Giljum (2004) Trade, Materials Flows, development in Chile.pdf

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R E S E A R CH A N D A N A L Y SI S

http://mitpress.mit.edu/jie Journal of Industrial Ecology 241

2004 by the Massachusetts Instituteof Technology and Yale University

Volume 8, Number 1 2

Trade, Materials Flows, and

Economic Development in

the South

The Example of Chile

Stefan Giljum

Keywords

environmental impacts

international trade

materials flow analysis (MFA)

resource use indicatorssocietal metabolism

valuation

Address correspondence to:

Dr. Stefan Giljum

Sustainable Europe Research Institute

(SERI)

Garnisongasse 7/27

1090 Wien, [email protected]

www.seri.at/sge

Summary

Materials flow analysis (MFA) is internationally recognized as

a key tool to assess the biophysical metabolism of societies

and to provide aggregated indicators for environmental pres-

sures of human activities. Economy-wide MFAs have been

compiled for a number of Organisation for Economic Coop-

eration and Development (OECD) countries, but so far very

few studies exist for countries in the South. In this article, the

first materials-flow-based indicators for Chile are presented.

The article analyzes the restructuring of the Chilean economy

toward an active integration in the world markets from the

perspective of natural resource use in a time series from 1973

to 2000. Special emphasis is placed on the assessment of ma-

terials flows related to Chiles international trade relations. Re-

sults show that material inputs to the Chilean economy in-

creased by a factor of 6, mainly as a result of the promotion

of resource-intensive exports from the mining, fruit growing,

forestry, and fishery sectors. At more than 40 tons, Chiles

resource use per capita at present is one of the highest in

the world. The ar ticle addresses the main shortcomings of the

MFA approach, such as weight-based aggregation and the

missing links between environmental pressures and impacts,

and gives suggestions for methodological improvements and

possible extensions of the MFA framework, with the intent of

developing MFA into a more powerful tool for policy use.


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R E S E A R C H A N D A N A L Y S I S

242 Journal of Industrial Ecology

Introduction

In the last decade, economy-wide materials

flow analysis (MFA) has been increasingly rec-

ognized as a key framework of analysis to com-prehensively capture the relationship between

socioeconomic and natural systems and to de-

scribe the character and development of the

physical metabolism1 of societies. A number of

studies have been carried out for developed

countries (Adriaanse et al. 1997; EUROSTAT

2002; Matthews et al. 2000) and transition econ-

omies (Hammer and Hubacek 2002; Mundl et al.

1999; Scasny et al. 2003). Concerning countries

in the global South (Africa, Asia excluding Ja-

pan, and Latin America), economy-wide MFAs

have been conducted for Brazil and Venezuela

(Amann et al. 2002), as well as for China (Chenand Qiao 2001).

The study presented here is innovative as it

focuses on the economic development of Chile,

which was one of the first countries in the South

to perform an economic transformation accord-

ing to neoliberal principles and to promote in-

tegration into world markets. Consequently, spe-

cial emphasis in this article is placed on the

assessment of materials flows related to Chiles

international trade activities.

This article attempts to address the following

questions:

What were the implications of the export-

oriented development strategy on the ex-

traction of natural resources in Chile?

In what way has world market integration

altered Chiles trade patterns in terms of

materials flows?

What are strengths and weaknesses of an

MFA study of an export-based economy,

such as that of Chile, for the evaluation of

this kind of development strategy from the

perspective of environmental sustainabil-

ity, and what are possible methodological

improvements to overcome the weak-nesses?

A number of publications dealing with envi-

ronmental consequences of export production in

Chile have been presented, giving either multi-

sectoral overviews (Quiroga and Van Hauwer-

meiren 1996; Scholz 1996) or focusing on par-

ticular sectors, such as the mining sector (UNEP

1999a), the forestry sector (Gwynne 1996), the

agricultural sector (Altieri and Rojas 1999), or

the fishing sector (Schurman 1996). A compre-

hensive quantitative study on resource use in theexport sectors and its relation to the physical me-

tabolism of the rest of the economy, within an

internationally standardized framework, has not

yet been carried out, however. Thus, by combin-

ing existing data from a large number of different

sources, this study contributes to the improve-

ment of data availability and analysis, which has

been identified as insufficient by several authors

(for example, Figueroa et al. [1996]).

The article first provides a short review of the

economic development of Chile and the key role

of the export sector in outward-oriented eco-

nomic restructuring. It then briefly introducesthe method of economy-wide MFA, followed by

a more detailed explanation of the concept of

indirect materials flows of traded products, which

is of particular importance for the interpretation

of this studys results. The main MFA indicators

for Chile are then presented and discussed in a

time series from 1973 to 2000. Based on these

empirical results, the article analyzes the

strengths and weaknesses of MFA as a method

for evaluating the environmental sustainability

of Chiles economic development path. Sugges-

tions for methodological improvements and pos-

sible extensions of the MFA framework are pre-sented, with the intent of developing MFA into

a more powerful tool for policy use. The last sec-

tion contains the conclusions.

Economic Development basedon Natural-Resource-IntensiveExports

Economists and politicians around the world

frequently emphasize the success of the Chilean

development strategy, which is based on free-

market policies and active integration into world

markets. In the mid-1970s, Chile was the first

country in Latin America to initiate a neoliberal

economic transformation under the patronage of

the military regime of General Pinochet. Today,

Chile is widely recognized as having the most

open, stable, and liberalized economy in Latin

America (World Bank 2001).


