EMERGY SYNTHESIS 4: Theory and Applications of the Emergy Methodology

Proceedings from the Fourth Biennial Emergy Conference, Gainesville, Florida

Edited by Mark T. Brown University of Florida Gainesville, Florida

Managing Editor Eliana Bardi Alachua County EPD, Gainesville, Florida

Associate Editors Daniel E. Campbell US EPA Narragansett, Rhode Island

Shu-Li Haung National Taipei University Taipei, Taiwan

Enrique Ortega Centre for Sustainable Agriculture Uppsala, Sweden

Torbjorn Rydberg Centre for Sustainable Agriculture Uppsala, Sweden

David Tilley University of Maryland College Park, Maryland

Sergio Ulgiati University of Siena Siena, Italy

December 2007 The Center for Environmental Policy Department of Environmental Engineering Sciences University of Florida Gainesville, FL

ii 24

Emergy and Economic Value

Daniel E. Campbell and Tingting Cai

ABSTRACT

The value of an item in an environmental system can be determined from two independent perspectives: (1) the perspective of the donor which determines what was required to produce the item and (2) the perspective of the receiver which determines what the person that receives the item is willing to pay for it. These two perspectives give complementary views of the process of valuation, one from the objective basis of input accounting and the other from the subjective basis of human preference. Emergy provides a comprehensive measure for input accounting, whereas, money is a universal measure for human preference. For economic and emergy determinations of value to be used together in a unified analysis, an understanding of the relationship between value as determined by each method is needed. In this paper, we translated economic axioms and laws into Energy Systems Language and used the resulting structural and functional analogies to gain an understanding of the relationship between economic and emergy methods of determining value. We assembled and interpreted data to show the environmental and human service work contributions to the value of products derived from forest resources. These work contributions were aggregated by sector along an economic production chain. A general relationship between the market value of a product in dollars and its emdollar value was proposed and tested using data on the U.S. forest products industry in the early 1990s. The study results indicate that there is a firm basis for using emergy methods to augment and improve current methods of valuing environmental and economic products.

INTRODUCTION

Value is defined as the amount of one thing that is considered to be a suitable equivalent for something else. The difficulty in assigning value to disparate things is to determine how much of one thing is truly equivalent to something that is very different in its nature and effects. In economics value is a fair price or return for goods and services when exchanged for money and money is used to determine the equivalences based on the relative willingness of the buyers to pay and the sellers to accept payment for the two things. An alternative method for determining the equivalence between any two things is to account for the inputs that were required for the production of each one. If the disparate required inputs can be converted to a common unit, direct equivalents among different things can be determined by summing all major inputs to their respective production processes. Perhaps the best known theory of value based on required inputs is Marx’s labor theory of value (Odum and Scienceman 2005). It is now well-known that Marx’s labor theory of value is incomplete, because the production of goods and services depends on many inputs in addition to labor. Odum (1987, 1988, 1996) presented the concept of emergy, which allows the development of a general theory of value based on inventorying all the inputs to production processes and then converting them first to energy (J) or matter (g) and then to emergy (sej) by multiplying the energy values by the appropriate transformity (sej/J) or the mass values by the appropriate specific emergy (sej/g).

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Thus, the question of finding the value of an item in an environmental system can be approached from two independent perspectives: (1) the perspective of the donor which determines what was required to produce the item and (2) the perspective of the receiver which determines the money that the person who receives the item is willing to pay for it. These two perspectives result in separate but complementary methods of valuation, one from the objective basis of input accounting and the other from the subjective basis of human preference. Emergy provides a comprehensive measure for input accounting and money is the universal measure for human preference. Faced with the same problem, the emergy synthesis and economic approaches would use the same data (labor and material costs and quantities) and methods (comparison of alternatives, maximization of decision variables, and determining the effects of a marginal change in those variables on a master variable) but they employ inherently different measures of value to reach a conclusion. Given that these two methods of determining value will always provide independent perspectives on worth, the question becomes, “How are the values determined using these two approaches related to one another?” If we can answer this question we may begin to see how we can use economic and energy methods within a single unified approach to valuation. At present, we can say that where the results of these two methods correspond, managers can have greater confidence in their decisions; where they differ managers are forewarned that more analysis may be needed.

