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Environmental benefits of the service economy

This volume of Ecological Economics has a manuscript that examines the environmental benefits of the transition from services to manufacturing. From the abstract:

A service transition is supposed to lead to the decline of energy intensity (energy/GDP). We argue that this interpretation is overly optimistic because the shift to a service economy is somewhat of an illusion in terms of real production. Several recent studies of structural effects on energy intensity have made the error of using sector shares in current prices, combined with GDP in constant prices, which is inconsistent and ignores the different behaviour of prices across sectors. We use the more correct method of sector shares in constant prices, and make an attempt to single out the effect from the real service transition by using two complementary methods: shift share analyses in current and constant prices, and Logarithmic Mean Divisia Index (LMDI) for 10 developed and 3 emerging economies.

A service transition is rather modest in real terms. The major driver of the decline in energy intensity rests within the manufacturing sector. Meanwhile, the transition to a service sector had a small downward impact on energy intensity in 7 of the developed countries (and no impact in the others). For emerging economies like Brazil, Mexico and India, it is the residential sector that drives energy intensity down because of the declining share of this sector as the formal economy grows, and as a consequence of switching to more efficient fuels.

This is an interesting paper, one that drives home the necessity of manufacturing transformation rather than simply trying to chase polluters elsewhere.

The full citation:

Henriques, Sofia Teives and Astrid Kander. 2010. The modest environmental relief resulting from the transition to a service economy. Ecological Economics 70 (2): 271-282.


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