy forms feed back as controls, reinforcing and amplifying the production process or useful energy transformation. Electricity is a very high-quality energy that is usually used for interacting with low-quality inputs to feedback and stimulate the production process.

The complexity of the system is proportional to the energy flow. At very low energy flows, there is no autocatalytic feedback but a simple linear pathway prevails.

Earlier analyses of self-organisation as a selection of designs for maximum power production by Podalinsky, Boltzmann, Ostwald, and Lotka (Odum, 1995) did not take into account the various levels of energy quality as expressed numerically by the transformity.

Indices Based on Energy

When a transformity or an emergy content is assigned to a product, every input into the product can be measured in emergy terms, ie on a common basis. A measure of the real annual wealth of a nation is based on total annual emergy use. Odum (1983) estimated that the total emergy used for Australia was 8 850 × 1020 seJ. Per capita, Australia had the highest emergy use at 59.0 × 1015 seJ. This high emergy use per person may suggest a very high level of technological and industrial development but it may also suggest a very high level of environmental input into the productive capacity of the nation.

Emergy availability to a nation and emergy use per person suggest a measure of the standard of living enjoyed by the population of that nation in a much more effective manner than that of fuel use per person or per capita income. This emergy-use index takes into account the different quality of input joules, by means of the transformities, and also includes renewable as well as non-renewable environmental resources, usually neglected in energy balances. In this context, standard of living refers to the availability of resources and goods and is a much more encompassing and effective measure of living standards than $GDP/capita.

Currency buys different amounts of real wealth in different nations even when the currencies are compared on an international exchange basis as different nations have different emergy availability indices. The amount of real wealth that circulating money buys is indicated by the emergy/money ratio. This ratio is the total emergy produced by the nation in one year divided by the GDP measured in international dollars in that year. Rural economies tend to have higher emergy/money ratios because more of the wealth goes directly from the environment to the human consumer without money being involved in the transaction. A low ratio indicates a large usage of inputs from the monied economy or a high level of technological input compared with the ‘free’ environmental inputs.

The emdollar refers to the total amount of money flow generated in the entire economy by a given amount of a particular emergy input. The emdollar is defined as the emergy input divided by the emergy/$GDP ratio. A high emdollar value for a particular amount of emergy input contributes more to the economy. It has been proposed that the emdollar value of a resource could be used as a shadow price of the resource itself.

In trade analysis, the emergy exchange ratio is the ratio of emergy received for emergy delivered in a trade or sales transaction. A particular trade of one commodity for another can be expressed in emergy units. The nation receiving the higher emergy acquires a greater real value and as a consequence has its economy stimulated more than its trading partner. Unprocessed products tend to have high emergy exchange ratios for the importing nation when sold at market prices. Most technologically advanced nations exhibit a high emergy exchange ratio as they are not emergy self-sufficient. A high emergy exchange ratio contributes to the vitality of the economy of the importing nation which will utilise the unprocessed resources in its manufacturing sector making it capable of successfully competing with other nations in the overall balance of trade.

The net emergy yield ratio is the emergy of an output divided by the emergy of those inputs to the process that are fed back from the economy.

“This ratio indicates whether a process is a primary energy source for the economy. Recently, the ratio for typical competitive sources of fuels has been about 6 to 1. Processes yielding less than this cannot be considered primary emergy sources. If the ratio is lower than unity, the process is not a positive source of net emergy; if the ratio is less than alternatives, less return will be obtained per unit of emergy invested in comparison with alternatives Less competitive emergy sources (ie having a lower net emergy yield ratio) may have a lower cost, due to local conditions: costs are affected by international markets and value of currencies, which may not reflect the physical reality of a misuse of the emergy invested in comparison with actually available alternatives. Sources less competitive may become competitive when the others approach scarcity or are used up.” (Odum, 1995)

Odum has defined an emergy investment ratio in order to account for the contributions to the productive process from the environmental inputs. The emergy investment ratio (Figure 8, Odum 1996) is the purchased emergy feedback (F) from the economy (services and other resources) divided by the free emergy inflow from the environment (I). This ratio gives an indication of whether a process is as economical a utiliser of an economy’s investments when compared with alternatives and evaluates the emergy input from the economy required to develop a unit of environmental input. Prices may be low because of the high proportion of useful work which is provided free (uncosted!) from the environment. Ulgiati et al (1994) state that if the ratio is low then the tendency will be to increase the purchased inputs so as to process more output and more money. They claim that the tendency is towards optimum resource use. We put forward the view here that rather than optimum resource use there may well be over-utilisation of an environmental input merely on the grounds that it is economically ‘free’ or uncosted. The arguments of Ulgiati et al may not be based on sustainable development of the particular environmental input being studied.