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Giljum, Trade, Materials Flows, and Economic Development in the South 243

Figure 1 Real GDP per capita and annual GDP growth rates for Chile, 1973 2000.Data source: Banco

Central (2001).

Especially in the first 15 years of neoliberal

transformation, economic development was far

from stable and was characterized by large fluc-

tuations. Dramatic recessions occurred in the

years 1975 and 1982, in which gross domesticproduct (GDP) declined by 12.9% and 14%, re-

spectively. Only after the mid-1980s was dy-

namic economic development observed with sig-

nificant growth in economic output and income

per capita (figure 1).

The expansion and active promotion of the

export sectors was at the core of the neoliberal

restructuring of the Chilean economy from its

very beginning. The growth of the export sectors

in the period between 1973 and 2000 is remark-

able. Earnings from exports rose from 264 to

3,652 billion pesos at 1986 prices (Banco Central

2001). In the same time period, a diversificationof exports was achieved. Copper is still by far the

most important export good of Chile, but the

relative dependence on this single product has

been reduced from 80% in 1973 to 40% in 2000

(in monetary terms).Absoluteproduction of pure

copper in physical terms, however, rose steadily

and climbed to an all-time high of 4.6 million

tons2 in 2000, of which 97% were exported. The

main destinations for Chilean copper were the

Organisation for Economic Cooperation and De-

velopment (OECD) countries (55% of total ex-

ports), Asian countries (31%), and other Latin

American countries (11%) (COCHILCO 2001).

World copper prices showed large fluctuations

and an overall declining trend, with the average

real copper price falling by more than 50% from

the late 1970s to the late 1990s (Porter and Edel-stein 2002). Earnings from copper export thus

grew at much slower rates than production in

physical terms.

Industrial products already contributed 45%

to Chiles export earnings in 2000. Nevertheless,

the neoliberal restructuring has focused on the

use of Chiles comparative advantages, which

are mainly concentrated in exports of natural re-

sources and products with relatively low levels of

quality improvement (value added) by manufac-

turing investments. The 15 most important ex-

port product groups in 2000, totaling more than

60% of export revenues, were all classed as rawmaterials and basic manufactures (DIRECON

2000). Apart from the mining sector, major rev-

enues are obtained from exports of fresh fruits

(especially wine grapes and apples); fresh fish (es-

pecially salmon) and fish meal; wine; wood, cel-

lulose, and paper products; and basic chemical

products.

The specialization in resource-intensive ex-

ports led to an increase in the contribution of

primary sectors to Chiles GDP. Between 1973

and 2000, the share of primary sectors in the

GDP grew from 16% to 20%, whereas the con-


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Figure 2 General scheme for economy-wide materials flow analysis (MFA).Data source:Adapted from

EUROSTAT (2001).

tribution of industrial sectors fell from 34% to

25%. Activities in the service sectors increased

their share from 50% to 55% (Banco Central

2001).

Materials Flow Accounting andAnalysis

MFA builds on earlier concepts of material

balancing (for example, Kneese et al. [1970]).3 In

an international working group on MFA, stan-

dardization for economy-wide MFA was for the

first time achieved and published in a method-

ological guidebook by the Statistical Office of the

European Union (EUROSTAT 2001). In this

guide, EUROSTAT provided a standard classifi-

cation of materials, which should be applied in

the compilation of MFAs on the national level.MFAs so far mainly focus on flows of solid ma-

terials, as the mass of water (and air) flows in

most cases exceed all other material inputs by a

factor of 10 or more (especially if water for cool-

ing is taken into account [see Stahmer et al.

1997]). EUROSTAT therefore recommends

compiling water and air balances separately from

solid materials. Figure 2 presents a general bal-

ance scheme including all relevant input and

output flows.

The MFAs reveal the composition of soci-

etys metabolism (Fischer-Kowalski and Huttler

1999) by quantifying biophysical flows between

the natural and socioeconomic systems. In ad-

dition, an MFA of a national economy shows im-

ported and exported products in physical units

and the physical growth of its infrastructure.MFAs can thereby provide insights into causal

linkages between resource use, economic produc-

tion, consumption, and emission and waste prob-

lems (Kleijn 2000).

Material inputs to the economic system in-

clude used domestic extraction of three main ma-

terial groups: (1) minerals (metal ores and non-

metallic minerals, such as stones and clays),

(2) fossil energy carriers (coal, oil, and gas), and

(3) biomass (from agriculture, forestry, and fish-

eries). In addition, material inputs include so-

called unused domestic extraction, which com-

prises materials that had to be moved duringextraction activities but do not enter the eco-

nomic system for further processing (such as

overburden from mining and residuals from har-

vest in agriculture). Consequently, unused flows

do not have an economic value. These flows

have been termed hidden flows in earlier MFA

publications, as they are not visible in the mon-

etary economy (see, for example, Adriaanse et

al. [1997]). Finally, material inputs include physi-

cal imports and indirect flows associated with

them (see the next section for a more detailed

explanation of the concept of indirect flows).


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Within the economic system, material inputs

are transformed into products, which are (1) ac-

cumulated within the socioeconomic system (net

addition to stock, such as infrastructure and du-

rable consumer goods), (2) consumed domesti-cally within the accounting period (in most cases

1 yr) and thus cross the system boundary as waste

and emissions back to nature, or (3) exported to

other economies.

