Using input–output tables and data on wastes from the Japanese industrial sectors, we have provided empirical evidence that, in Japan environmental performance of their upstream suppliers contributes positively to the performance of their final product assembly firms or economic sectors. In this paper, we propose to investigate the same hypothesis for firms and other establishments in manufacturing and other sectors in India. Indian supplier firms that sell goods and services to their client assembler firms are not generally structured in the form of efficient supply chains as in advanced economies. So, the environmental performance of these suppliers may not have positive impacts on the performance of their assembler firms or economic sectors, but this is yet to be verified empirically.
- greenhouse gas emissions
- supply chains
- environmental management
- firm performance
Limiting the amounts of industrial wastes generated in firms’ manufacturing processes has been of policy interest in recent years. A type of waste of our interest in this paper is greenhouse gases (represented by the carbon dioxide equivalent below). Even though it is not harmful to human health, CO2 is being regulated like toxic industrial wastes in many developed countries including Japan. More recently, the importance of limiting CO2 emissions globally has been recognized by both developed and developing nations, and an international treaty to strengthen the former Kyoto protocol was signed in Paris. The 2015 United Nations Climate Change Conference, held in Paris, France, from November to December 2015 was the 21st yearly session of the Conference of the Parties (COP) to the 1992 United Nations Framework Convention on Climate Change (UNFCCC) and the 11th session of the Meeting of the Parties to the 1997 Kyoto Protocol. The Paris Agreement, a global agreement on the reduction of climate change, the text of which represented a consensus of the representatives of the 196 parties attending it, was signed. It needs to be ratified to become a world treaty .
The 2015 United Nations Climate Change Conference, held in Paris, France, from November to December 2015 was the 21st yearly session of the Conference of the Parties (COP) to the 1992 United Nations Framework Convention on Climate Change (UNFCCC) and the 11th session of the Meeting of the Parties to the 1997 Kyoto Protocol. The Paris Agreement, a global agreement on the reduction of climate change, the text of which represented a consensus of the representatives of the 196 parties attending it, was signed. It needs to be ratified to become a world treaty .
One of the topics of research interest, which has not received much empirical attention, is the extent to which CO2 emissions, as an industrial waste, are generated along firms’ supply chains. Although we see large corporations (e.g., 3M, Sony) promoting green procurement policies and claiming to use environment-friendly suppliers, we have little empirical evidence yet to suggest how such environmental management methods based on supply chains might benefit large downstream firms economically. We do not have much empirical evidence either about the impacts on final products of environmental management policies conducted by firms in their supply chains emerging in developing countries like India.
In this paper we present empirical estimates for the amounts of greenhouse gas (GHG) emissions generated by Indian manufacturing and other economic sectors, and their supply chains. (GHG emissions are measured in carbon dioxide (CO2) equivalent in this paper.) We then estimate their contributions to firm performance measured in terms of value added. Figures 1 and 2 show CO2 emissions per person and per income, respectively, in India and Japan over time. We see from these figures that while Japan emits more CO2 than India per capita, Japan generates less CO2 emissions per dollar than India does.
The rest of the paper is organized as follows. After a brief review of earlier studies in Section 2, we discuss our method and approach toward the analysis of the generation of industrial waste (CO2 emissions here) by supply chains in Section 3. Our data are briefly introduced in Section 4. We show and analyze certain patterns that are found in the generation of CO2 emissions in Indian and Japanese industries in Sections 5 and 6. Section 6 presents our empirical results that relate the value added to the generation of wastes by downstream and upstream firms. Section 7 concludes.
There are relatively few research studies that use nations’ input–output (I–O) tables as the data source for analyzing the relationships between supply chains and firms’ environmental performance. Hayami et al.  present a framework in which I–O tables can be used for analyzing the effects, at the sector level, of the environmental management performance of firms in supply chains on their downstream assembly firms’ performance. They present references on the literature that discusses many aspects of environmental management at upstream supply chains as related to their downstream customer firms [7,8]. Discussions on supply chains in India are also found [9–11]. Details of I–O analysis and applications to the Indian economy and environmental management are found in papers contained in .
3. Our approach to estimating output and waste along the stages of a supply chain
As noted earlier, certain downstream producers in developed countries are beginning to practice “green procurement,” by which upstream suppliers with greener production processes become the preferred suppliers of their downstream customer firms. For example, Cisco, NEC, Sony, and Toshiba discuss their corporate green procurement guidelines in [13–16]. We apply this notion to India and investigate empirically the extent to which the same notion holds in India.