AN ENERGY SYSTEMS VIEW OF ECONOMICS

Since the transformation of potential energy is the underlying cause of action in all known systems, methods grounded in thermodynamics such as Energy Systems Theory (Odum 1983, 1994) can be applied to gain a deeper understanding of the principles and axioms of many disciplines. The general axioms of a discipline that have been proven to be valid through testing against observed phenomena should be consistent with the laws of thermodynamics, sensu lato, including the 4th and 5th laws as proposed by Lotka (1922) and Odum (1996). Furthermore, we should be able to represent and identify these thermodynamic design principles by translating ideas from other disciplines into an energy systems model of the system. In this way, it should be possible to understand and interpret the principles and analyses of economics, as well as, other disciplines in terms of the thermodynamic and general systems principles codified in Energy Systems Theory (Odum 1994). However, it may not be possible to represent all the features of an energy systems model using the axioms of a particular discipline, when those axioms do not include all the principles needed to describe the system from a thermodynamic point of view, e.g., the lack of self-consistent conservation and entropic principles in economics (Mirowski 1989). Many economists have found it difficult to understand the value added by interpreting economics from the viewpoint of the natural sciences and particularly from the perspective of Energy Systems Theory. However, in this paper when economic laws and axioms are examined from the energy systems point of view (see Results and Discussion), they are found to be logically interpretable in terms of energy systems principles and the thermodynamic laws sensu lato. This gives us a common basis for approaching the important problem of determining value in environmental systems, i.e., systems that include major storages and flows of matter, energy, and information of both human and ecological origin. In particular, in this paper we will elucidate the relationship between value as determined by market economics and value as determined by emergy accounting methods.

THE PHILOSOPHICAL BASIS FOR ECONOMIC VALUE

It is well-known that money is only paid to people for the work that they do in making a product or in performing a service. Thus, dollars are paid to people for their service in extracting a mineral from the ground, refining it, and transporting it to a place where it is used in the manufacture of an item, but no money is paid to the environment for the work done to produce the mineral ore in the first place. It is obvious that none of the human services generating income from this mineral

-24.2- Chapter 24. Emergy and Economic Value would be possible without the concentration of the mineral in an ore body that could be exploited, yet markets attribute all value to human activities and none to the work of the environment. The notion in economics that all value derives from human work and none from the work of nature can be traced to the writings of John Locke (Gates 1998). Locke stated the following in his Chapter “On Property” in “Two Treatises of Government” published in 1764.

“Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has a right to but himself. The labor of his body, and the work of his hands, we may say are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men: for this labour being the unquestionable property of the labourer no man but he can have a right to what that is once joined to,”

Thus, the implication from this passage in Locke is that nature’s work alone has no value rather value is created when human beings operate on nature; therefore, all value derives from human work and payment should then be made only to humans for creating value. Locke sets the record straight with a final phrase which seems to have been generally ignored.

“at least where there is enough, and as good, left in common for others.”

In this final phrase Locke notes that the attribution of all value to humans for their work is only valid when human activities do not diminish the products supplied by natural production processes. Thus, Locke upon whose ideas we base our conceptions of value provides a solid basis for valuing the work of the environment, especially in the present time where the productive capacity and wealth of the earth are being depleted both locally and globally. From this analysis of the original writings of John Locke, we may conclude that the underlying assumption that economists use to attribute all value to human work is no longer valid, and indeed, it never was. In contrast, emergy accounting traces all value to the renewable and non-renewable energies supplied by the environment. In this value system, the dollars paid to people only have value by virtue of the emergy in the environmental energies and materials backing them. An aggregate ratio of economic activity measured in dollars, for example the GDP of an economy in a given year divided into the total renewable and nonrenewable emergy used in the economy in that year gives the emergy to money ratio in sej/$. Using this ratio, the average value of human service in a good or service can be estimated from its monetary value. To accomplish this the dollar value of the product or service is multiplied by the emergy to dollar ratio for the economy in which the good was produced or the service performed to obtain the emergy equivalent for that good or service ($ X sej/$ = sej). This method allows the direct comparison of work contributions from the environment to the work contributions of humans, because both are expressed in the same units, solar emjoules; however it is only valid in cases where the average value of service is appropriate for the measurement of human contributions.