Economy-wide MFAs, it should be empha-

sized, regard the socioeconomic system as a black

box. Therefore, materials-flow-based indicators

cannot be disaggregated following conventions

of economic accounting. In particular, MFA does

not distinguish between production and con-

sumption activities and therefore does not allow

separation of deliveries between industries from

deliveries to final demand (private consumption,investment, government expenditures, and ex-

ports). This has strong implications for the in-

terpretation of some MFA indicators (see in par-

t i c u la r t h e s e c t i o n b e l o w o n m a t er i a l

consumption indicators). The category of ex-

ports is the only one separately reported, which

is necessary for establishing the material balance

on the national level.

A l a rg e n u m b e r o f a g g re g a te d ( b u l k )

materials-flow-based indicators can be derived

from economy-wide MFAs, which can be classi-

fied into input, output, consumption, and trade-

related indicators (see Adriaanse et al. 1997;Matthews et al. 2000). As a result of the consis-

tent data organization, MFA indicators can be

aggregated from the micro to the macro level and

can be linked to monetary indicators such as

GDP, thus providing information on the resource

productivity (or eco-efficiency) of an economy or

specific economic sectors (Hinterberger et al.

1 9 9 8; S p a ng e n be r g e t a l . 1 9 9 8) . T h e se

environment-economy indicators are used to

evaluate progress toward a reduction of resource

use (dematerialization), which has been identi-

fied as a key prerequisite for achieving environ-

mental sustainability (see, for example, Hinter-

berger et al. [1997]).

Indirect Materials Flows ofTraded Products

The concept of indirect materials flows of

traded products is crucial for the interpretation

of some of the MFA indicators presented in the

following section. Figure 1 illustrates that indi-

rect flows associated with imports are not physi-

cally imported but refer to material requirements

along production chains abroad needed to man-ufacture and deliver products to the national

border. Indirect flows have also been termed

embodied material requirements or ecological

rucksacks of traded products in other MFA pub-

lications.

Indirect flows comprise both used and unused

(hidden) components. Used components include

raw materials for manufacturing the products; in-

frastructure, such as plants and machines; and

energy for production and transportation pur-

poses. Unused components of indirect flows refer

to the corresponding unused (hidden) extraction

linked to the extraction of used materials (suchas overburden from mining).

In parallel to the concept of indirect flows of

imports, indirect flows of exports are associated

with exported products. This category comprises

(used and unused) material requirements neces-

sary in the analyzed economy to produce exports

to other countries.

Two main approaches for assessing indirect

flows associated to imports and exports can be

distinguished. In most MFA studies published so

far, the calculation of indirect flows was carried

out by a simplified life-cycle assessment (LCA)

of traded products or product groups, a methodthat has been developed at the Wuppertal Insti-

tute for Climate, Environment, and Energy in

Germany. The so-called material intensity anal-

ysis (Schmidt-Bleek et al. 1998) is an analytical

tool to assess material inputs along the whole life

cycle of a product (Schmidt-Bleek 1992). At

present, the Wuppertal Institute is the most im-

portant source for data on indirect flows of traded

products (Bringezu 2000; Bringezu and Schutz

2001). This LCA-oriented approach is mainly

suitable for the calculation of indirect flows as-

sociated with biotic and abiotic raw materials

and products with a low level of processing. Ap-

plying this method to calculate indirect flows for

semimanufactured and finished products requires

the compilation of an enormous amount of ma-

terial input data at each stage of production. This

is a cost- and time-intensive undertaking and

makes the definition of exact system boundaries

a difficult task (see also Joshi [2000]). Therefore,


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indirect materials flows have only been estimated

for a very small number of finished products.

An alternative method for calculating indi-

rect flows is to apply input-output (IO) analysis

based on national IO tables in monetary units,which are extended by a vector of material input

data in physical units.4 The major advantage of

this approach is that it avoids imprecise defini-

tions of system boundaries, as the entire eco-

nomic system is the scope for the analysis (Mat-

thews and Small 2001). By performing IO

analysis of materials flows, one is able to not only

assess the direct material requirements in the

production process of the analyzed sector itself,

but also all indirect requirements resulting from

intermediate product deliveries from other sec-

tors. Thereby, total (direct and indirect) material

input necessary to satisfy final demand can bedetermined. An IO method linking monetary IO

models with MFAs on the national level has

been described and applied for the case of the

German economy in the work of Hinterberger

and colleagues (1998).5 In February 2003, a re-

search project funded by the European commis-

sion (Modeling Opportunities and Limits for Re-

structuring Europe toward Sustainability) started

to compile a database for primary extracted ma-

terials (used and unused domestic extraction) for

all important economies of the world, which will

be linked to a global IO model system, in order

to estimate indirect flows of imports to Europeon a disaggregated (up to 36 economic sectors)

level (seewww.mosus.net).

Materials-Flow-Based Indicatorsfor Chile

In this section, the first materials-flow-based

indicators for Chile are presented, covering the

period from the beginning of trade-oriented de-

velopment in 1973 up to the year 2000. Data

were comprehensively collected for the catego-

ries of domestic extraction, imports, and exports.