In order for the government to evaluate the potential benefits (i.e., the greening) of upstream firm production processes resulting from promoting downstream instruments, it is essential that we estimate relationships that describe the generation of waste materials at both upstream and downstream firms in a national economy. However, to our knowledge, only Hayami et al. present an empirical framework to achieve this objective using available data . They also present an empirical model that allows us to estimate downstream firms’ benefits of reduction of their suppliers’ environmental wastes.
We apply the above model to India and derive some preliminary empirical estimates that evaluate the relative importance of the waste materials generated along the supply chain. Our findings in this chapter provide complementary evidence to the importance of environmental management in supply chains reported, for example, for individual firms, obtained using survey data and methodologies different from ours [8,17]. A questionnaire-based survey across 124 companies from eight industrial sectors in Taiwan was used  in one study, while survey data on a sample of 122 firms drawn from electronics manufacturers listed on the database of the Taiwan Stock Exchange Corporation (TWSE) market and the Gre Tai Securities Market (GTSM) in Taiwan was used in another study . See  where Indian manufacturers’ approaches to green supply chain management are explained.
A questionnaire-based survey across 124 companies from eight industrial sectors in Taiwan was used  in one study, while survey data on a sample of 122 firms drawn from electronics manufacturers listed on the database of the Taiwan Stock Exchange Corporation (TWSE) market and the Gre Tai Securities Market (GTSM) in Taiwan was used in another study .
See  where Indian manufacturers’ approaches to green supply chain management are explained.
3.1. Estimation of output along a supply chain
Our methodology is based on the input–output (I–O) analysis originally developed by Leontief [19,20]. (Applications of the I–O analysis to waste management and other environmental issues are found, for example, in [12,21–23]. Additional uses of input–output analysis in environmental management are found in . We divide an economy into industrial and other economic sectors where production of goods and services takes place. We define I–O technical coefficients
We denote by
In order to produce the final downstream demand
Generally, we can trace production activities along the supply chain backward, starting from the final demand, and we get
In order to be able to produce final demand
We have shown that our input–output analysis identifies the successive upstream production processes that are followed by the average supply chain for the final demand vector
In this paper, we consider CO2 (defined here to be the combined greenhouse gases measured in CO2 equivalent) as a waste material associated with industrial production activities.
3.2. Graphical representation of connectedness of I–O sectors
Different sectors tend to be more connected in modern developed economies than in developing economies. This is because, in a modern economy, unproductive sectors will become more productive, with inputs from more productive sectors to survive. In addition, primary sectors and supplier sectors of manufacturing are connected to assembly sectors of manufacturing in a functional and efficient manner in supply chains. These functional connections are often missing in developing economies. Figures 3–5 show the degrees of 35 I–O sectors’ connectedness to each other in India and Japan. These 35 sectors are as follows:
|Agriculture, Hunting, Forestry, and Fishing|
|Mining and Quarrying|
|Food, Beverages, and Tobacco|
|Textiles and Textile Products|
|Leather and Footwear|
|Wood, and Products of Wood and Cork|
|Pulp, Paper, Printing, and Publishing|
|Coke, Refined Petroleum, and Nuclear Fuel|
|Chemicals and Chemical Products|
|Rubber and Plastics|
|Other Nonmetallic Minerals|
|Basic Metals and Fabricated Metals|
|Electrical and Optical Equipment|
|Manufacturing, NEC; Recycling|
|Electricity, Gas, and Water Supply|
|Sales, Maintenance, and Repair of Motor Vehicles and Motorcycles; Retail Sale of Fuel|
|Wholesale Trade and Commission Trade, Except of Motor Vehicles and Motorcycles|
|Retail Trade, Except of Motor Vehicles and Motorcycles; Repair of Household Goods|
|Hotels and Restaurants|
|Other Supporting and Auxiliary Transport Activities; Activities of Travel Agencies|
|Posts and Telecommunications|
|Real Estate Activities|
|Renting of m&eq and Other Business Activities|
|Public Administration and Defense; Compulsory Social Security|
|Health and Social Work|
|Other Community, Social, and Personal Services|
|Private Households with Employed Persons|
Intuitively speaking, Figures 3–5 show the degrees of connectedness between sectors in terms of economic transactions. For example, sectors whose transactions are mostly within themselves are depicted as single dots. On the other hand, if two different sectors have more transactions with each other, then those two sectors are connected by a box. Multiple sectors with transactions, such as sectors that define supply chains, are shown with larger boxes containing them. As expected, Figures 3 and 4 show that sectors of the Indian economy are not much connected to each other, though there are considerably more connectedness observed during 2003 than during 1995. This implies that there are increasingly more supply chain type relationships emerging in the Indian economy in recent years. The Japanese economy has developed well-defined supply chain based relationships among sectors in many industries . This is clearly observed in Figure 5. We speculate from these figures, for example, that environmental management performance of upstream suppliers affect the performance of downstream firms much more in Japan than in India.