METHODS

The methods used in Energy Systems Theory (EST), Environmental Accounting and Emergy Analysis (EA), and Energy Systems Modeling (ESM) are well documented in existing literature. Specifically, the methods of Energy Systems Theory are presented and discussed in detail in Odum (1983, 1994), the methods of Environmental Accounting and Emergy Analysis are given in Odum (1996), and modeling methods are fully described in Odum and Odum (2000). Energy Systems Theory is a meta-theory because it encompasses the methods and models used in many other scientific

-24.3- Chapter 24. Emergy and Economic Value disciplines. Because of its generality, the axioms, laws, methods, and models of other disciplines can be translated into the Energy Systems Language (ESL), thereby applying thermodynamic and ecological principles to discover what is included and what has been left out of the models from other disciplines. This method of comparative analysis was applied in this study by translating economic models and axioms into Energy Systems Language. Once the economic models were translated into ESMs, functionally analogous quantities were identified and general relationships were hypothesized based on the results. Data on the production and use of forest resources of the United States were used to develop a relationship between the market value of forest products and the emergy value of the same products. Product values were examined as they were distributed among a series of stages in the production process and as individual products arranged according to their transformities. Most of the transformities for the various products derived from forest resources were determined based on the emergy analysis of the U.S. Forest Industry performed by David Tilley (1999). However, some of Tilley’s transformities were modified and a few additional transformities were calculated in this study. For example, Tilley’s transformity for pulp wood logs was adjusted to reflect the shorter rotation time needed for pulp wood to grow to marketable size (assumed to be ½ of that for lumber). This modification resulted in changing the transformities for wood pulp, paperboard, and paper, which all received pulp wood logs as raw material input. New transformities for wood chips, popular paperback books and technical books were calculated. Data on the market prices of products were obtained from the U.S. Census Bureau Commodity Flow Survey for 1997 (U.S. Census Bureau 1997). In some cases supporting or missing data on the market prices of products were obtained from additional sources.

RESULTS AND DISCUSSION

In this section we translate several common ideas in economics into Energy Systems Language diagrams and examine analogous structures and functions to gain a better understanding of the relationship between EST and economics. We also examine the theoretical basis for value using both methods and present a practical example to demonstrate the relationship between value as determined by emergy accounting and by the economic market system. In providing a practical demonstration of this relationship, we hope to lay the ground work for using these two methodologies together to better determine the value of environmental products and services in integrated environmental assessments.

Energy Systems Interpretation of the Fundamental Axioms of Economics

The economic problem can be characterized as the management of scarce resources to fulfill unlimited wants (McConnell 1966). The two fundamental axioms of economics are that human wants are unlimited and that the resources available to satisfy those wants are finite. Figure 1 shows the two fundamental axioms of economics represented within an ESM of an environmental system. It is clear from the model that scarce resources translate as flow-limited sources and finite storages of energy or materials (2). In contrast, unlimited human desires are a positive feedback loop (1) in an autocatalytic process for maximizing power. Positive feedback is the sine qua non of the maximum power principle. The feedback to gain more available energy results in exponential growth when unconstrained and this is the mathematical equivalent of unlimited desires.

The Economic Question

The economic question is “How do we do the best we can with what we have?” Economists answer this question by assuming that human motives are driven by the utilitarian objective of maximizing utility, which is based on the usefulness, pleasure or satisfaction obtained from the

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Goods and Axiom 1: Unlimited Human Desires. Services Unlimited human desire for material goods is a positive feedback from assets. Assets 2 Axiom 2: Scarce Resources. Nonrenewable Resources are finite storages Sources 1 $ or flow limited sources.

Renewable $ Environmental Sources Production

Economic Production 2

An Environmental System

Figure 1. An Energy Systems Model of an environmental system showing the structures corresponding to the two fundamental axioms of economics. consumption of goods and services (Bentham 1781; Mill 1863). The economist’s answer is that we are doing the best that we can do with what we have, when utility is being maximized. Thus, the choices humans make in purchasing various goods and services should result in maximizing utility for individuals and in the aggregate, i.e., when all interactions are considered. Utility for a given individual or system is maximized under the constraint of diminishing marginal utility. The idea of diminishing marginal utility derives from the observation that while human wants are unlimited the desire for and usefulness of individual products and services is described by the law of diminishing marginal utility. It is easy to see that human wants for specific commodities can be satisfied and that as a consequence, the satisfaction derived from each additional unit of a particular commodity will decline. For example, a family derives a great deal of utility from its first car, a second car may also be desirable, but the 3rd, 4th, and 5th cars are progressively less useful to most families (McConnell 1966). In economics utility is viewed as a theoretical concept that does not have a unit of measure. Human preferences (choices made) for one product or another are assumed to be represented by a utility function.