Mostly, data were taken from Chilean institu-

tions and, where necessary, completed by statis-

tics from international organizations, such as the

United Nations. Missing data include unused do-

mestic extraction, physical stock, and physical

accumulation within the economic system, as

well as output flows (waste and emissions). Al-

though indirect flows of imports and exports are

not calculated in detail because of data restric-

tions, an estimation of these flows is given, as

these indirect flows have strong implications for

the interpretation of Chiles MFA indicators.

Direct Material Input

The first materials-flow-based indicator pre-

sented is the so-called direct material input

(DMI) that comprises all materials of economic

value directly used in production and consump-

tion activities. DMI equals (used) domestic ex-

traction plus imports. Figure 3 shows the absolute

numbers of DMI in million tons.

The figure clearly illustrates the significant

growth in the last 30 years of material input to

the Chilean economy, which rose from 103 mil-lion tons in 1973 to 656 million tons in 2000.

The accumulated growth rate in the period of

investigation was highest for the minerals and

mining sector (805%), but imports (360%) and

biomass extraction (100%) also grew consider-

ably. Only domestic fossil fuel extraction showed

a decreasing trend (66%). The reason for the

exceptional increase of DMI lies in particular in

the expansion of the copper production sector.

The concentration of copper in the copper-

containing mineral, which is primarily extracted

in the copper mines (run-of-mine),6 is very low,

and it steadily decreased, from around 1.5% inthe 1970s to around 0.85% in 2000 (Ugalde

2002).7 At present, an average of 117 tons of

copper-containing mineral have to be extracted

in order to produce 1 ton of pure copper. The

part of used primary extraction that ends up as

waste during the copper concentration process

(at present 116 tons per ton of pure copper) is,

in accordance with the EUROSTAT guide and

previous MFA publications (Adriaanse et al.

1997), termed ancillary copper mineral in the

following sections.

As explained above, only used material inputs

are considered in this study. The dominance of

the mining sector would be even more visible if

the unused (hidden) parts of mineral extraction

(overburden of rocks, which have to be extracted

in order to permit access to copper-containing

mineral) were also included. For example, in the

worlds largest open-pit copper mine (Chuqui-


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Figure 3 Direct material input (DMI) of Chile, 19732000, in million tons. DE domestic extraction.

camata in northern Chile), 3.12 tons of rock

must be extracted in order to obtain 1 ton of

copper-containing mineral (CODELCO 2001).

Taking these unused (hidden) flows into ac-

count, the overall material requirement neces-

sary to produce 1 ton of pure copper rises to more

than 360 tons.

Figure 4 presents DMI per capita for Chile

and compares the numbers with those gained

from previous MFA studies of other Latin Amer-ican countries. In Chile, DMI per capita rose

from around 11 tons in 1973 to more than 43

tons in 2000. Comparison with materials flow

studies of other Latin American countries reveals

that the numbers were more or less equal until

the end of the 1980s, and then they diverged

mainly as a result of the rapid expansion of the

Chilean copper-mining sector. Per capita mate-

rial input in Chile at the end of the 1990s was

one of the highest in the world: In Europe, only

Finland had numbers greater than 40 tons, and

the average of the European Union in 2000 was

around 17 tons (EUROSTAT 2002). In 1995,

DMI per capita for the United States was 24 tons

and for Japan 16 tons (Adriaanse et al. 1997).

As the indicator DMI illustrates, resource ex-

traction in Chile is to a large extent dominated

by one single material category. Therefore, inter-

national comparisons of aggregated MFA indi-

cators should be interpreted with caution. Values

for DMI or DMI per capita of the same absolute

magnitude can have very distinct material com-

positions and significant variation in environ-

mental impacts caused by different materials

flows (a more detailed discussion on different

qualities of materials flows and the environmen-

tal impacts related to Chiles resource extraction

activities appears later in the article). As shown

above, the mining sector contributes almost 90%of Chiles DMI per capita, whereas a DMI per

capita of the same magnitude for a European

country has a significantly larger share of fossil

fuels and biomass (EUROSTAT 2002).

Physical Trade Balance

Concerning trade and the environment, the

physical trade balance (PTB) is the most impor-

tant indicator that can be derived from

economy-wide MFA. A PTB expresses whether

resource imports from abroad exceed resource ex-

ports of a country or world region and to what

extent domestic material consumption is based

on domestic resource extraction or on imports

from abroad. The calculation of a PTB is done

by subtracting exports from imports, the reverse

of calculating monetary trade balances. Deficit in

this context thus refers to the net export of bio-


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Figure 4 Direct material input

(DMI) for Chile, Brazil, and

Venezuela, in tons per capita.

Data source:For Brazil (1975

1995), Machado (2001); for

Venezuela (1989 1997),

Castellano (2001).

physical resources (EUROSTAT 2001). In ad-

dition to the presentation of an aggregated num-

ber for total external trade, PTBs should be

discussed on a more disaggregated level, describ-

ing the importance of specific material or productgroups (Giljum and Hubacek 2001).

A PTB can comprise direct materials flows,

which correspond to the weight of the imported

and exported products. A comprehensive PTB

should also consider all indirect material require-

ments (see above) necessary to produce and

transport the traded goods. This subsection first

analyzes a PTB of direct materials flows and then

provides an estimation of a comprehensive PTB

for Chile.

The key role of the export sectors in the Chil-

ean development strategy was outlined above.