3.3. Estimation of wastes along a supply chain
Waste here denotes CO2, but our formulation applies to other waste materials as well.
Waste here denotes CO2, but our formulation applies to other waste materials as well.
In the I–O analysis presented in Section 3.1, it is customary to include output which has economic value. In reality, most waste materials have positive or negative economic value. For example, CO2 has economic value in the GHG market currently . Actual statistical treatment of industrial waste materials depends on the nature of each waste material, which we will not discuss here.
In reality, most waste materials have positive or negative economic value. For example, CO2 has economic value in the GHG market currently .
Actual statistical treatment of industrial waste materials depends on the nature of each waste material, which we will not discuss here.
Then in the final stage, stage 0 (
In the immediate predecessor upstream stage, stage 1 (
Similarly, we can derive the amount of waste generated along the upstream stages (
This is shown in the last row of Table 1.
|← ← ←||Indirect
|← ← ←||Indirect
|Production output along the stages of a supply chain|
+ … =
|← ← ←||
|← ← ←||
|Waste output generated along the stages of a supply chain|
+ .... +
+ … =
|← ← ←||← ← ←||
3.4. Output along a firm-specific supply chain and statistically obtained average output along the average supply chain
We do not have data on individual firm-specific supply chains that expand from downstream to upstream stages of production. However, element
4.1. Input–output matrix
As we have noted in Section 3.1, our estimation methodology uses an
I–O technical coefficients
In addition to the I–O matrix
4.2. Waste and y-products surveys, and I–O matrix A
The environmental input–output table that we use here, based on greenhouse gas emission estimates (GOI, 2010), I–O table, material table, calorific table, combustion ratio table, and other data, was constructed by [9,12,29,30].
4.3. Calculating the amounts of waste materials
Using application of the input-output analysis described above, we used the estimated quantities of CO2 for each of the 130 Indian I–O sectors, which we use in our regression analyses. We also used value-added estimations for each of these I–O sectors.
Using I–O analysis, we estimated the amounts of CO2 generated per unit output for each of the 130 I–O sectors.
We are interested in studying the behavior of CO2 emissions in firms’ decision processes. In this paper, we denote by CO2 emissions the total emissions in carbon dioxide equivalents of all greenhouse gases. CO2 has certain characteristics in common in terms of their implications for firms’ own economic incentives and government regulations. In addition to direct regulations of various types pertinent to toxic wastes and CO2, indirect regulations often dictate firms’ management of some of nontoxic wastes as well. For example, firms’ nontoxic wastes are sometimes indirectly regulated in terms of the amounts of such waste materials that firms are allowed to bring to landfills and other waste processing facilities. Some nontoxic wastes have commercial value as well.
In addition to direct regulations of various types pertinent to toxic wastes and CO2, indirect regulations often dictate firms’ management of some of nontoxic wastes as well. For example, firms’ nontoxic wastes are sometimes indirectly regulated in terms of the amounts of such waste materials that firms are allowed to bring to landfills and other waste processing facilities. Some nontoxic wastes have commercial value as well.
5. Waste output along supply chains: example of an auto industry
One topic of research interest is to evaluate the relationships that might exist between downstream and upstream firms in terms of their waste behavior. Input–output analysis identifies statistically average economic relationships that exist between upstream and downstream firms. It is then possible to use input–output analysis also to find the average amounts of wastes that are generated by upstream firms in supply chains in response to production activities for the final products of downstream firms.
5.1. Example of an auto industry example
Table 1 illustrates how our production of output and waste takes place along a supply chain starting from the final downstream demand. By tracing backward, final assembly plant receives inputs from suppliers in upstream stage 1, who in turn receive their inputs from suppliers in upstream stage 2. As we have shown, I–O analysis allows us to estimate inputs between two successive stages of production along a supply chain.
5.2. A numerical example, India and Japan
This example illustrates the supply chain effects in the propagation of waste (CO2) generation along supply chains in India and Japan.
|Indirect (first stage)||0.706568||0.814193||0.15462|
|Indirect (second stage)||1.205888||2.020081||0.383625|
|Indirect (third stage)||1.151894||3.171974||0.602376|
|Indirect (fourth stage)||0.896974||4.068948||0.772717|
|Total (all stages)||5.26577||5.265770||1|
|Indirect (first stage)||1.919879||2.054539||0.4580298|
|Indirect (second stage)||1.238733||3.293272||0.7341874|
|Indirect (third stage)||0.6406156||3.933888||0.8770033|
|Indirect (fourth stage)||0.3034687||4.237357||0.9446573|
|Total (all stages)||4.485602||4.485602||1|
Tables 2 and 3 show how much CO2 emissions occur along the auto supply chains in producing passenger cars with certain characteristics: median size cars in India and cars with 2000 cc engines in Japan.