Analysis of the Concept of Utility

Even though economists define utility as a subjective concept that cannot be quantitatively measured1, it can be illustrated mathematically. The practical answer, given by economists, to the question “How should decisions be made among many competing choices?” is that the decision- maker should allocate his or her resources (income or money) so that the last dollar spent on each product purchased yields the same amount of extra utility (satisfaction). This problem can be diagrammed in ESL (Figure 2a) by using storages for income ($), assets (Q) and utility within the

1 It is only possible to attach numbers to the utility rankings given by individuals. But these numbers will not be unique. This lack of uniqueness in the assignment of utility shows why it is not possible to compare utilities between people. -24.5- Chapter 24. Emergy and Economic Value consumer, which is represented by a hexagon. The ESL diagram of utility maximization shows a consumer that has a choice between spending his or her income to obtain one of two inputs (A and B), which have different schedules of declining marginal utility (Table 1). Table 1 illustrates the theory of declining marginal utility with hypothetical data using a fictional measure of utility, the util (McConnell 1966). Ten dollars of income are available to be spent and there are more than enough units of each product to satisfy this demand. Thus, the constraint of budget on the decision has been removed. Three dollars must be spent to obtain the first unit of Product B, which will deliver 24 utils. In contrast, one dollar spent on the first unit of Product A will deliver 10 units of utility. The marginal utility per dollar (MU/$) is the decision criteria used by the marginal utility comparator (a logical program shown by the symbol with 4 concave sides, see Figure 2) to determine which product to purchase. Decisions are made so that utility will be maximized by choosing the maximum marginal utility per dollar spent for each unit of product. The ESL diagram of this example from McConnell (1966) demonstrates that the economic model has no concern for the 1st law of thermodynamics (conservation principle) or the lack of 2nd law of thermodynamics requirement for the degradation of energy to support storages although both must be present. We can learn a great deal about the relationship between economic and emergy quantities by diagramming this example as if it were a real system subject to thermodynamic constraints (Figure 2b). This is accomplished by assuming that the net production of assets is functionally equivalent to income. The limiting factor curve found in many disciplines is called the law of diminishing returns in economics (Odum 1994). Referring to Figure 23.11 in Odum (1994, p. 484) price is shown as the derivative of the Monod limiting factor function. When the supply of a quantity (Q) is small its effect on production (P) is large, but as Q increases its effect on production decreases quadratically. The amplifying action of Q on P is the derivative of the limiting factor curve, which is called the marginal effect on utility in economics. Figure 2(b) shows the ESL diagram of the law of diminishing marginal utility including the thermodynamic constraints on the model, i.e., the energy flows in the products must be added to the economic model to satisfy the 1st and 2nd laws of thermodynamics. As in Figure 2(a) the problem is illustrated by consumer choice between two products A and B of different utility. Value also has a connotation of usefulness with things having more or less value as a result of the relative utility that they have for the user. In this case, utility is seen to be equivalent to emergy which contains within it the element of quality (usefulness) as measured by its ordinality (Giannantoni 2002). Ordinality is the ordering of transformity which is a general measure of quality inherent in all things that arises as a consequence of the action of the evolutionary process on the past use of available energy or exergy required to produce an item. Ordinality is measured by the cumulative emergy required above and

Table 1. Maximizing Marginal Utility with a $10 Income.

Unit of Product Product A: Product B: Price =$1 per unit Price = $3 per unit

Marginal Utility, MU/$ Marginal Utility, MU/$ Utils Utils

First 10 10 24 8 Second 9 9 21 7 Third 8 8 18 6 Fourth 7 7 15 5 Fifth 6 6 9 3 Sixth 4 4 3 1

Marginal utility of source A is assumed independent of the amount obtained from source B and vice versa. The data used is hypothetical.