Physical exports from Chile to the rest of theworld nearly tripled, from 9.5 million tons in

1973 to more than 27 million tons in 2000. In

the 1970s, products from the mining sector made

up almost 100% of Chiles physical exports. A

diversification was achieved in the past 15 years,

mainly as a result of the expansion of biomass

exports from fruit growing, forestry, and fishery

activities. In 2000, 51% of all physical exports

originated from the mining sectors and 37% were

biomass products.

Since the mid-1980s, physical imports to

Chile from the rest of the world grew even faster

than exports, mainly because of the multiplica-

tion of imports of fossil fuels and fossil distillation

products. On the one hand, demand for fossil fu-

els from abroad increased because Chile is run-

ning out of sources within its own borders. On

the other hand, it has become apparent that the

change in the metabolic profile triggered by high

growth in GDP since the end of the 1980s (see

figure 1) in particular increased the demand for

fossil fuels. Combining physical imports and ex-

ports delivers the PTB of direct materials flows

(figure 5).From the 1970s until the mid-1990s, Chile

was a net exporter of natural resources. The high

growth of imports in the later years compensated

for the former physical deficit, so that today

Chiles trade relations are more or less balanced

in physical terms. In monetary terms, however,

Chiles trade balance was negative throughout

the 1990s, as expenditures for fossil fuel imports

exceeded earnings from exports (Banco Central

2001).

But does consideration of indirect material re-

quirements, linked to traded goods, change this

picture? Compilation of a comprehensive PTBcan answer this question. Indirect materials flows

activated by international trade activities can be

assessed either through a (simplified) LCA of im-

ports and exports or by applying IO analysis (see

above). In the case of Chile, data availability

concerning indirect flows is very limited. Com-

pilation of detailed information on indirect ma-

terials flows associated to imports to Chile and

IO analysis of materials flows for determining

overall resource inputs of Chiles exports remain

to be done. A first approximation for a compre-

hensive PTB, however, can be given by including

estimates of indirect flows for the most important

export and import products. For Chile, these are

exports of pure copper and imports of fossil fuels.

As specific numbers for indirect flows of fossil fuel

imports to Chile are not available, these flows

are estimated based on numbers given for the Eu-

ropean Union (Bringezu and Schutz 2001). In


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Figure 5 Imports, exports, and physical trade balance (PTB) of direct material flows for Chile, 1973

2000, in million tons.

the study for the European Union, an indirect

flow factor of 0.17 tons per ton of imported crude

oil is applied. For all other fossil products, an es-

timated factor of 8 tons per ton of imports, which

is the average number for indirect flows of brown

and hard coal imports to the European Union, is

used in this article.

For the case of copper, a first estimation of

indirect flows of copper exports is given by add-

ing to exports of pure copper the corresponding

ancillary copper mineral (the part of used pri-

mary extraction that ends up as waste in the cop-per concentration process). Figure 6 presents the

estimation of a comprehensive PTB for Chile.

This estimated comprehensive PTB only in-

cludes a small number of indirect flows and

should therefore be interpreted as a preliminary

result; however, it can be seen that the picture

changes when indirect flows of the most impor-

tant import and export products are taken into

account. Chile apparently has a substantial

physical trade deficit, due to the very high ma-

terial requirements for the production of concen-

trated copper. Further material and energy inputs

of substantial magnitude needed during the cop-

per concentration process (the production of 1

ton of pure Chilean copper requires among other

things 22 GJ of energy, 68 kg of steel, 131 kg of

limestone, and more than 350 m3 of water; see

Krausz et al. [1999]) are not included in the es-

timation. This trend would probably be re-

inforced when taking into account unused parts

of resource extraction (such as overburden from

copper-mining activities) and indirect flows as-

sociated with other material-intensive export

products (such as other mining products, prod-

ucts from basic metal or chemical industries, or

biomass products).

In general, activities in the primary sectors

(such as mining, agriculture, and forestry) are the

most resource intensive per unit of economic

output (Mani and Wheeler 1998; UNEP 1999b).

That means that, for relatively little added value,large amounts of materials are extracted, and

large amounts of waste and emissions are gener-

ated in the process of extraction and refinement.

Considering the huge material requirements and

resulting waste from copper extraction and re-

finement and the downward trend of copper

prices on the world market (see above), this

trend can be confirmed for the case of the Chil-

ean copper sector.

The results presented above also seem to sup-

port the hypothesis of some ecological econo-

mists emphasizing that integration of resource-

abundant countries in the south would lead to

an economic specialization pattern, which would

allow industrialized countries to shift negative

environmental impacts linked to the refinement

of raw materials to other world regions and to

import the relatively cleaner concentrated prod-

ucts (such as pure copper) instead of producing


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Figure 6 Imports, expor ts, and physical trade balance (PTB) for Chile including estimated indirect flows

for copper exports and imports of fossil fuels, 19732000, in million tons.

them within their own territory (Muradian and

Martinez-Alier 2001a; Rothman 1998). An in-

ternational division of labor, in which primary

activities are increasingly concentrated in the

South, thus would lead to an unequal distribu-

tion of environmental burden, such as the ac-

cumulation of wastes and emissions in countries

specialized in metal mining and processing (Mu-

radian and Martinez-Alier 2001b). A consider-

able part of recently published work on trade lib-

eralization and environmental conditions

empirically tested this proposition, also discussedas the pollution haven hypothesis.8

MFA can be a valuable tool to clarify whether

negative environmental consequences due to

economic specialization in the world economy

are disproportionately concentrated in particular

world regions. At present, however, MFA data

are available only for a very limited number of

southern countries, and thus more empirical evi-

dence is needed in order to derive general trends.