FIGURE EIGHT

Figure 8

Emergy Investment Ratio =

Emergy of Purchased Feedbacks         
Emergy of Free Environmental Inputs

= F/I

{This ratio is useful for the investigation of the sustainability of processes in the economy.}

Emergy Yield Ratio =

Emergy of Yield or Output           
Emergy of Purchased Feedbacks

= Y/F

{This ratio is useful for the investigation of the economic viability of processes in the economy and is particularly relevant to the investigation of best alternate land use probelms}

It is apposite to note here that there are two values of emergy associated with any purchased input to an economic process. Firstly, emergy is inherent in the resource or commodity and secondly, emergy is associated with its delivery from the economic system to the process. Emergy is contained in the services used to transport, process, and facilitate its economic exchange. The total emergy contained in an input into the productive process is the sum of these two emergy components. The emergy inherent in the input is able to be derived from a quantitative evaluation of the resources and energy flows that the supported all of the productive processes that resulted in the input. The second emergy component is estimated by multiplying its market dollar price with the emergy/dollar ratio.

The environmental loading ratio is the ratio of purchased and non-renewable indigenous emergy to free environmental emergy. A very high value for this ratio may be indicative that the pressure of economic activities to local environmental resources is excessive and resulting in environmental stress.

The empower density is defined as the emergy flow per unit time and unit area and is a measure of spatial concentration of emergy flow within a process or system. A high empower density can be found when emergy use is large compared with available land area. The empower density is expected to be high for highly industrialised areas and for areas of intensive crop production.

ENVIRONMENTAL ACCOUNTING

SUMMARY OF TECHNIQUES USED IN ENVIRONMENTAL ACCOUNTING

Economic Value in Environmental Accounting

Traditional economic value is described by its market value or “what people are willing to pay”. This is a value defined by human consumers as a means of maximising their economic utility. The price level which is essential to this concept of value is dependent on the particular nation in which the price level is measured, inflationary levels, and perceived scarcity of the unit being valued.

Market prices as a sole measure of value are not helpful in estimating the contribution to the economy from the environmental inputs. It can be shown that when environmental inputs into a productive process are large, they may be given a low market value for the very reason that they are abundant and easily exploited in terms of labour and other costed factors of production involved in their harvesting. Prices for environmental inputs into the productive process may be least when their contribution is greatest. This is an example of a low emergy investment ratio the implications of which are described above.

Life Cycle Analysis in Environmental Accounting

Life cycle analysis (LCA) is an assessment of all the environmental impacts of a product (or service) from ‘cradle to grave’ ie from initial extraction and processing of raw materials to final disposal. (Ayres et al, 1995) The exact definition is still the source of controversy. The Society for Environmental Toxicology and Chemistry (SETAC, Europe) divide LCA into four components:

  1. Scoping
  2. The compilation of quantitative data on both direct and indirect materials /energy inputs and waste emissions, both in production and disposal of a product or sevice (the Inventory);
  3. Impact assessment (‘eco-profile analysis’) which includes classification of effects, characterisation and valuation;
  4. Improvement assessment which is the analysis of implication for purposes of prioritisation and assessment of policy alternatives.

Net energy analysis was a precursor of LCA in the 1970s. Robert Ayres asserts that net energy analysis is inadequate in that it does not address the issue of waste emissions explicitly when considering problems of energy resource availability and energy efficiency. Ayres quotes some examples of studies undertaken by means of LCA but states that LCA was unable to provide answers of a quantitative nature to the questions of alternate resource use because of the difficulties arising from the comparison of eco-profiles with completely different characteristics. It is further claimed that LCA can only elucidate the trade-offs in alternate resource use and that it can only rarely point directly at a ‘best-case’ scenario.