-24.6- Chapter 24. Emergy and Economic Value beyond the exergy used in the production of an item and as such it is a measure of usefulness of that item, when it has been developed and proven by repeated testing in the trials of evolutionary competition. Table 2 shows the energy quantities that are analogous to the economic quantities given in Table 1 from the standpoint of an individual consumer choice process. The available energy used in positive feedback to gain an additional unit of input is the “price” the system “pays” for that input and for an additional unit of emergy. In this model, exergy is analogous to money in a price function. Economic systems are thought to maximize utility, but in economics utility has no known measure. Table 2 and Figure 2(b) show that emergy is functionally equivalent to utility, when the economic process of utility maximization is diagrammed in ESL. The change in empower that occurs as a function of the factors limiting production gives the marginal utility or the effectiveness of a unit of feedback in producing the next unit of emergy. The marginal utility/unit divided by the price/unit (MU/$) is equivalent to transformity, as can be demonstrated by dimensional analysis using the equivalences established in Tables 1 and 2: Empower per unit (sej/time)/unit) divided by the exergy flow per unit (J/time/unit) = Emergy/exergy = Transformity (sej/J). Using the data in Table 2, Figure 3 demonstrates the operation of the utility maximizing rule, which is a special case of the maximum empower principle, for both economic and emergy systems of consumer choice under schedules of diminishing marginal utility for Products A and B. It is clear from this figure that for decisions based on comparisons of the marginal utility per dollar or the dynamic transformity of two competing products, choosing the larger results in greater empower for the consumer system. Value as determined by emergy accounting has a fundamental meaning as a consequence of Lotka’s maximum power principle which was modified by Odum (1996) to become the maximum empower principle. The maximum empower principle states that self-organizing entities (like the consumer in Figure 2), which prevail in evolutionary competition among alternatives will have maximized empower in their systems. The maximum empower principle proposes that survival in the long run is the criterion for success in evolutionary competition. Of course, an entity must survive in the short run, if it is to be present in the future. Furthermore, the maximum empower principle is associated with more than survival, which might be associated with mere persistence. Those entities that come closest to maximizing empower in their networks are predicted to prevail, that is not only will they survive but they will also prosper, i.e., they will control much of the system’s empower.

Table 2. Maximizing Empower with 10 Units of Positive Feedback.

Unit of Product Product A: price = 1 J/unit Each unit Product B: price = 3 J/unit contains 1.25 J of exergy Each unit contains 3 J of exergy

Emergy Transformity sej/J Emergy Transformity sej sej sej/J

First 10 10 24 8 Second 9 9 21 7 Third 8 8 18 6 Fourth 7 7 15 5 Fifth 6 6 9 3 Sixth 4 4 3 1 The declines in emergy delivered and transformity of the two products shown here are virtual and relative to an individual production process. In the real world these virtual declines are manifested as increasing transformity for the product with less efficient use of inputs and greater competition for these inputs from alternate systems. However, this perspective is required to demonstrate the analogy with economic ideas of utility for the individual. Sources A and B are assumed to be independent. The data used is hypothetical.

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(a)

Marginal Utility ÷

Comparator

÷ ÷

$ ÷ 10

Maximize Product B 3 Q Utility Units = 4 Utils =96 P2 1 X 24 P1 1 1 X 10 Product A Units = 10 Utils=100

(b)

Marginal Utility

Comparator ÷

÷ ÷ ÷

Maximize Emergy Product B Q 3 Units = 4 10 En = 12 Exergy Em =96 P 24 P2 1 X 1 3 1.25 1 10 Product A X Units = 10 En = 12.5 Em=100

Figure 2. An Energy Systems Model illustrating the economic concept of utility and its maximization. (a) the model evaluated using economic assumptions, (b) the same model constrained by the energy laws and using energy and emergy as analogies for economic quantities.

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90

80

70 P1 sej P2 sej 60 Maxim um

50

40

30

20

10 Cumulative Production (sej) or utils 0 12345678910 Consecutive Units of Feedback

Figure 3. Output from the models given in Figure 2 illustrating the maximization of cumulative empower production and utility through choosing the unit of input with the greatest marginal utility.

