Policy Analysis Environmental Implications of Service Industries JEFFREY ROSENBLUM,† ARPAD HORVATH,‡ AND C H R I S H E N D R I C K S O N * ,† Department of Civil and Environmental Engineering, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, Pennsylvania 15213-3890, and Department of Civil and Environmental Engineering, University of California at Berkeley, Berkeley, California 94720
The service sector in the U.S. economy accounts for twice the monetary output of manufacturing and is typically perceived as less damaging to the environment than manufacturing sectors. We use an Economic InputOutput Life-Cycle Assessment model (EIO-LCA) to assess both the direct and indirect (supply chain) effects of services on the economy and the environment. As expected, environmental emissions and wastes generated directly by service providers are small per dollar of output, and energy use per dollar output is lower for services than for most manufacturing industries. However, with such a large share of the Gross Domestic Product (GDP), the impacts of services have become a significant component of overall U.S. emissions, wastes, and energy consumption. For several environmental metrics (e.g., hazardous waste generation), service industries have significant indirect environmental effects on an economy-wide basis even when their direct emissions are negligible. When an average annual “market basket” of goods and services is purchased by an average consumer in the U.S., the amount spent on manufactured goods is about 25% greater than that spent on services, but the environmental effects associated with manufacturing are about two to three times that of services. To investigate services in more detail, four representative service industries were analyzed: trucking and courier services, retail trade, colleges and universities, and hotels. Some results are expected, such as the high direct consumption of electricity, the low direct emission of toxic chemicals, and the low direct generation of hazardous wastes. We demonstrate that the supply chain environmental effects associated with these four services are more significant and merit further consideration. A better understanding of these impacts will encourage service providers to consider more carefully the environmental implications of their supply chain.
Introduction As economies of industrialized nations are increasingly becoming service-oriented, more attention to the environ* Corresponding author phone: (412)268-2941; fax: (412)268-7813; e-mail:
[email protected]. † Carnegie Mellon University. ‡ University of California at Berkeley. 10.1021/es9914083 CCC: $19.00 Published on Web 09/28/2000
2000 American Chemical Society
mental impacts of providing such services is warranted. In the United States, roughly 60% of the 1996 GDP is associated with the service sector (which excludes manufacturing, mining, agriculture, forestry and fishing, government services, electric, gas, and sanitary services, and transportation) (1). With transportation, government, electric, gas, and sanitary services added, this fraction jumps to 80%. Traditional manufacturing companies are developing a substantial presence in the service sector, such as the financing, information technology, and real estate subsidiaries of automobile companies, and new service domains are emerging, such as e-commerce. Environmental engineering and policy has tended to focus upon processes with a high concentration of pollution as measured by emissions to different media or quantity of emissions per unit of production. Service industries have tended to be ignored in the formulation of environmental policy because of their relatively low emissions at their point of generation (2). In addition, services often lack a well-defined unit of production, so it is difficult to assess their relative performance over time or between companies. The service sector can influence environmental performance in some important ways: 1. Influencing suppliers to provide more environmentally conscious products and services. 2. Reducing resource inputs in their operations such as through energy efficiency programs and cutting business travel. 3. Educating consumers about the relative merits of different products that are offered (particularly in the retail sales sectors). 4. Reducing resource use on the part of consumers by substituting more environmentally beneficial services or activities (e.g., substituting teleconferencing services for business travel). Measurement and assessment of these various activities can be difficult, especially in item 4. For example, telecommuting services might reduce travel but might lead to increased sprawl as telecommuters opt for ex-urban residences. Measuring the benefits of telecommuting is further complicated by rebound effects if reduced work-related commuting time is used for increased pleasure travel (such as more trips for shopping or vacations). In this paper, we focus upon item 1 and 2 effects and attempt to trace both the direct and the indirect supply chain environmental effects for several important service industries. In particular, we shall examine the four services described in Table 1. We selected these as representatives of major service categories: transportation, trade, education, and tourism. Approach: Economic Input-Output Analysis Life-Cycle Assessment (EIO-LCA). Life-cycle assessment (LCA) is an appropriate method for systematic assessment and analysis of the environmental implications of services generation. Because of its comprehensiveness and public availability of data, we employed an economic input-output analysisbased LCA approach in this paper (3). Leontief developed a linearized general equilibrium model to examine the economy-wide implications of a change in the output of economic industries (4). Leontief and others have suggested the incorporation of resource consumption and environmental discharges into the I-O framework (57) but lacked comprehensive data. Carnegie Mellon University researchers have developed the Economic InputVOL. 34, NO. 22, 2000 / ENVIRONMENTAL SCIENCE & TECHNOLOGY
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TABLE 1. Service Sectors Selected for Detailed Analysis
a
sector
1992 sector output ($ million)
standard industrial classification (SIC) codesa
trucking and courier services (nonair) retail trade, except eating and drinking colleges, universities, and professional schools hotels
157,105 522,519 43,704 52,407
421, 423 52-57 [excl. *546], 59 822 701
Descriptions available at http://www.osha.gov/oshstats/sicser.html.