We see from Table 2 that firms along the auto supply chain in Japan generate 5.26577 tons of CO2 emissions, but only 2% of this amount is generated by the final assembler firms. The remaining 98% of CO2 emissions are generated by suppliers and other upstream firms in the supply chain. In comparison, the corresponding figures for India are: 4.485602 tons of total CO2 emissions per car are generated in total, of which 3% is generated by the final assembler firms and the rest (97%) of the emissions are generated by suppliers (Table 3). This similarity in the patterns of CO2 emissions along auto supply chains between India and Japan suggests that production technology of autos is reasonably standardized, perhaps due to the fact that many auto plants in India are owned and operated to a large extent by Western automakers. Another noteworthy point is that total CO2 emissions per car produced is somewhat lower in India than in Japan. This difference occurs in part because of the sizes of passenger cars considered here that are different between India and Japan, and also in part because of the difference between India and Japan in the amounts of CO2 emissions induced by imported car parts. The use of more imported parts implies lower levels of domestic CO2 emissions, which is the case for India. For passenger car production, this ratio is 0.05846 for India and 0.02316 for Japan.
Based on the results given in Tables 2 and 3, we conclude that government environmental regulations about greenhouse gas emissions need to include not only the final auto producers but also many upstream suppliers, in order to be effective.
We noted that our results in Tables 2 and 3 are consistent with the possibility that downstream firms might be able to upload the processing of CO2 in particular to their upstream suppliers, while processing relatively large amounts of nonenergy-intensive tasks themselves in-house. This could easily happen in practice, since processing energy-intensive tasks is generally expensive.
We also note that this hierarchical structure of processing of the waste materials emitted by firms in assembly-based industries is likely to be typical. This is because of the nature of the types of assembly-based industries, which are most efficiently done by streamlining their supply chains so that assembly operations come last. In addition, assembly firms are generally more powerful than suppliers in their supply chains and hence have the most bargaining power.
Detailed processes of generation of CO2 emissions by upstream and downstream firms are presented in Tables 4 and 5.
|Motor vehicle parts and accessories||0.1013||Cast and forged materials (iron)||0.1115||Pig iron||0.1840||Electricity||0.1315||Pig iron||1.0449|
|Internal combustion engines for motor vehicles and parts||0.0663||Road freight transport||0.0474||Private power generation||0.1040||Private power generation||0.1290||Private power generation||0.4804|
|Private power generation||0.0601||Miscellaneous ceramic, stone, and clay products||0.0372||Coal products||0.0927||Coal products||0.0831||Coal products||0.3476|
|Road freight transport||0.0599||Private power generation||0.0349||Self-transport by private cars (passengers) P||0.0393||Crude steel (converters)||0.0319||Road freight transport||0.1471|
|Sheet glass and safety glass||0.0598||Nonferrous metal castings and forgings||0.0345||Crude steel (converters)||0.0287||Self-transport by private cars (passengers) P||0.0185||Cast and forged materials (iron)||0.1211|
|Research and development (intra-enterprise)||0.0282||Self-transport by private cars (passengers) P||0.0268||Miscellaneous ceramic, stone and clay products||0.0268||Petroleum refinery products (inc. greases)||0.0162||Self-transport by private cars (passengers) P||0.1082|
|Motor vehicle bodies||0.0209||Research and development (intra-enterprise)||0.0260||Hot rolled steel||0.0244||Paper||0.0144||Motor vehicle parts and accessories||0.1080|
|Coastal and inland water transport||0.0165||Synthetic rubber||0.0225||Self-transport by private cars (freight) P||0.0225||Petrochemical basic products||0.0132||Passenger motor cars||0.1076|
|Tires and inner tubes||0.0158||Hot rolled steel||0.0212||Road freight transport||0.0209||Hot rolled steel||0.0120||Crude steel (converters)||0.0910|
|Plastic products||0.0114||Coated steel||0.0207||Cold-finished steel||0.0202||Self-transport by private cars (freight) P||0.0107||Miscellaneous ceramic, stone and clay products||0.0895|