Another problem with the LCA method is its inability to deal in units of one denominator. LCA manuals published by SETAC specify that energy data should be specified in energy units and that other purchased inputs and outputs should be measured in mass units. This recommendation results in aggregated units such as fuels and feedstock being measured in energy units while emissions to air and water are measured in mass units.

Ayres recognises that, in practice, process data used in LCAs actually violate the first law of thermodynamics in that the sum total of mass inputs to the process is typically greater than the sum total of outputs from the process. Outputs such as wastes are a neglected output of the analysis. For continuous processes, the mass balance condition must hold for any arbitrary time period. In order to overcome the data-related problems, Ayres suggests that LCA ‘codes of practice’ should insist on the use of common mass units and mass balances for all inputs and outputs displayed in the inventory phase of the analysis and that material inputs and waste emissions should be characterised in terms of elemental composition and chemical composition wherever feasible.

The Energy Theory of Environmental Accounting

The study of the means by which energy supports the functions involved in systems is sometimes called Energy Analysis. Amir (1987) proposes that energy analysis has outgrown its original goal of examining detailed energy pathways in ecosystems and is purported to be applicable also to economic and to global systems although admitting that an integration of the economy and the ecosystem has not yet been achieved. It is purported that Energy Analysis is able to rectify resource misallocations by characterising an integrated system for which energy prices are defined.

To derive these prices, an embodied energy or net energy approach is followed with the end result that energy prices are equivalent to the energy content (per unit) of natural and manufactured commodities. Amir goes on to say:

  1. “Energy is accounting money; whether it is real or abstract is metaphysics”;
  2. “In most cases, the embodied energy theory cannot work. Even a closed system is subject to two constraints, one for light and one for heat. Only if one is not effective either a (solar) energy theory of value or a (heat) theory of value is applicable.”

An analysis of environmental accounting based on an embodied energy (emergy) theory of value will be discussed later in this paper. The authors do not agree with Amir’s definition of energy pricing.

Energy is a measure of the ability to do work when energy flows of the same type and quality are being compared. Heat equivalents are not measures of their value, cost, or ability to do work of different types. Heat equivalents are a measure of the heat involved when energy is converted completely into heat. A joule of electricity is not an additive quantity, in terms of joules, to a joule contained in coal even considering that their heat equivalents are identical. It is recognised that it requires four joules of coal energy to perform the work of one joule of electricity. This multiplicative relationship is entirely dependent on the relative transformities, ie 4, of the two types of energy in question.

An energy analysis considers the energy inherent in all the inputs to production of a commodity or service. Production in ecosystems and in economic systems is usually proportional to the product of two or more necessary inputs. The same production level on the production possibility boundary can be obtained with more of one input and less of another. This is called the substitution effect. There is, however, a point on the production possibility boundary at which the optimum utilisation of resources is attained. Any substitution of one input for another away from this point leads to a less efficient production process with respect to efficient resource use.

Peet and Baines (1986) define energy analysis as:

“the systematic study of the inputs and outputs of any process, and
the numerical assignment of energy values to each input”

In considering the sustainability of different inputs into building construction, Tucker and Treloar (1994) found that the energy theory of analysis was inadequate and used an embodied energy analysis.

The Emergy Theory of Value refutes the assumption that inputs to production are substitutable in an energy analysis of environmental accounting by means of comparison of their energy contents and asserts that to truly substitute one input for another in the production process then inputs with appropriate transformity and emergy contributions are required for such a substitution. What this assumption implies is that it is nonsense to substitute an input such as labour for capital on a purely monetary costing basis. A market economy would evaluate the cost efficiency of a fishing enterprise by substituting the labour of fishermen for fish as the fish become more scarce, as prices rise, and as productivity falls. Without an adequate level of fish stock, the ecosystem cannot reproduce fish and the ecosystem collapses. (Peet et al, 1986)

In many approaches to energy analysis, available energy has been used as the measure of contribution to the productive process. While this approach does recognise that some component of energy contained in an input is unavailable for work but will be dissipated as heat in the production process, it fails to recognise that available energies, sometimes known as exergies, have different qualities or transformities and cannot be directly compared. This concept was overlooked by the International Federation of Institutes for Advanced Study when a workshop was held to “standardise energy analysis”. (IFIAS, 1974) The report of the workshop defined “Gibbs free energy” (chemical potential energy) as the most appropriate measure of energy to be employed in energy analysis.