What higher utility can human beings hope for than to see their social organizations, themselves and their necessary life support system, survive and prosper now and in the future? We can now ask the question, “Is emergy nature’s measure of utility?" If maximizing empower is the criteria for the success of all entities in evolutionary competition, then it may be the ultimate goal function for all systems including economies. If this is true, then an examination of empower production in an environmental system, its alternatives, and in the next larger system will tell us if we are “doing the best that we can with what we have”. From this analysis, all other things being equal, we can conclude that emergy may be the broadest measure of utility or usefulness. This analysis implies that high marginal utility per dollar for the individual is analogous to high transformity in a system. Therefore, the incremental change in empower (marginal utility) will be maximized by using transformity as the decision variable. Thus, as a rule of thumb, when an individual or system is presented with a choice between two different items, choosing the one with equal or higher transformity should result in maximizing empower production and utility for the individual and for the system by passing on those products that can not be effectively used. Perhaps transformity is the ultimate measure of quality among disparate items, and if it is, emergy is the ultimate measure of utility or satisfaction for people as well as in nature. Of course, people may derive satisfaction from a wide variety of items of different transformity and at any given time and they are free to choose among them by picking the item that maximizes utility for the individual in the moment. Under our assumptions these decisions will also maximize the emergy gained by the individual, because of the different schedules for diminishing marginal returns on investment for each item. Human freedom of choice is important because it provides alternative pathways for the systems that are under constant pressure to adapt to changing inputs; however, theory indicates that those choices that fail to maximize empower for the whole system on the larger scale will be selected against in evolutionary competition.

Emergy and Economic Value

Emergy and economic valuation methods use distinct perspectives and measures to determine value; however, both the work of the environment and the work of humanity occur within the same

-24.9- Chapter 24. Emergy and Economic Value interlinked systems of production. We have seen from prior analyses in this paper and in Odum (1994) that economic systems fall within the realm of EST and that key economic ideas and principles can be understood and interpreted within the context of models of energy flows and storages and the maximum empower principle. The question arises, “What is the relationship between value as determined by economic and emergy methods?” Zucchetto and Jansen (1985) proposed that market value should be a linearly related to emergy then called “embodied energy”. Odum et al. (1987) gave an example using water processing in Texas that supported this hypothesis. Odum (2001) related the circulation of money to the universal energy hierarchy and found it consistent with prior assumptions about the relationship between economic and emergy value. We know why money is paid only to people from the points made earlier, and it is also well- known that the environment contributes work essential for the production of economic products above and beyond the work for which people are paid. This situation implies that there is a reservoir of value in economic products that is unrecognized in the market value of those products. Thus we can examine the work processes of humanity and the environment that create value within an economic production chain to discover how value is distributed between environmental and human work (Figure 4). The energy systems diagram in Figure 4 shows an economic production system with sectors for extraction, agriculture, processing, manufacturing, and information interfaced with external markets. The economic production system draws upon renewable and nonrenewable work processes of the environment for its support. The diagram shows the circulation of money in a manner similar to Odum (2001), in which greater monetary flows are indicated with thicker dashed lines. Money only flows as a counter current to purchased human service; however, the economic sectors also accept inputs from renewable and nonrenewable resources of the environment. A chain of environmental and economic products derived from the forest resources of the United States (Figure 5) was used to show how value is created by the work of both humans and the environment. Figure 5 shows the natural log of both the transformity (sej/J) and price ($/MT) for 12

Human Service

Ecological-Economic Production System

Information

Nonrenewable Resources

Geologic Manufacture $ Processes

Processing

Agriculture Earth Renewable Resources Emergy Inflows Environmental Production Extraction Markets

Figure 4. A model of an economic-ecologic production system showing the supply of renewable and nonrenewable environmental energy inflow and human service supporting economic production processes from extraction and agriculture through processing and manufacturing to information.

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18 16 Transformity (sej/J) 14 Pr ic e ( $/MT) 12 10 8 6 4 2

LN Price or Transformity or Price LN 0 t r h ) e ps cal) pulp) ber ood rowt ( chi board Paper G lum Lumb yw ( Pl echni ood (t NPP Fores Logs Wood pulp ks (popular) W Paper ks Forest Logs Boo Boo Products Derived from Forest Resources