|Waste management services (private)||0.0106||Thermoplastics resins||0.0190||Paper||0.0193||Road freight transport||0.0095||Petroleum refinery products (inc. greases)||0.0695|
|Self-transport by private cars (passengers)
||0.0093||Cold-finished steel||0.0158||Synthetic rubber||0.0166||Aliphatic intermediates||0.0089||Hot rolled steel||0.0689|
|Cold-finished steel||0.0093||Petroleumrefinery products (inc. greases)||0.0154||Thermoplastics resins||0.0161||Miscellaneous ceramic, stone and clay products||0.0087||Internal combustion engines for motor vehicles and parts||0.0687|
|Hot rolled steel||0.0076||Plastic products||0.0153||Petroleum refinery products (inc. greases)||0.0148||Coastal and inland water transport||0.0055||Research and development (intra-enterprise)||0.0638|
|Miscellaneous ceramic, stone, and clay products||0.0071||Other rubber products||0.0131||Aliphatic intermediates||0.0135||Pulp||0.0051||Sheet glass and safety glass||0.0605|
|Self-transport by private cars (freight)
||0.0049||Coastal and inland water transport||0.0129||Petrochemical basic products||0.0124||Cyclic intermediates||0.0048||Self-transport by private cars (freight) P||0.0597|
|Electrical equipment for internal combustion engines||0.0046||Self-transport by private cars (freight)
||0.0128||Coastal and inland water transport||0.0091||Paperboard||0.0042||Paper||0.0537|
|Electric bulbs||0.0044||Coal products||0.0124||Cast and forged materials (iron)||0.0080||Waste management services (private)||0.0041||Cold-finished steel||0.0509|
|Petroleum refinery products (inc. greases)||0.0037||Cast and forged steel||0.0115||Air transport||0.0071||Cold-finished steel||0.0039||Coastal and inland water transport||0.0499|
|Air transport||0.0032||Other final chemical products||0.0104||Waste management services (private)||0.0069||Industrial soda chemicals||0.0036||Synthetic rubber||0.0424|
|Abrasive||0.0030||Wholesale trade||0.0100||Research and development (intra-enterprise)||0.0065||Crude steel (electric furnaces)||0.0035||Thermoplastics resins||0.0392|
|Advertising services||0.0029||Crude steel (converters)||0.0099||Cyclic intermediates||0.0063||Air transport||0.0031||Nonferrous metal castings and forgings||0.0385|
|Other rubber products||0.0024||Paper||0.0073||Aluminum (inc. regenerated aluminum)||0.0062||Ferro alloys||0.0031||Petrochemical basic products||0.0327|
|Coated steel||0.0024||Air transport||0.0066||Other industrial organic chemicals||0.0050||Cement||0.0029||Aliphatic intermediates||0.0307|
|Wholesale trade||0.0023||Motor vehicle parts and accessories||0.0061||Other resins||0.0044||Thermoplastics resins||0.0028||Plastic products||0.0305|
|Harbor transport service||0.0023||Steel pipes and tubes||0.0056||Hired car and taxi transport||0.0038||Petrochemical aromatic products (except synthetic resin)||0.0024||Waste management services (private)||0.0300|
|Sewage disposal||0.0020||Inorganic pigment||0.0053||Coated steel||0.0037||Synthetic rubber||0.0022||Coated steel||0.0282|
|Hired car and taxi transport||0.0019||Waste management services (private)||0.0050||Industrial soda chemicals||0.0037||Research and development (intra-enterprise)||0.0019||Air transport||0.0226|
|Coal products||0.0018||Electrical equipment for internal combustion engines||0.0050||Crude steel (electric furnaces)||0.0036||Other industrial organic chemicals||0.0018||Motor vehicle bodies||0.0219|
|30 sectors Subtotal||0.6983||1.1338||1.1338||1.0656||0.8655||4.8061|
|Vehicles||Iron steel and ferroalloys||0.8470||Iron steel and ferroalloys||0.2832||Iron steel and ferroalloys||0.0799||Iron steel and ferroalloys||0.0266||Iron steel and ferroalloys||1.2545|
|Iron and steel casting and forging||0.0405||Petroleum products||0.0456||Petroleum products||0.0296||Petroleum products||0.0152||Motor vehicles||0.1489|
|Land transport including pipelines||0.0388||Nonferrous basic metals||0.0384||Nonferrous basic metals||0.0152||Cement||0.0063||Petroleum products||0.1239|
|Petroleum products||0.0205||Iron and steel casting and forging||0.0305||Land transport including pipelines||0.0126||Land transport including pipelines||0.0057||Iron and steel casting and forging||0.0872|
|Synthetic fibers and resin||0.0146||Land transport including pipelines||0.0254||Cement||0.0113||Nonferrous basic metals||0.0051||Land transport including pipelines||0.0872|
|Nonferrous basic metals||0.0141||Synthetic fibers and resin||0.0174||Iron and steel casting and forging||0.0109||Iron and steel casting and forging||0.0034||Nonferrous basic metals||0.0759|