Direct Material Consumption

Indicating the share of domestic material ex-

traction, which is used for producing exports, can

also have strong implications for the interpreta-

tion of material consumption indicators. The

most commonly used consumption indicator is

called direct material consumption (DMC)

and is calculated by subtracting direct physical

exports from DMI (the sum of domestic extrac-

tion and imports). DMC expresses the amount

of materials that physically remain within thena-

tional territory and has been discussed as an in-

dicator of material welfare or the material

comfort of societies (see, for example, Fischer-

Kowalski and Amann [2001]). Figure 7 shows

Chiles DMC for four selected years, calculated

according to the MFA standard concept.

According to DMC, the material welfare of

Chiles society rose considerably and per capita

consumption was 4 times higher in 2000 com-pared to 1973. In addition to an increase in in-

come in monetary terms (see figure 1), the

export-based development strategy apparently

also raised the material comfort.

Although copper extraction activities by far

dominate DMI (figure 3) and 97% of copper is

produced for satisfying export demand, the frac-

tion of exports is remarkably small (figure 7).

This results from the fact that in DMI, copper is

represented as copper-containing mineral (run-

of-mine, with a copper grade of around 1%),

whereas the category of exports contains pure

copper. Ancillary copper mineral, the part of

used extraction that ends up as waste in the

course of the concentration process (see above),

is part of DMI and DMC but is not indicated

separately as material input that is used for the

production of exports. Thus in figure 8, the share

of indirect flows associated with copper exports


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Figure 8 Direct exports, indirect flows associated to copper exports, and remaining domestic

consumption, in tons per capita.

Figure 7 Domestic extraction, imports, direct material consumption (DMC), and exports of Chile for four

selected years, in tons per capita.

(ancillary copper mineral) in DMI is shown sep-

arately, in order to demonstrate the magnitude

of change in domestic material consumption,

when these flows are considered.

The remaining material consumption hasbeen growing only at a very slow rate, indicating

that increased material input has almost exclu-

sively served as resource requirements for the

copper export industry. Again, this trend would

probably be reinforced when taking into account

other material-intensive export products. This

example emphasizes that the interpretation of

material welfare based on material consumption

indicators as presented by EUROSTAT (2001)

can be misleading, especially for extraction econ-omies in the South with a high share of resource-

intensive products in total exports.

High material inputs for the industrial pro-

duction sectors translate into a high number for

DMI, and consequently also a high DMC, but do


12/21


13/21



Figure 9 Direct material input (DMI; in tons) per GDP (in constant 1000 pesos, 1986) for the whole

economy and excluding the copper mining sector.

Figure 10 Resource productivity in three extractive sectors for Chile, 1973 2000.

analyzing economy-environment relationships

and deriving environmental and integrated en-

vironmental/socioeconomic indicators. Given

consistent data organization, materials-flow-

based indicators can be aggregated from the mi-

cro to the macro level, thus allowing comparison

with aggregated economic or social indicators,

such as GDP and unemployment rates. More im-

portantly, MFA accounts have the same structure

as monetary accounts and enable the parallel

analysis of monetary and physical flows. They

provide policy makers with information they are

accustomed to handling and can therefore help

shift the policy focus from purely monetary anal-

ysis to integrating biophysical aspects (Kleijn

2001).


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The main shortcomings of bulk MFA are the

aggregation of different qualities of materials

flows to derive aggregated indicators and the

weak links between MFA indicators and envi-

ronmental impacts.

Aggregation of Materials Flows

The MFA indicators presented in this article

clearly show the increasing environmental pres-

sures stemming from changes in the biophysical

metabolism of Chile in the last 30 years. The

results also clarify that aggregated MFA indica-

tors can, to a large extent, be dominated by only

one material category (in the case of Chile, cop-

per mining activities), which can lead to misin-

terpretations of results, as detailed information

on developments of other material groups or eco-nomic sectors is diluted or obscured (see, for ex-

ample, the section on resource productivity in-

dicators). The collection and interpretation of

MFA data should therefore always be carried out

at a level that disaggregates economic sectors

and/or material groups.

The major potential of MFA for future policy

use lies in particular in the parallel analysis of

monetary and physical flows on a disaggregated

level. One promising approach is to build com-

prehensive environmental-economic models.

For example, Lange (1998) integrated natural re-

source accounts in a 30-sector, dynamic IOmodel for Indonesia in order to assess possible

environmental implications of Indonesias na-

tional development plan and to evaluate options

for achieving the plans objectives in the face of

environmental and resource constraints. A simi-

lar study for Chile is needed to assess the eco-

nomic driving forces behind increasing resource

extraction on a sectorally disaggregated level and

to estimate future material input (and output)

flows under different scenarios for economic

growth, structural change, and engagement in in-

ternational trade.

Valuation of Materials Flows According to

Environmental Impacts

Another major point of critique is the fact

that weight-based MFA indicators do not tell

anything about actual environmental impacts.

These impacts are, however, a crucial factor in

the evaluation of economic development from

the perspective of environmental sustainability.