Figure 5. Comparison of price in $ per metric ton and transformity (sej/J) for products derived from the forest resources of the United States. products derived in part from U.S. forest resources and generated by sectors in the economic processing chain (Figure 4). The relationship between price and transformity for these products is given in Figure 6, where a linear regression of price on transformity for the 10 products with market value showed that 90% of the total variability in prices was accounted for by the transformity of the product. The two products of environmental work without market value were excluded from the regression. Table 3 gives the values and sources for transformities used in this study. The notes to Table 3 explain modifications to existing transformities and show the calculation of new transformities used here. The quantities of work derived from humans and the environment contained in 1 metric ton of product are shown in Figure 7 arranged in order of increasing transformity. The relative work contributions from humans and the environment to the 12 forest products are shown in Figure 8. This figure clearly shows the pattern of declining relative work contributions from the environment for products further along in the chain of economic production. Conversely, human work contributes a progressively smaller portion of the total value of products as economic production moves toward the extraction sector and human work makes no contribution to the value of products that are produced by and remain in the environment. In this case value is determined by the total emergy of the products contributed by both human service and environmental work. A similar general pattern for the work contributions from human service and the environment is observed for the sectors in the economic production process as shown in Figure 9. If such patterns of value generation are general, it is clear that modifications to market valuation are needed, especially as the social issue or economic problem to be evaluated becomes more dependent on economic sectors closer to resource extraction. The relationship between emergy and market value for products derived from forest resources examined in this paper and a similar pattern found by Odum et al. (1987) for water resources in Texas allow us to hypothesize a general theoretical relationship between emergy value and economic value as determined by market mechanisms. By definition, emergy accounting includes all the contributions from which value in an economic production process is derived. The market economy only recognizes the contributions of human service to value and gives no value to the work of the environment. Therefore, as a general rule, the emdollar value of a good or service is expected to be greater than the dollar value of the same product as determined by market mechanisms. This hypothesis was

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Linear Regression of Price on Transformity for Forest Products with Economic Value

12

10 y = 0.9893x - 5.5527 R2 = 0.9012 8

6

4 LN Price $/Ton Price LN

2

0 0 5 10 15 20 LN Transformity sej/J

Figure 6. Linear regression of price on transformity of forest products with economic value.

42

Environmental Work 40 Human Work Total Emergy in 1MT product 38

36

34

32 LN Emergy per MT of Economic Product (sej) Product Economic of MT per Emergy LN 30 9 1011121314151617 LN Transformity (sej/J)

Figure 7. Comparison of the relative work contributions from human services and the environment contained in 1 metric ton of forest products arranged according to increasing transformity.

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Table 3. Values, sources and calculations for the transformities used in this study. All transformities are relative to the 9.26E24 sej/y planetary baseline (Campbell 2000, Campbell et al. 2005).

Note Sector and Product Price $/MT Transformity Transformity Source (sej/J) Biosphere Flows Net Primary Prod. 0 1511 Orrell (1998) Renewable Storages Forest 0 4.02E+04 Tilley (1999) Extraction Industries 1 Logs (pulp) 17.18 1.50E+04 Tilley (1999) & this study. Logs (lumber) 53.54 2.70E+04 Tilley (1999)

Processing Industries 2 Wood chips 48.94 2.02E+04 This study. 3 Wood pulp 500.00 3.79E+04 Tilley (1999) modified Lumber 410.13 7.90E+04 Tilley 1999 Manufacturing Plywood 389.00 1.10E+05 Tilley (1999) 4 Paper board 519.86 1.12E+05 Tilley (1999) modified 5 Paper 1145.76 2.22E+05 Tilley (1999) modified Information 7 Books (popular) 7601.45 1.86E+06 This study 8 Books (technical) 22700.00 1.31E+07 This study