|Motor vehicles||0.0125||Coal and lignite||0.0090||Synthetic fibers and resin||0.0072||Synthetic fibers and resin||0.0029||Synthetic fibers and resin||0.0442|
|Air transport||0.0119||Cement||0.0077||Coal and lignite||0.0050||Paper, paper products, and newsprint||0.0022||Cement||0.0313|
|Other nonmetallic mineral products||0.0071||Paper, paper products, and newsprint||0.0060||Paper, paper products, and newsprint||0.0041||Coal and lignite||0.0021||Paper, paper products, and newsprint||0.0186|
|Trade||0.0055||Railway transport services||0.0055||Inorganic heavy chemicals||0.0031||Inorganic heavy chemicals||0.0016||Coal and lignite||0.0182|
|Insurance||0.0046||Other nonmetallic mineral products||0.0052||Railway transport services||0.0031||Railway transport services||0.0014||Air transport||0.0180|
|Paper, paper products, and newsprint||0.0043||Inorganic heavy chemicals||0.0049||Natural gas||0.0025||Other nonmetallic mineral products||0.0012||Other nonmetallic mineral products||0.0169|
|Hand tools and hardware||0.0041||Natural gas||0.0045||Other nonmetallic mineral products||0.0024||Natural gas||0.0012||Railway transport services||0.0150|
|Railway transport services||0.0040||Trade||0.0037||Trade||0.0018||Other chemicals||0.0009||Inorganic heavy chemicals||0.0128|
|Rubber products||0.0040||Air transport||0.0036||Other chemicals||0.0017||Trade||0.0008||Trade||0.0123|
|Plastic products||0.0038||Coal products||0.0023||Air transport||0.0015||Fertilizers||0.0007||Natural gas||0.0092|
|Other chemicals||0.0034||Other chemicals||0.0021||Coal products||0.0013||Crude oil||0.0006||Other chemicals||0.0087|
|Banking||0.0033||Plastic products||0.0019||Crude oil||0.0010||Air transport||0.0006||Plastic products||0.0070|
|Inorganic heavy chemicals||0.0020||Motor vehicles||0.0014||Fertilizers||0.0009||Coal products||0.0005||Insurance||0.0066|
|Other transport equipment||0.0018||Banking||0.0013||Plastic products||0.0008||Plastic products||0.0003||Banking||0.0057|
|Other nonelectrical machinery||0.0017||Insurance||0.0013||Construction||0.0006||Construction||0.0003||Rubber products||0.0053|
|Miscellaneous metal products||0.0007||Construction||0.0010||Banking||0.0006||Banking||0.0002||Hand tools and hardware||0.0048|
|Art silk and synthetic fiber textiles||0.0006||Iron ore||0.0009||Insurance||0.0004||Structural clay products||0.0002||Coal products||0.0045|
|Communication||0.0006||Rubber products||0.0008||Structural clay products||0.0004||Insurance||0.0002||Fertilizers||0.0028|
|Coal and lignite||0.0005||Communication||0.0007||Water transport||0.0004||Water transport||0.0002||Crude oil||0.0027|
|Construction||0.0004||Hand tools and hardware||0.0006||Iron ore||0.0003||Other oil seeds||0.0002||Construction||0.0025|
|Electronic equipments including TV||0.0004||Water transport||0.0006||Communication||0.0003||Communication||0.0001||Other nonelectrical machinery||0.0022|
|Jute hemp and mesta textiles||0.0004||Miscellaneous manufacturing||0.0006||Storage and warehousing||0.0003||Storage and warehousing||0.0001||Other transport equipment||0.0021|
|Community, social, and personal services||0.0003||Miscellaneous metal products||0.0005||Rubber products||0.0003||Jute hemp and mesta textiles||0.0001||Communication||0.0018|
|30 sectors subtotal||0.1347||1.9167||1.2333||0.6376||0.3020||4.4656|
Tables 4 and 5 show the amounts of CO2 emissions generated by the final auto producers, as well as their suppliers and other upstream firms, in producing a passenger car with a 2000 cc engine. These tables provide details on the amounts of waste materials generated by each of the industrial sectors, based on which figures reported in Tables 2 and 3 were obtained.
6. Estimating the contributions of direct and indirect CO2 emissions
6.1. Relative contributions of direct and indirect CO2 emissions to the total sectorial emissions
It is intuitively clear that final output (called output from downstream sectors), whether assembled manufactured products, or output from primary sectors such as mining and agriculture, uses much output produced in their predecessor sectors including suppliers (upstream sectors). It is then likely that the total emissions attributable to any final product (e.g., a passenger car) consist of significant amounts of indirect emissions from upstream sectors and direct emissions which are emitted from the final car assembly stage in the downstream part of the supply chains. Figures 6 and 7 show the breakdown of direct and indirect emissions for 16 sectors. Industries 9–13 with asterisks are thought to be assembly-based manufacturing industries.
