Overview of the Input-Output model (see User Guide for more detail)
Input-Output (IO) is a generic term used to refer to a class of statistical tables within the IO framework. The tables provide a complete picture of the flows of goods and services in the economy for a given year. They detail the relationship between producers and consumers and the interdependencies of industries.
Supply and Use Tables are constructed directly from survey and other data sources. The Supply Table provides estimates of the output of a large number of differentiated products by each industry and the Use Table provides estimates of the inputs (of products and services) used by each industry to produce their own output.
Symmetric tables (a.k.a. analytical tables) are derived from the supply and use tables and represent the modelling aspect of the IO framework.
In this analysis, the symmetric industry-by-industry Leontief inverse tables have been used to estimate total industrial output as a result of changes in final demand.
For given changes in final demand (taken as Scottish Government spending here), the Leontief type I table is used to show, for each industry, the direct and indirect effects upon total output of an additional £1m of final demand. The direct effect is the increase in the output of a particular industry from an increase in final demand from that industry as producers react to meet the increased demand. The indirect effect is the increase in demand for their suppliers and so on down the supply chain as producers increase their output.
The Environmental Input-Output model
The Input-Output methodology estimates the indirect output changes as a result of changes in final demand. Average industry-level environmental data are then used to estimate the environmental impacts per £1m sold by an industry. This is the greenhouse gas ratio or the emissions in tonnes of Carbon Dioxide equivalent gases for each £1m of output. Since the tables detail inter-industry purchases, it is possible to estimate the overall carbon impact required to meet changes in final consumption by Government. Such extended tables are commonly referred to as Environmental Input-Output models. The application of IO models to assess environmental impacts is well established.
The high-level assessment of the Budget uses the Scottish Government Environmental Input-Output model for domestic emissions and a 'closed economy' UK model for emissions associated with imported goods and services. Ideally, country-specific IO tables and emission factors would be used for imports but the data required for such multi-region models were not available during the development of the Scottish Government EIO. The UKIO system is therefore used as a proxy, given that the rest of the UK is Scotland's largest trading partner. The latest Scottish EIO is based on Scottish Government Input-Output tables for 2010 (published August 2014), the UK EIO is based on the Office for National Statistics (ONS) Analytical Tables and Supply and Use Tables for 2010 (both consistent with Blue Book 2013). The emissions to output ratios are derived from ONS Environmental Accounts estimates of GHG emissions by industry for 2010 (published July 2016) applied to industrial output figures from ONS Supply and Use tables for 2010 (Blue Book 2013 consistent).
Since the Draft Budget planned spending relates to future years, all spending is deflated into 2010 prices before running the model. In the case of the latest published GHG effects - these are expressed in 2017/18 prices.
The published GHG effects detail the estimated direct and indirect greenhouse gas emissions (expressed in tonnes of carbon dioxide equivalent) as a result of £1m final demand from each of the 98 Input-Output industry categories.