TABLE 2. Service Sectors in the 1992 Input-Output Tables railroads and related services; local and suburban transit and interurban highway passenger transportation; trucking and courier services, except air; warehousing and storage; water transportation; air transportation; pipelines, except natural gas; freight forwarders and other transportation services; arrangement of passenger transportation; telephone, telegraph communications, and communications services, neca; cable and other pay television services; radio and tv broadcasting; sanitary services, steam supply, and irrigation systems; wholesale trade; retail trade, except eating and drinking; banking; credit agencies other than banks; security and commodity brokers; insurance carriers; insurance agents, brokers, and services; real estate agents, managers, operators, and lessors; owner-occupied dwellings; royalties; hotels; other lodging places; laundry, cleaning, garment services, and shoe repair; a
funeral service and crematories; portrait photographic studios, and other miscellaneous personal services; electrical repair shops; watch, clock, jewelry, and furniture repair; beauty and barber shops; miscellaneous repair shops; services to dwellings and other buildings; personnel supply services; computer and data processing services; detective and protective services; miscellaneous equipment rental and leasing; photofinishing labs and commercial photography; other business services; management and public relations services; research, development, and testing services, except noncommercial; advertising; legal services; engineering, architectural, and surveying services; accounting, auditing and bookkeeping, and miscellaneous services, neca; eating and drinking places; automotive rental and leasing, without drivers; automotive repair shops and services; automobile parking and car washes;
motion picture services and theaters; videotape rental; theatrical producers (except motion picture), bands, orchestras and entertainers; bowling centers; professional sports clubs and promoters; racing, including track operation; physical fitness facilities and membership sports and recreation clubs; other amusement and recreation services; doctors and dentists; hospitals; nursing and personal care facilities; other medical and health services; veterinary services; other medical and health services; elementary and secondary schools; colleges, universities, and professional schools; private libraries, vocational schools, and educational services, neca; business associations and professional membership organizations; labor organizations, civic, social, and fraternal associations; religious organizations; other membership organizations; job training and related services; child day care services; residential care; social services, neca
nec ) not elsewhere classified.