We see in these figures that CO2 emissions are skewed toward upstream firms in manufacturing supply chains. This is particularly evident for Japan (Figure 7). Figure 7 also shows that proportions of toxic wastes show a similar pattern.
|8||Nonferrous metals production|
Are the patterns of CO2 emissions across upstream and downstream economic sectors that we observed in Figures 6 and 7 consistent with downstream firms’ profit maximization behavior? We are interested in testing the following hypothesis:
H1: Downstream firms’ performance (measured by their value added) is affected by their upstream firms’ CO2 emissions as well as their own.
In general, we expect upstream firms’ generation of toxic wastes such as CO2 to be a negative factor in firms’ value added, but generation of nontoxic wastes may not be, since most nontoxic wastes have commercial value. We first focus on the impacts of downstream firms’ immediate predecessor upstream firms on downstream firm performance, because the impacts, if any, of downstream firms’ environmental management policies such as green procurement can extend most effectively to their immediate predecessor upstream suppliers.
|Value added||Value added||Value added||Value added|
We test this hypothesis empirically by estimating the following regressions using a sample of economic sectors corresponding to Indian input–output sectors for which usable data are available. The data used includes value added and the amounts of CO2 emissions generated during direct and indirect stages of production for each of the input–output sectors in the sample. (Descriptive statistics for these variables for India and Japan are presented in Appendix 2.)
In our specification, we regress value added on the amounts of CO2 generated directly by downstream firms as well as the amounts of CO2 generated indirectly by their upstream producers. Our OLS regression results for India are given in columns A and B of Table 6. Columns C and D show the corresponding results for Japan. Various tests of heteroskedasticity and specification tests that we have done, respectively, show little heteroskedasticity and little specification errors.
Various tests of heteroskedasticity and specification tests that we have done, respectively, show little heteroskedasticity and little specification errors.
Even though CO2 is not thought to be one of the industrial wastes in a traditional sense, the amounts of CO2 emissions represent the levels of firms’ inputs of fossil fuels. As such, like some other toxic wastes, firms have economic incentives, even without government regulations, to reduce such emissions of CO2, since the cost of energy can be a significant portion of firms’ production costs. Furthermore, from policy perspectives, some policies introduced by the governments of developed countries have been promoting energy-efficient production processes for many years (e.g., beginning in the late 1970s, after the second oil crisis in Japan). And also, in recent years, CO2 emission quota policies of various sorts are being introduced in Japanese, EU, and other nations’ industries.
From Column C of Table 6, we see that 1 ton of direct waste output of CO2 contributes to −0.0018 of firms’ value added per yen of firms’ output. On the other hand, contribution to firms’ value added of the indirect waste output of CO2 from their immediate upstream predecessor suppliers is −0.0115, which is numerically much larger and statistically more significant than our direct waste output. We conclude that firms face significant financial losses, measured by value added, when direct and indirect generation of CO2 occurs in their own production processes. Generation of CO2 emissions by firms’ immediate upstream predecessor suppliers seems to have much larger negative effects on their value added than their own direct waste output. This suggests that downstream firms may have economic incentives to reduce waste output by their immediate predecessor upstream suppliers.
Comparing columns A (India) and C (Japan), we see similar patterns on how CO2 emissions along supply chains affect final sectors’ value added. As far as final sectors’ direct emissions are concerned, direct CO2 emissions have no impact on value added for India, since its coefficient (−0.0043) is statistically not significant. On the other hand, their immediate predecessor CO2 emissions negatively affect final sectors’ value added (with statistically significant coefficient (−0.0107). But direct emission coefficients in Column B are positive and statistically significant (0.0649), suggesting that the more fossil energy is used by the final sector, the more productive (in terms of value added) final sectors become. This might indicate inefficient use of fossil energy, but this is not clear, since the same coefficient in column A is statistically insignificant. We speculate that there are multiple channels through which downstream and upstream firms’ environmental policies affect downstream firms’ value added.
We speculate that there are multiple channels through which downstream and upstream firms’ environmental policies affect downstream firms’ value added.
7. Concluding remarks
Recent advances in supply chain based management methods have made it possible for many firms to organize their production and other business activities as part of the supply chains they belong to. Efficiency gains are realized in terms of reduced inventories, reduced lead times for new product development, and shorter delivery lags, among many other benefits. Our results suggest that including certain supply chain level environmental management schemes, such as “how to manage toxic and nontoxic wastes, as well as CO2 emission for a supply chain as a whole,” in such supply chain management methods might improve not only downstream firms’ economic performance but also advanced economies’ environmental performance significantly.