The Emergy Theory of Analysis explains how 1 gram of glucose has more free energy than 1 gram of dynamite but the emergy of dynamite is much larger because it has a higher transformity. More emergy in the form of cumulative useful energy transformations is inherent in 1 gram of dynamite than in 1 gram of glucose. (Odum 1996e)

The Emergy Theory of Environmental Accounting

General

The real wealth inherent in environmental goods and services is the result of useful energy transformations in the geobiosphere. Emergy accounting begins with an evaluation of earth energy processes. Data on energy in sun, tide, and deep heat from the earth contributing to global processes are used to estimate the average emergy flows in any system of wind, water, and earth. This calculated emergy flow is used as a baseline reference from which transformities of principal flows of the earth are calculated. Using the estimated transformities, the emergy content in energy flows to local areas can be estimated (energy flows of sun, wind, rain, and geologic cycles.) The three main energy sources contributing to the global operation of the geobiosphere are solar insolation, tidal energy, and deep heat from inside the earth. An estimate of the solar transformity of each of these has been obtained. (Odum, 1996a) The solar transformity of solar insolation is unity by definition as a baseline from which to calculate all transformities of the earth as a requirement of emergy accounting. Odum has estimated that the main renewable energy flows of the earth have an emergy flow of 9.44 × 1024 solar emjoules/year (sej/yr). Figure 9 (Odum 1996) shows schematically the interactions of the main features of the geobiosphere.

FIGURE NINE

Figure 9

Calculation of emergy flows into mining, agriculture, forestry, and fisheries gives an estimation of the real wealth brought into the economy by inputs of production which were previously given only a monetary, mass, or subjective value. The calculation of the emergy flows of such economic inputs into environmental processes as fuels, goods, and services allows the computation of the indices (described above) which relate emergy flow and the circulation of money. Such indices show the contrast between emergy value and market value.

Figure 10 (Odum 1996)shows schematically the world production system aggregated into three sub-systems: the environmental sector or natural resource base; the environmental-economic interface sector; and the economic or commercial sector. The circuit diagrammatic language exhibits currency circulating in closed loops and may be considered to be conserved in the short-term. Currency circulates between economic units and their economic activities and is a type of information that flows as a countercurrent in exchange for real goods and services. An understanding of the economy requires that both currency circulation and the pathways of real wealth be exhibited together in a systems web but separated by a dashed line as shown in Figure 9.

FIGURE TEN

Figure 10

In a systems web, energy flows are large on the left hand side of the diagram, decreasing with successive transformations to the right. Environmental sectors depicted on the left may have no dollar flows if economic agents are not involved. Most currency is paid to economic agents on the right where such agents are active as the intermediaries in the exchange of goods and services. The emergy/dollar ratio has large values on the left where environmental resources are uncosted in the monetary sense and small values on the right where the units of production are so costed. The distribution of the emergy/dollar ratio shows why energy has been important in environmental analysis and currency in economic analysis. Neither of these measures is a correct measurement of work until their emergy contents are determined. (See the definition of emergy under the heading Emergy Analysis – The Theory.) A nation’s net wealth arises directly and indirectly from environmental resources measured by emergy (not energy). Food, clothing, housing etc and other real wealth are measured by emergy content. The purchasing power of money is measured by the emergy/dollar ratio. Although the price of any particular product or service depends on its cost, local scarcity, and the willingness of economic units to pay, the buying power of money depends on how much real wealth there is available for economic units to purchase.

Money is paid only to economic units for their contribution to the productive process and not to the environmental resources. Market values cannot be used to evaluate the real wealth from the environment. When resources from the environment are plentiful, little input is required from the economy for their extraction or use. As a result, economic costs are small and prices are least when the net contribution to the economy from environmental resources is greatest.