Output Life Cycle Assessment (EIO-LCA) method using U.S. data (8, 9). The model utilizes the 1992 U.S. Department ofCommerce I-O technical coefficient matrix (10, 11) in which the economy is disaggregated into 485 commodity industries, representing one or more of the four-digit Standard Industrial Classification (SIC) codes. Services are comprehensively covered in the 1992 coefficient matrix. (The 1997 tables are expected in 2001.) EIO-LCA extends the I-O matrix by augmenting it with vectors of environmental discharge and resource use coefficients by each sector. The industry coefficient is the unit resource use, emission, or waste per dollar of industry output. The resource use data include electricity, fuel use, ore (e.g., iron and copper), and fertilizer consumption. Total energy consumption includes electricity and fuels (bituminous and anthracite coal, natural gas, liquefied natural gas, liquefied petroleum gas, motor gasoline, kerosene, aviation fuel, jet fuel, light fuel oil, heavy fuel oil). Environmental discharge data include some 650 toxic chemical emissions from the 4670
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U.S. Environmental Protection Agency’s (EPA) Toxics Release Inventory (TRI) to air, water, land, and underground wells (12), hazardous waste generation amounts from the Resource Conservation and Recovery Act (RCRA) data set (13), and some conventional pollutants (e.g., SO2, volatile organic compounds - VOC). An index of toxicity potential called CMU-ET is also calculated. CMU-ET weights different chemical species of emissions using relative toxicity based on occupational health and safety threshold limit values (TLV) (14). The EIO-LCA model captures both the direct and indirect environmental discharge implications of a simulated change in demand for a commodity produced by an industry (e.g., VOC emissions resulting from a one million dollar change in demand for the “paints and allied products” industry’s manufacturing). The direct component is defined as the environmental emission effect that can be attributed directly to an industry’s operations (e.g., VOC emissions attributed the facilities designated as making “paints and allied
FIGURE 1. Relative contribution of the major economic sectors to the 1992 U.S. economic output (1).
FIGURE 2. Direct and indirect energy use (electricity plus fuels) by the major sectors of the U.S. economy.
products”.) The indirect component results from a corresponding change in demand for all other industries in the economy associated with the supply chain for an industry (e.g., VOC emissions from the industries which supply goods and services to the “paints and allied products” industry, and the VOC emissions resulting from their suppliers, then the suppliers of their suppliers, etc.). In its current form, using sectoral analysis, EIO-LCA does not provide information about specific products (e.g., two different brands of paint) or producers. However, product comparisons using specific compositions are possible using the Product EIO-LCA approach (15). Impacts of Services Compared with Other Major Sectors of the Economy. Formally, the 485 commodity industries, as defined by the U.S. Department of Commerce, consist of manufacturing (352 industries), services (79), construction (15), agriculture (20), mining (10), and special industries (10). For this analysis, we grouped the 485 industries into four sectors: manufacturing, utilities, services, and other. Table 2 lists the I-O commodity industries defined as “services” here. We grouped “electric services (utilities)”, “natural gas transportation”, “natural gas distribution”, and “water supply and sewerage systems” in a “utilities” category as their outputs are more of a product than a service. The construction, agriculture, mining, and special industries sectors are grouped into a category called “other”. Figure 1 shows each major economic sector’s contribution to the 1992 U.S.
FIGURE 3. Direct and indirect generation of RCRA hazardous wastes by the major sectors of the U.S. economy. economic output. Services represent over half of the overall economy. Note that the total economic output for the U.S. is higher than the GDP because total output includes material, energy, etc. costs, while the GDP is an economic indicator that sums only the value added (employee compensation, indirect business taxes and property-type income) orsin another definitionsthe total final demand (largely, domestic private and government purchases, and exports). Table 3 compares the impacts of the service industries to other sectors of the economy for energy use, global warming
