Flow of Natural versus Economic Capital in Industrial Supply Networks and Its Implications to Sustainability

Abstract

Appreciating the reliance of industrial networks on natural capital is a necessary step toward their sustainable design and operation. However, most contemporary accounting techniques, including engineering economics, life cycle assessment, and full cost accounting, fail in this regard, as they take natural capital for granted and concentrate mainly on the economic aspects and emissions. The recently developed "thermodynamic input-output analysis" (TIOA) includes the contribution of ecological goods, ecosystem services, human resources, and impact of emissions in an economic input-output model. This paper uses TIOA to determine the throughputs of natural and economic capitals along industrial supply networks. The ratios of natural to economic capitals of economic sectors reveals a hierarchical organization of the U.S. economy wherein basic infrastructure industries are at the bottom and specialized value-added industries constitute the top. These results provide novel insight into the reliance of specific industrial sectors and supply chains on natural capital and the corresponding economic throughput. Such insight is useful for understanding the implications of corporate restructuring on industrial sustainability metrics and of outsourcing of business activities on outsourcer, outsourcee, and global sustainability. These implications are discussed from the standpoints of weak and strong sustainability paradigms. The calculated ratios can also be used for hybrid thermodynamic life cycle assessment.