Emergy Evaluation Techniques – Emergy Algebra

Figures 11(a) and 11(b) (Odum 1996) indicate the energy, emergy, transformity relationships for the splitting of the flow via a pathway and a storage respectively. In by-duct branching, Figure 11(c) (Odum 1996), the flow in each resulting branch is of a different energy quality or transformity. By-product flow results from energy transformations. All by-product branches derived from an energy transformation carry the same emergy as the emergy on each pathway records the total input to the process. If these two pathways come together again in some other area of the system, they are not to be added as this would result in double counting

FIGURE ELEVEN

Figure 11

In Figure 12 (Odum 1996), interactions of flows of the same kind and different kinds are depicted. In Figure 12(c), there is an intersection of flows of different kinds, ie with different transformities. In this type of intersection, interactions occur in which both inputs are required for energy transformations resulting in one more output products. Most energy transformations involve the interaction of two or more inputs of different transformity.

FIGURE TWELVE

Figure 12

Emergy accounting requires knowledge of the sources of inputs. Emergy is a property of previous energy transformations and it is required that an analysis of the sources of inputs be analysed regarding their origins. If they are co-products of a single energy transformation in a larger system than the one under analysis their emergy cannot be summed as this would result in double-counting.

Emergy analysis can be related to material cycles by obtaining the appropriate emergy per unit mass ratios. Materials that are highly concentrated by successive energy transformations may develop high emergy/material ratios. When materials are dispersed, the associated energy availability is lost and with it the emergy.

The usual steps in creating systems diagram are illustrated in Figure 13 (Odum 1996) and are as follow

FIGURE THIRTEEN

Figure 13a

Figure 13 (a) Complex drawing of Monterey Pine Plantation in New Zealand

Figure 13b

Figure 13(b) Energy system diagram with some details of Monterey Pine Plantation in New Zealand.

Figure 13c

Figure 13 (c) Aggregated summary of energy systems diagram of Monterey Pine Plantation in New Zealand.

  1. The boundary of the systems overview is defined separating the internal components and processes from the outside influences.
  2. The important sources are listed. The sources are external causes, external factors, and forcing functions.
  3. The principal components within the boundary are listed together with units believed to be important considering the scale of the system defined.
  4. The processes (flows, relationships, interactions, production, and consumption processes) are listed. Flows and transactions of money believed to be important are included.
  5. The systems diagram is drawn starting with the external sources arranged around the boundary marking frame. The appropriate symbols for the various components are drawn. Sources and components are arranged in order of transformity from left to right. The appropriate pathways are inserted between the symbols.

The initial detailed diagram in Figure 13(a) can be simplified by aggregation to Figure 13(b). Aggregation retains all resources and components, but combines them to make fewer pathways and symbols.

When emergy analysis is used for environmental accounting, aggregation is made so that the flows remaining are those to be evaluated in an emergy analysis table. All outside sources and large inside storages that serve as nonrenewable sources must be included. Odum suggests the following as the pathways which are usually to be evaluated for environmental systems.

  1. Pathways contributing resources from outside crossing into the system. These include environmental inputs, fuels, minerals, money, goods, and services.
  2. Storages within the system that are large enough to act as non-renewable sources for sustained short-time use. These are the storages with longer time constants than the time of study.
  3. Pathways subject to change in alternatives under consideration.
  4. Pathways of special interest because of the issues under consideration. Pathways that are evaluated may include main flows and smaller component flows if they are of interest.

Sun, wind, rain, waves, and land cycle are the main geobiospheric processes of the earth contributing inputs of solar emergy to each area of the earth. The transformities of these co-product processes are calculated from the baseline. Adding the calculated solar emergy flows separately would result in double-counting of the original sources contribution to an area. In order to avoid double-counting, only the largest of the geobiospheric inputs is counted as the contribution of solar emergy from the earth system. The emergy of the appropriate input is calculated by multiplying the energy of the input by the relevant transformity.