TABLE 3. Direct and Indirect Environmental Implications of the Major Sectors of the U.S. Economy manufacturing direct
indirect
services direct
utilities
indirect
other
direct
indirect
direct
11 4.2 610
21 .04 1100
energy RCRA haz. wastes generated GWP
For Total Sector Economic Output (106 Terajoules) 9.9 53 9.8 28 (106 metric tons) 185 170 6.7 75 (106 mt CO2 equiv.) 680 2700 660 2600
21 0.05 1900
energy RCRA haz. wastes generated GWP
Per Million Dollars of Economic Output (Terajoules) 3.4 18 1.8 5.0 (metric tons) 63 58 1.2 13 (mt CO2 equiv) 230 920 120 460
80 0.2 7000
41 16 2300
indirect 12 41 1800
11 .02 580
6.2 21 910
TABLE 4. Selected Environmental Emissions of Major Consumer Spending Categories for $29,850 of Average Consumer Demand in 1992 total emissions (direct plus indirect) expenditure category manufacturing services utility property rent
$29,851 38% 30% 5% 27%
total (lbs/yr):
CO
NO2
PM10
SO2
VOC
GWP
217 59% 25% 6% 10%
206 46% 15% 31% 8%
25 34% 21% 21% 23%
277 30% 14% 48% 8%
57 63% 25% 6% 7%
80,186 41% 15% 37% 7%
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TABLE 5. Resource Inputs and Environmental Outputs of Four Service Sectors for One Million Dollars of Demand in Each Sector trucking/ courier total electricity energy ores iron ore copper ore bauxite gold ore
(million kWh) (Terajoules)
0.22 25
(metric ton) (metric ton) (metric ton) (metric ton)
6.6 18 0.72 4.2
TRI total air water land underground CMU-ET total RCRA generated SO2 NOx CO VOC PM10 GWP
(metric ton) % % % % (metric ton) (metric ton) (metric ton) (metric ton) (metric ton) (metric ton) (metric ton) mt CO2 equiv
0.09 69% 5% 12% 14% 0.11 43 2.1 11 24 4.7 0.18 1700
colleges and universities
retail trade
% direct
total
Resource Inputs 34% 0.38 56% 8.2 0% 0% 0% 0%
% direct
hotels
% direct 42% 13
total
% direct
0.66 11
86% 12%
81% 22%
0.18 4.4
0% 0% 0% 0%
6.2 23 0.75 4.9
0% 0% 0% 0%
3.6 12 0.57 2.6
0% 0% 0% 0%
0% 0% 0% 0% 0% 0% 0% 0% 40% 68% 70% 0% 17%
0.08 69% 5% 9% 16% 0.13 13 1.7 1.3 1.3 0.3 0.56 300
0% 0% 0% 0% 0% 0% 9% 46% 35% 11% 3% 3% 11%
0.08 67% 9% 8% 16% 0.09 14 3.3 2.0 1.2 0.3 0.31 770
0% 0% 0% 0% 0% 0% 0% 10% 6% 1% 2% 4% 7%
3.2 10 0.41 2.3
Environmental Outputs 0% 0.05 0% 73% 0% 6% 0% 8% 0% 13% 0% 0.06 0% 9.4 45% 2.1 87% 2.0 92% 2.7 88% 0.7 0% 0.18 62% 570
total
TABLE 6. Resource Inputs and Environmental Outputs of Four Service Sectors for Total Output of Each Sector trucking/courier total total output
($ million)
% direct
total
157,000
523,000 Resource Inputs 34% 200,000 56% 4,100,000
electricity energy ores iron ore copper ore bauxite gold ore
(million kWh) (Terajoules)
34,000 3,900,000
(metric ton) (metric ton) (metric ton) (metric ton)
1,000,000 2,800,000 110,000 660,000
TRI total air water land underground CMU-ET total RCRA generated SO2 NOx CO VOC PM10 GWP
(metric ton) % % % % (metric ton) (metric ton) (metric ton) (metric ton) (metric ton) (metric ton) (metric ton) 106 mt CO2 equiv
14,000 69% 5% 12% 14% 18,000 6,80,000 330,000 1,700,000 3,800,000 740,000 28,000 260
0% 0% 0% 0%
1,700,000 5,300,000 210,000 1,180,000
Environmental Outputs 0% 27,000 0% 73% 0% 6% 0% 8% 0% 13% 0% 34,000 0% 4,900,000 45% 1,100,000 87% 1,100,000 92% 1,400,000 88% 360,000 0% 93,000 62% 300
potential (converted to CO2 equivalents), and RCRA hazardous wastes generated. Results are presented for total sector economic output as well as normalized by million dollars of output. The service sector contributed about half the direct energy use and global warming potential and about 50 times less RCRA generated hazardous wastes compared with the manufacturing sector on a per million dollar basis. However, because the service sector has twice the total economic output compared to manufacturing, the service industries have about the same energy use and global warming potential as the manufacturing sector on a total sector economic basis (Figure 2). (Note that the “utility” category has a large energy use 4672
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colleges and universities
retail trade
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% direct
total
hotels
% direct
44,000
total
% direct
52,000
81% 22%
8,000 180,000