Consideration of such schemes may underlie some firms’ proposals for green procurement policies. In many sectors of an advanced economy, as supply chain management becomes more sophisticated in pursuing economic efficiency, larger downstream firms tend to become more dominant as the primary driver of management decisions associated with their supply chains. (Note, however, that this phenomenon is not limited to assembly-based manufacturing industries. In retail industries, Walmart and the like have become the primary decision makers for their entire global supply chains.) It is possible that, as a national economy develops and increases its sophistication in logistic capabilities, organic connections between upstream and downstream firms become more prevalent, as we see in Japan. This might make it easier for some downstream firms to adopt green procurement policies.
Another factor that might be important to consider in supply chain based environmental policies is firm ownership structures. Ownership structures of firms involved in supply chains are complex but tend to share some systematic patterns. Dominant downstream firms generally influence business decisions of their upstream suppliers via some forms of partial ownership and/or certain guaranteed purchase agreements. Dominant firms do not necessarily extend their partial ownership to all other firms in their supply chains, but, nevertheless, dominant firms often have significant influence over smaller upstream firms through various sorts of business relationships.
Current public policies on waste management in Japan focus on firms and/or establishments. Because of the reasons stated above, this is not appropriate for an advanced economy in which many firm decisions are made at their supply chain levels in interrelated ways. Our empirical results present limited evidence, for both India and Japan, that downstream firms’ economic performance is affected not only by their own environmental policies but also by the environmental behavior of their upstream suppliers. Some profit-maximizing firms may see it to their advantage to implement green procurement policies. As we have shown, improving suppliers’ environmental performance may lead to immediate improvements in downstream firms’ economic performance. We suppose that government environmental policies need to accommodate this supply chain effect as well. As of now, few environmental regulations for downstream firms have serious implications for upstream firms’ environmental behavior.
The authors thank Keio University for their generous support to conduct research reported in this Chapter. This research was also in part supported by the Social Science and Humanities Research Council of Canada.
|11||Other oil seeds||51||Jute hemp
|20||Other crops||60||Leather and
|23||Poultry and eggs||63||Petroleum products|
varnishes, and lacquers
|30||Iron ore||70||Drugs and
|38||Sugar||78||Iron and steel
casting and forging
|79||Iron and steel
|120||Ownership of dwellings|
|121||Education and research|
|122||Medical and health|
|127||Renting of machinery
and personal services
|121||Education and research|
|122||Medical and health|
|127||Renting of machinery
|128||Community, social, and
|106||Construction||121||Education and research|
|107||Electricity||122||Medical and health|
|108||Water supply||123||Business services|
|127||Renting of machinery
|128||Community, social, and
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- The 2015 United Nations Climate Change Conference, held in Paris, France, from November to December 2015 was the 21st yearly session of the Conference of the Parties (COP) to the 1992 United Nations Framework Convention on Climate Change (UNFCCC) and the 11th session of the Meeting of the Parties to the 1997 Kyoto Protocol. The Paris Agreement, a global agreement on the reduction of climate change, the text of which represented a consensus of the representatives of the 196 parties attending it, was signed. It needs to be ratified to become a world treaty .
- A questionnaire-based survey across 124 companies from eight industrial sectors in Taiwan was used  in one study, while survey data on a sample of 122 firms drawn from electronics manufacturers listed on the database of the Taiwan Stock Exchange Corporation (TWSE) market and the Gre Tai Securities Market (GTSM) in Taiwan was used in another study .
- See  where Indian manufacturers’ approaches to green supply chain management are explained.
- Waste here denotes CO2, but our formulation applies to other waste materials as well.
- In reality, most waste materials have positive or negative economic value. For example, CO2 has economic value in the GHG market currently .
- Actual statistical treatment of industrial waste materials depends on the nature of each waste material, which we will not discuss here.
- In addition to direct regulations of various types pertinent to toxic wastes and CO2, indirect regulations often dictate firms’ management of some of nontoxic wastes as well. For example, firms’ nontoxic wastes are sometimes indirectly regulated in terms of the amounts of such waste materials that firms are allowed to bring to landfills and other waste processing facilities. Some nontoxic wastes have commercial value as well.
- Various tests of heteroskedasticity and specification tests that we have done, respectively, show little heteroskedasticity and little specification errors.
- We speculate that there are multiple channels through which downstream and upstream firms’ environmental policies affect downstream firms’ value added.