The focus on the reduction of aggregated re-source use is a necessary, but not sufficient, pre-

condition for achieving environmental sustain-

ability. The question remains as to what exactly

has to be reduced to achieve a sustainable re-

source throughput (see Reijnders 1998). To date,

these shortcomings significantly reduce the use-

fulness of MFA indicators for policy use.

Although problems related to weight-based

aggregation are in principle recognized by the

MFA community, this procedure has been justi-

fied by the intention to create value-neutral

physical accounts that include all materials, re-

gardless of their economic importance or envi-ronmental impacts (Matthews et al. 2000, 2).

Small materials flows, which might be neglected

in aggregated indicators, can have large environ-

mental impacts, however. Therefore, monitoring

changes in the composition of aggregated indi-

cators due to substitution between different ma-

terials or between different technologies is of

crucial importance for the environmental per-

formance of an economy.

In the case of Chile, all sectors involved in

resource-intensive export production cause sub-

stantial environmental impacts, either at the

stage of resource extraction or through the gen-eration of waste and emissions during resource

refinement. Major negative impacts in mining and

production of Chilean copper include (1) large

emissions of carbon dioxide (CO2) and sulfur di-

oxide (SO2) during smelting processes (Alvarado

et al. 2002), (2) high water requirements (which

in the desert regions of northern Chile can only

be secured by exploiting groundwater sources or

constructing pipelines from water reservoirs in

the Andes), (3) contamination of underground

waters through release of acid wastewater,

(4) degradation of soils, and (5) disposal of over-

burden and chemically reactive solid residuals.

The export-oriented restructuring of the ag-

ricultural sector was accompanied by a significant

increase in the use of pesticides and fertilizers,

which led to pollution of water resources and ac-

celerated soil erosion in monocultural produc-


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tion areas. All these effects have negative impli-

cations for human health, food safety, and

environmental quality (Altieri and Rojas 1999).

At present, 90% of Chiles forestry products

originate from single-species (pine or eucalyptus)plantations and only 10% from native forests. As

with agricultural monocultures, forest planta-

tions produce such typical environmental im-

pacts as uneven nutrient consumption, reduction

in soil fertility, and high vulnerability to pests

and diseases. Furthermore, 20% to 30% of the

current plantation area has been illegally con-

verted from native forests, contributing to bio-

diversity losses (Scholz 1996).

Most of these negative environmental im-

pacts are determined by qualitative characteris-

tics of different materials input or output flows

and cannot be adequately depicted by quantita-tive numbers. Suggestions on how to weight ma-

terials outflows according to their different po-

tential for causing environmental harm have

been presented, for example, by Frohlich and

colleagues (2000) and Matthews and colleagues

(2000); however, an internationally standardized

procedure for considering qualitative differences

in the quantitative concept of MFA has yet to

be developed.

In LCA, the development of a common

framework for environmental impact assessment

has been a major issue in the past decade, and

today there is general agreement on the mostrelevant impact categories and corresponding in-

dicators (for example, Udo de Haes et al. [1999]).

The system of relevant categories comprises ex-

traction of biotic and abiotic resources and land

use on the input side and a number of impact

areas on the output side (such as climate change,

human toxicity and eco-toxicity, and acidifica-

tion and nitrification). Furthermore, a number of

evaluation methods have been developed that al-

low aggregating different effects into an overall

judgment of alternative options (for example,

Notarnicola et al. [1998]).

Further development concerning the quali-

tative evaluation of MFA data could adapt these

existing valuation methods in order to come up

with alternative procedures to weight-based ag-

gregation. Some authors (for example, Brunner

[2002]) have even stated that MFAs are of no

use if data presentation is not followed by a criti-

cal assessment of the meaning of results in a pol-

icy context. Additional procedures are therefore

needed to perform an evaluation of MFA results.

Weighting approaches based on a distance-to-target determination represent one group of valu-

ation methods, and these have been applied in a

large number of LCA studies (Seppala and Ham-

alainen 2001). These methods would be particu-

larly appropriately performed with MFA data, as

valuation starts from physical flows. The eco-

scarcity or eco-factor method (Ahbe et al. 1990)

relates the critical load of a substance to the ac-

tual load of anthropogenic emissions of that sub-

stance, with the critical load being derived from

national agreements on the limits for environ-

mental load of a certain flow. This procedure has

been criticized on the grounds that results de-pend on national political priorities, which im-

plies that there would be different eco-factors for

every country. This fact would make interna-

tional comparisons of eco-scarcities impossible

(Notarnicola et al. 1998). In other distance-to-

targets methods, such as the Eco-Indicator 95 ap-

proach (Goedkoop 1995), targets are determined

from ecological critical loads deriving from en-

vironmental science.

So far, distance-to-targets methods have

mainly been applied at the level of products or

product systems within LCA. At the macroeco-

nomic level, a similar approach has been intro-duced under the term sustainability gap (Ekins

and Simon 1999). The sustainability gap can be

defined as the difference between the current

level of environmental impact from a particular

source and the sustainable level of impact ac-

cording to sustainability targets derived from sci-

entific considerations. Sustainability gaps have

been estimated for a number of air pollutants for

the United Kingdom and the Netherlands (Ekins

and Simon 2001).