42% 12%
34,000 540,000
86% 12%
0% 0% 0% 0%
300,000 1,000,000 33,000 210,000
0% 0% 0% 0%
200,000 650,000 30,000 140,000
0% 0% 0% 0%
0% 0% 0% 0% 0% 0% 0% 0% 40% 68% 70% 0% 17%
3,600 69% 5% 9% 16% 5,800 570,000 74,000 58,000 56,000 11,000 25,000 13
0% 0% 0% 0% 0% 0% 9% 46% 35% 11% 3% 3% 11%
4,200 67% 9% 8% 16% 4,500 740,000 170,000 100,000 65,000 16,000 16,000 40
0% 0% 0% 0% 0% 0% 0% 10% 6% 1% 2% 4% 7%
contribution because the use of fuels to generate electricity creates significant direct emissions.) For some environmental metrics, the contribution of nonmanufacturing sectors appears significantly smaller. For example, the manufacturing sector is responsible for the direct generation of nearly all of the RCRA hazardous wastes (Figure 3). This does not present the full picture because service industries are responsible indirectly, through their supply chain, for a significant amount of RCRA wastes generated. In general, service industries have significant environmental effects on an economy-wide basis even when their direct emissions are negligible. With a large share of
FIGURE 4. Resource inputs and environmental outputs of four service industries for $1 million dollars of demand for each industry. the economy, the direct and indirect environmental effects of the service sector become a significant component of overall U.S. emissions, wastes, and energy use. Consumer Impacts. The above analyses focus on the overall environmental effects of the service sector. Indirect consumption effects are also interesting. The U.S. Consumer Price Index, a widely recognized economic indicator generated by the Bureau of Labor Statistics, relies on a “market basket” to determine the goods and services (in about 200 subcategories) purchased by an “average” consumer. The I-O sector numbers were mapped against each subcategory (16), and the EIO-LCA model was used to determine the annual total (direct and indirect) environmental effects of average U.S. household expenditures ($29,850 in 1992) (17). The results are presented in Table 4. Each subcategory was given one of four classifications: manufacturing, service, utilities, and property rental. Though the amount spent on
manufactured goods is about 25% greater than that spent on services, the environmental effects associated with manufacturing are about 2-3 times that of services. Four Service Sectors Analyzed in Detail. To illustrate the environmental effects of particular service industries, we selected representatives of four major categories of services in the U.S. economy: trucking and courier services, retail trade, colleges and universities, and hotels. The EIO-LCA model was used to estimate the resource inputs and environmental outputs, both direct and indirect. A purchase of one million dollars of services from these four sectors was simulated. The results are presented in Table 5. To estimate the total environmental effect of these services, the total economic outputs were used. Results are shown in Table 6. Figures 4 and 5 present the findings graphically for selected environmental metrics. VOL. 34, NO. 22, 2000 / ENVIRONMENTAL SCIENCE & TECHNOLOGY
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FIGURE 5. Resource inputs and environmental outputs of four service industries using total economic output for each industry. Some results are expected, such as the high direct consumption of electricity, the low direct emissions of TRI toxic chemicals, and the low direct generation of RCRA hazardous wastes. Indirect impacts of services on resource use (e.g., iron ore) and environmental emissions (e.g., SO2 emissions, TRI releases) may be substantial and in some cases comparable to direct manufacturing impacts. For example, the manufacturing industry “blast furnaces and steel mills” (the four SIC digit sector that produces steel) reports direct TRI emissions of 32,000 metric tons, with retail trade close by with indirect emissions of 27,000 metric tons. However, the CMU-ET results for steel production (98,000 metric tons) are almost three times higher than for retail trade (34,000 metric tons) on the account of chemicals of higher toxicity being used in the steel making process than in the supply chain of retail trade. 4674
