Structural decomposition analysis of physical flows in the economy

Many environmental problems can be attributed to the extraction and emissions of physical substances. Increasing our understanding of the economic and technological driving forces behind these physical flows can contribute to solving the environmental problems related to them. The input-output framework is a useful setting in which to integrate detailed information about economic structure and physical flows. In this article a specific method in input-output analysis is reviewed, namely Structural Decomposition Analysis (SDA). It is based on comparative static analysis, which decomposes historical changes of a policy variable into determinant effects. SDA has been applied, for example, to analyze the demand and technological driving forces of energy use, CO2-emissions and various other pollutants and resources. This article examines the theoretical aspects of structural decomposition, in particular those concerning physical flows and environmental issues. Furthermore, the article includes an extensive survey of empirical studies.