All distance-to-target methods presented so

far have their focus on materials outflows (waste

and emissions) of production and consumption

activities. In order to apply this approach for the

evaluation of MFA data, further methodological

development of this type of assessment frame-

work is needed to consider equally the extraction

of biotic and abiotic resources. This would be of


16/21



particular importance for a comprehensive eval-

uation of extraction economies such as Chile.

Possible Extensions of the MFA

Framework

1. Considering natural stocks. In this article,

only materials flows between the natural

and the socioeconomic system have been

assessed; however, especially for renewable

resources, the physical natural stocks are

also of great significance from the view-

point of environmental sustainability. In

Chiles fishing sector, for example, sustain-

ability problems were not produced by

high catch rates as such, but rather as a

consequence of rapid depletion of the

physical fish stock, which then caused acollapse of yields (Ibarra et al. 2000). An-

other example is the boom of products

from the forestry sector that has been ob-

served in recent years. This development

must not principally be judged as unsus-

tainable, as it is the qualitative (for ex-

ample, the species composition) and quan-

titative (total areas covered by forests)

development of the forestry stock that de-

termines the long-term sustainability of

this sector. The estimation of natural re-

source stocks is so far not part of the stan-

dardized MFA framework (EUROSTAT2001), but it could be a valuable exten-

sion, especially for the formulation of long-

term policy strategies for specific sectors.

2. Linking MFA and land-use accounting.An-

other promising extension of MFA analy-

ses is to establish the link to other physical

accounting methods. The connection to

land-use accounts is of particular impor-

tance to integrate spatial aspects in inter-

pretations of MFA results. For example,

the major materials flows of the mining

sector in Chile occur in very sparsely pop-

ulated areas and within ecosystems of low

biological productivity (some of the major

copper mines are located in the Atacama

dessert in the north of Chile).9 These flows

have very different environmental impli-

cations compared to others that occur in

densely settled or fertile agricultural re-

gions. Land intensity could be one addi-

tional criterion to valuate materials

flows.10

3. Comparing MFA with other methods ofenvironmental-economic accounting. Chile is

so far the only country in the south for

which an index of sustainable economic

welfare (ISEW) has been calculated (Cas-

taneda 1999). Results illustrate that the

ISEW for Chile ran almost parallel to GDP

from 1965 to 1985 but then declined until

1995, whereas GDP almost doubled. From

the perspective of this aggregated indica-

tor, Chiles current development path is

therefore not sustainable. The calculation

procedure of the ISEW has raised criti-

cism, as all environmental parameters

(such as depletion of renewable and non-

renewable resources and pollution of water

and air) have to be monetarized in order

to be integrated in the ISEW. In particular,

the use of market prices and the applica-

tion of some questionable measures for es-

timating environmental costs, such as the

value of replacement costs for nonrenew-

able resources, would in many cases lead

to arbitrary results and imply an underes-

timation of the actual environmental im-

pact (Ekins 2001). The same points of cri-tique are valid for the concept of green

GDP.

The major value added of MFA (and

environmental accounts in physical units

in general) is that problems related to mo-

netarization are avoided. Comprehensive

environmental-economic assessments

should therefore link physical accounts as

satellite systems (with the same data struc-

ture) to traditional national accounts in

monetary units (as suggested, for example,

in the Integrated System of Environmental

and Economic Accounts (SEEA) [UN

2003]). These integrated accounting sys-

tems are powerful tools to address a large

number of policy issues, as Lange (2000)

illustrated for the case of the Philippine

SEEA.


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18/21



drickson et al. [1998]; Matthews and Small

[2001]; Nielsen and Weidema [2001]).

5. There have also been attempts to calculate in-

direct material flows of traded products by per-

forming IO analysis of material flows based on

physical IO tables, which express all economic

transactions (including resource extraction and

disposal of wastes and emissions) exclusively in

biophysical terms (Giljum and Hubacek 2001;

Konijn et al. 1997).

6. According to the EUROSTAT convention, met-

als should be accounted as run-of-mine and not

as concentrates, as the concentration process al-

ready represents the first step in the production

chain of a metal-containing product.

7. This information is in line with publications from

the U.S. Bureau of Mines, which published simi-

lar average grades for copper-containing minerals

in Chile (for example, U.S. BOM [1992]).

8. There exists a rapidly growing body of literature

on the so-called pollution haven hypothesis

(PHH). The most common definition of the

PHH is that polluting industries tend to migrate

toward (poorer) countries with weaker (or not

well enforced) environmental standards. Re-

search on this issue applied a large variety of

methods and concepts, and results are not yet

conclusive. For a general discussion on the PHH

see, for example, Neumayer (2001) and Clapp

(2002). For empirical studies supporting the PHH

see, for example, Xing and Kolstad (2002) and

Heil and Selden (2001). For evidence and argu-

ments against the PHH, see, for example, Mani

and Wheeler (1998) and Wheeler (2001, 2002).

9. Ecosystems with low biological productivity

(such as deserts) inhabited by species highly spe-

cialized on ecosystem conditions can be particu-

larly vulnerable to environmental stress caused by

anthropogenic activities, however.

10. Editors note:For a discussion of land use metrics

for life-cycle assessment and their application to

mining, see the article by Spitzley and Tolle in

this issue of the Journal of Industrial Ecology

(2004).

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About the Author

Dr. Stefan Giljum is a researcher at theSustainable

Europe Research Institute (SERI) in Vienna, Austria.

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