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The supply chain environmental effects associated with services appear to be significant and merit further consideration. In particular, trucking displays significant direct and indirect impacts from combustion of fuels, both on a total and per-dollar basis. Retail trade is a large sector with significant supply chain resource and energy demands. Hotels consume significant amounts of electricity directly, though most of the total energy use is consumed in the supply chain. Relative to the three other examples, the hotel industry requires large direct electricity inputs per dollar of output. Colleges and universities are a relatively small sector with small direct impacts, except for emissions presumably associated with laboratory work. The top five supply chain sectors of the four selected services for two environmental outputs, total TRI emissions (to air, water, underground wells, and land) and RCRA hazardous waste generated, are presented in Table 7. The
TABLE 7. Top Five Supply Chain Sectors Associated with Four Selected Service Sectors TRI%
RCRA%
Trucking and Courier Services (Nonair) total 100% total petroleum refining 19% petroleum refining industrial inorganic and organic chemicals 15% industrial inorganic and organic chemicals primary nonferrous metals 14% sanitary services, steam supply, irrigation synthetic rubber 8% warehousing and storage carbon black 6% synthetic rubber
100% 64% 14% 14% 3% 1%
Retail Trade, Except Eating and Drinking total 100% total paper and paperboard mills 17% petroleum refining industrial inorganic and organic chemicals 14% industrial inorganic and organic chemicals primary nonferrous metals 12% sanitary services, steam supply, irrigation pulp mills 11% plastics materials and resins misc. plastic products 6% other business services
100% 38% 37% 15% 2% 1%
Colleges, Universities, and Professional Schools total 100% total primary nonferrous metals 17% industrial inorganic and organic chemicals industrial inorganic and organic chemicals 16% petroleum refining paper and paperboard mills 13% colleges, universities, and trade schools pulp mills 8% sanitary services, steam supply, irrigation misc. plastic products 4% pesticides and agricultural chemicals
100% 50% 20% 9% 7% 4%
Hotels total nitrogenous and phosphatic fertilizers industrial inorganic and organic chemicals primary nonferrous metals paper and paperboard mills pulp mills
100% 27% 13% 9% 8% 6%
values represent the percentage of each supply chain sector of the total (direct plus indirect) environmental effect. Paper and chemicals production and petroleum refining represent significant supply chain sectors in terms of overall environmental effects for all four services analyzed. If the four service industries were to reduce the TRI emissions and the RCRA hazardous waste generation as a consequence of their activities and supply chain purchases, paper and chemicals production and petroleum refining would be targets for reduction in a program of environmentally optimized supply chain management.
Discussion The analysis conducted in this paper provides a macroscopic view of environmental impacts of resource consumption and environmental outputs of the service sector of our economy in general (focusing on a comparison with manufacturing) as well as a life-cycle environmental assessment of four representative services in particular. Our major findings include the following: (1) Services contribute about twice the economic output compared with manufacturing, making their overall economywide direct environmental impact in areas such as energy consumption much more significant than expected when compared with the effect normalized by output. Thus, the potential for reducing the environmental effects of services is significant and warrants increased attention even when compared with manufacturing. (2) When assessing and analyzing service industries, the supply chain effects must be considered along with direct environmental impacts. This is especially the case for certain environmental emissions that are not directly associated with services (e.g., TRI emissions, RCRA hazardous wastes generated) but are significant when indirect supply chain impacts are considered. (3) For the four services detailed in this paper, EIO-LCA can be used to determine where the majority of indirect
total industrial inorganic and organic chemicals sanitary services, steam supply, irrigation petroleum refining plastics materials and resins other business services
100% 35% 33% 25% 1%