Note 1. The transformity of pulp logs was reduced in proportion to the expected growth curve for an average harvest age of 20 years compared to the average age of 40 years for logs used as lumber. Note 2. Estimated from the ratio of the transformity of rainforest logs to the wood chips made from them (Odum 1996). This factor (1.375) was applied here to pulp logs. Note 3. Emergy input from biomass was adjusted in Tilley (1999) Table 3-14 to be 225 E 20 sej. Note 4. Emergy input from wood pulp in Table 3-15 in Tilley (1999) was calculated using the transformity calculated in Note 3. Note 5. Emergy input of wood pulp into paper production in Table 3-16 (Tilley 1999) was calculated using the transformity for wood pulp given in this Table. Note 6. Transformity for a popular paper back book with a 10,000 copy printing: Energy in 10000 copies = (average weight) (number copies) (energy per gram for paper) Energy in 10000 copies = 128g/copy* 10000 copies* 14,651 J/g = 1.87E10 Joules. The emergy required is: (1) the emergy of the paper, 4.15 E15 sej, plus (2) the emergy needed for publishing , which is $1 per book for 10,000 copies times 1.07 E12 sej/$ (the emergy $ ratio for the U.S in 2000) equals 1.07 E16 sej, plus (3) the emergy of authorship assuming 1 year of labor was required to write the book then 2500 kcal per day times 4186 joules per kcal times 260 work days per year times 7.33E6 sej/J for college educated labor (Odum 1996) equals 1.99 E16 sej. The total emergy for publication is then 3.48 E16 sej and the transformity of this popular book is 3.48E16 sej / 1.87E10 J = 1.86 E6 sej/J. Note 7. Transformity for a hardback technical book with a 10,000 copy printing: Energy in 10000 copies = (average weight) (number copies) (energy per gram for paper) Energy in 10000 copies = 500g/copy* 10000 copies* 14,651 J/g = 7.33E10 Joules. The emergy required is: (1) the emergy of the paper, 1.63 E16 sej, plus (2) the emergy needed for publishing , which is $2.50 per book for 10,000 copies hard cover times 1.07 E12 sej/$ (the emergy $ ratio for the U.S in 2000) equals 2.68 E16 sej, plus (3) the emergy of authorship assuming 1 year of labor was required to write the book then 2500 kcal per day times 4186 joules per kcal times 260 work days per year times 3.43E8 sej/J for post- college educated labor (Odum 1996) equals 9.15 E17 sej. The total emergy for publication is then 9.58 E17 sej and the transformity of this technical book is 9.58E17 sej / 7.33E10 J = 1.31 E7 sej/J.

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e 100% 90% 80% 70% 60% 50% Human Work 40% 30% Environmental Work 20% 10%

Percent Contribution to Valu 0% ) ) ) P th p r s lp er d d r r) l P l e ip u b ar o pe la a N ow u h p o o a u ic t r (p mb c d m b w P p n s G s lu d o Lu r ly o ch e t g ( o o e p (p e or s o s o w p (t F re L g w a ks s o Lo P o k F o oo B B Products Derived from Forest Resources

Figure 8. The percent contributions of human and environmental work to the total emergy value of 12 forest products arranged in order of increasing transformity.

100% 90% e 80% 70% 60% Human Work 50% Environmental Work 40% 30% 20% Percent Contribution to Valu 10% 0% Biosphere Renewable Extraction Processing Manufacturing Information Position in the Economic Production Hierarchy

Figure 9. The percent contributions of human and environmental work to the total emergy value of products made within the biosphere, renewable production, extraction, processing, manufacturing, and information sectors of an ecologic-economic production chain.

-24.14- Chapter 24. Emergy and Economic Value tested in Figure 10 where the dollar value of a metric ton of product is expressed on the ordinate as a fraction of its emdollar value. In general, we expect the hypothesized relationship to hold and Figure10 confirms this general expectation. Where it does not, the market price system may be displaced away from its long term equilibrium condition for the product. The high value for wood pulp in figure 10 coincides with rapidly rising wood pulp prices due to shortages (Paper Age News 2004). Products with a larger contribution of emergy from the environment are expected to have lower dollar values relative to their emdollar value (see Figure 10). Products from the processing and manufacturing sectors of intermediate transformity have dollar values that account for a larger portion of the product’s emdollar value. In the information sector, the fraction of the emdollar value accounted for by the market price of the product again declines, perhaps indicating that most information is undervalued by market mechanisms. Much more data is needed to confirm the relationships inferred from the data examined in this paper. However, all results indicate that there is a firm basis for using information derived from emergy accounting within current economic analyses, especially, to better understand and characterize the contributions of environmental work in determining the long term or steady-state value of products and services in economic markets.

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

$ Value a Fraction as of Em$ Value 0

s p d d ) p) p ar pul oo chi mber pul u lyw boar Paper gs (pul (lumber) d L p po ( technical) Lo oo Wood aper ( W P Logs ooks B Books Products Derived from U.S. Forest Resources

Figure 10. The dollar value of the 10 forests products with economic value expressed as a fraction of the emdollar value of same product.

ACKNOWLEDGMENTS

We thank Cathy Wigand, Norm Rubinstein, and Jim Latimer for providing internal reviews of this paper. This paper is contribution number AED-06-056 of the Atlantic Ecology Division, National Health and Environmental Effects Research Laboratory, Office of Research and Development, USEPA. The research in this paper has been funded by the USEPA; however, it has not been subjected to a review by the Agency. Therefore, it does not necessarily reflect the views of the USEPA.

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