Inputs purchased from outside the system and brought into the productive process have two components to be evaluated. One is the emergy contained in the available (potential) energy of the component. The second is the emergy contained in the human services which was involved in the production and delivery of the component. When human services are measured in dollar costs, they can be converted to emergy units by application of the emergy/money ratio appropriate for the particular economy at the relevant point in time. Purchased inputs are entirely separate sources of emergy and must be evaluated separately. If, however, the transformity associated with the input is inclusive of all the services that went into its delivery, then double-counting would result if services were evaluated separately.

The emergy/money ratio used to evaluate emergy should coincide with the year in which the data was collected. If the money is from a foreign source, then it is appropriate to use international US dollars for these calculations or an emergy/money ratio for the country from which the input was inported. If there is no available emergy/money ratio for the exporting country, an emergy/money ratio from a country with a similar degree of economic development is acceptable.

In order to calculate the relevant indices useful for the system under consideration, the emergy flows are further aggregated into a three-arm diagram, viz, environmental inputs, purchased inputs, and output products as shown in Figure 8.

Methods of calculating some of these indices is outlined below.

  1. The transformity of products are estimated by dividing the total emergy inputs required by the energy of the yield.
  2. The emergy yield ratio of products are estimated by dividing the yield output emergy flow by the sum of the feedback emergy from the economy.
  3. The exchange ratio is calculated by dividing the emergy flow of the yield product by the emergy of the money paid by the purchaser.

The emergy yield of a system to the main economy is best understood in monetary units. This is achieved by use of the emergy/money ratio. The translation of the emergy of the products of a number of systems into monetary values is useful for the exercise of judging the most efficient use of the money in alternative projects. When using this concept, it must be remembered that whereas the emergy yield ratio gives the yield per unit of all feedbacks from the economy including human services, the emergy yield per money spent relates the yield to the paid human services only.

Summary of Environmental Accounting Techniques

Of the many measures of value used in environmental accounting, viz economic value, the value of labour, available energy, material flow, emergy is the only measure which is of a donor-type ie has a common metric to all inputs and outputs involved in any natural or economic system. Any measure of real wealth requires a method of accounting which utilises a donor-determined value. Emergy is a measure of the totality of what was required to generate a good or service.

The techniques closest in essence to that of the Emergy Theory of Value are the available energy, exergy, approaches and the various embodied energy analyses. These approaches have failed to relate one form of energy to another with respect to the quality of that energy via the transformity. They have not used a common unit of measure.

The Emergy Theory of Value is eminently well-suited to environmental accounting techniques as any of the inputs into the productive process can be manipulated by means of transformity ratios or emergy/money ratios to give data in terms of common units of measure in all of the sectors required for an appropriate environmental accounting method.

APPENDIX ONE

Energy, Work, and Heat.

According to the First Law of Thermodynamics, any system in a given condition or state contains a definite quantity of energy. When this system undergoes change, any gain or loss in its internal energy is equal to the loss or gain in the energy of surrounding systems. If no matter is transferred in any physical or chemical process, the increase in energy of a given system is therefore equal to ‘q’ the heat absorbed from the surroundings, plus ‘w’, the work absorbed from the surroundings. If EA represents the initial energy content of the system and EB the final energy content, then

EB - EA = ΔE = q + w

Eqn. (1)

In a particular process such as:

CO + 1/2O2  = CO2

ΔE = -1616.6 kJ

Eqn. (2)

where

EB = E(CO2)

EA = E(CO) + E(1/2O2)

We cannot measure the absolute value of either of these energy terms alone but we can and do measure their difference. For practical purposes, it is regarded as unfeasible and unnecessary to measure the total energy that any system possesses although the theory of relativity tells us that the total energy of any system is measured by its mass. (Pitzer et al, 1961)

Application of the First Law to a system or process is merely an accounting exercise. All the increases in the energy of the system due to all the non-thermal energy interactions are summed and this sum is the measure of the total work (available energies utilised in energy transformations) done on the system. The total energy increase due to thermal interactions is summed and this sum is the total heat absorbed by the system.

The Second Law of Thermodynamics is behind the separate summing of work and heat. We reiterate that it is unfeasible to assign absolute values to energies. For our purposes, it is the change in energy that takes place as a result of a change in the state of the system that is the crucial element underlying the theory of The Emergy Theory of Value.

A more general definition of work than mechanical work is required for most processes where many kinds of energy are interacting. Most energy transformations that make up the network of the biosphere and human economy involve four or more kinds of energy. Work is defined here as a useful energy transformation. Using available energy to define work is correct as long as only one kind of energy is being compared. Judging work of two kinds of available energy by their energy contents, when those contents are in different levels of energy hierarchy is not correct.

The need for a separate accounting system for thermal and non-thermal energies is essential for the Second Law of Thermodynamics. (See Figures 2 & 4) The values of ‘q’ and ‘w’ depend upon the way in which the process is carried out and in general neither is uniquely determined by the initial and final states of the system. The sum is determined by the initial and final states. The recognition of the distinctness of thermal energy and the lack of complete interconvertibility between thermal and non-thermal energies requires that thermal energies be considered separately from other forms of energy.

The definitions of the energy related functions such as work and power are often confused between the physical and biological sciences due to the often narrowness of their definitions. In this paper, we define work as a useful energy transformation. This allows for the transformation of energy from one form into another and consequently from some measure of quality to that of a higher measure ie energies with different transformities. While in some instances the term power may be restricted to the rate of flow of energy in useful work transformations, we use this term as being simply a reference to any energy flow rate.

Work is any interaction of energies which is not heat. Work is not energy. Work is not an intrinsic property of a system whereas energy is such a property. Work is something which happens to a system and is what is called an interaction. A system has energy but it performs work and in performing this work some of the potential energy is made unavailable for doing work as it is lost through degradation or dissipation in the form of heat. (See Figures 2 & 4) Work is any interaction between a system and its surroundings that has or could have as sole effect in either the system or the surroundings the raising of a weight. Although this definition gives a ‘mechanical’ slant to work it is appropriate for our purposes.

The confusion between the relationships of work, heat, and energy may sometimes arise from the fact that they are measured in the same units ie Joules, Calories, BTUs etc. This problem originated with the foundation work done in thermodynamics by the eminent scientists such as Clausius, Gibbs, Rumford, Boltzmann, Tribus, McIrvine etc. Although it is true that a joule of energy can be totally converted into heat by means of such a device as a bomb calorimeter, their respective definitions and functions are entirely different.

The Second Law of Thermodynamics is also known as the law of the dissipation or degradation of energy or the law of the increase in entropy. From Equation (1) ‘q’ can be seen as representing that part of the input energy which is degraded into heat while ‘w’ is that part of the input energy which is available to do work as the system irreversibly approaches a state of equilibrium.

The Second Law may be stated as:

“Any spontaneous process in any isolated system always results in an increase in the entropy of that system” (Pitzer et al, 1961)

Entropy may be defined as a measure of the extent to which energy is degraded, dissipated, or diluted so that it becomes less able to do work. The energy contained in a system may be constant, but its utility diminishes with every increase in the entropy of the system. (Entropy is to energy what inflation is to currency ie it makes it ever less valuable.) If any spontaneous process always results in an entropy increase, then the entropy of an isolated system can never decrease. It is always possible to decrease the entropy of a system by a suitable heat interaction, but it is not possible to do so by means of a work interaction.

Mathematically, entropy was defined by Rudolf Clausius as the exact differential of the heat absorbed by a system and the temperature of the system as a whole.

δq/T = dS

Eqn. (3)

where

δq is the loss of the systems ability to do work in the form of dissipated heat;

T is the uniform temperature of the system; and

dS is the exact differential of entropy.

Temperature and entropy are measurable properties of the system.

Energy storages and flows are essential components of all systems. Energy flows; it is stored; and it is transformed into other forms of energy in work processes. Definitions and concepts of energy provide a common basis for the interpretation and understanding of the resource base of structure and process. Energy has many different forms (kinetic energy, gravitational potential energy, electrical energy, chemical potential, etc) and many different qualities but all forms of energy can be quantitatively compared after the energy has been converted totally into heat energy in, for example, a bomb calorimeter. We call the energy diagram that has inflows and outflows of energy written on pathways a first law diagram ie a diagram based on the first law of thermodynamics.

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