Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

Transcription

1 7th July 2012 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space Final report

2 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space Final Report ESA Contract Reference: /11/F/MOS technopolis group, May 2012 Paul Simmonds, John Clark, Paula Knee, Marko Stermsek, Andrej Horvath, Zsuzsa Javorka

3 Table of Contents EXECUTIVE SUMMARY 1 Introduction 1 Methodology 1 This report - Technical Note 3 1 Impact Categories 2 Assessment Methodologies 4 Options for Implementation 6 Presentation and Use of the Assessment Outputs 7 INTRODUCTION 9 1. The Study 9 2. The Conceptual Model and Definitions 11 ECONOMIC IMPACTS Introduction Direct Economic Impacts Indirect economic impacts Induced economic impacts Knowledge Spillovers Market Spillovers Economic impacts in summary 54 ENVIRONMENTAL IMPACTS Introduction Environmental Policy-Making Positive Effects on Environmental Parameters 61 SOCIAL IMPACTS Introduction Advances in Understanding Strategic Impact Space for Education Civil Security and Protection Defence Externalities 89 AGGREGATING THE IMPACTS Bringing it All Together Presentation and Use of the Results Concluding Remarks 107 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space i

4 Table of Figures Figure 1 Schematic of space investments and impacts... 2 Figure 2 Impact assessment methodologies (Option A)...5 Figure 3 Options B and C...7 Figure 4 Mock up of a possible Space Impacts Scoreboard and Highlights table... 8 Figure 5 Study methodology... 9 Figure 6 Logical framework: flow from investments to impacts Figure 7 Schematic of space investments and impacts...13 Figure 8 Impact category definitions...16 Figure 9 Definition of economic impact categories Figure 10 Recommended methodologies: economic impacts Figure 11 Breakdown of space-related patents by main domain ( ) Figure 12 Microeconomic impact methodology...47 Figure 13 Example of a linear demand curve...51 Figure 14 Economic Impacts: Summary Chart Figure 15 Definition of environmental impact categories...55 Figure 16 Recommended methodologies: environmental impacts...57 Figure 17 Definition of social impact categories Figure 18 Recommended methodologies: social impacts Figure 19 Example of output from JTF industry survey...79 Figure 20 A Harding-style matrix for assessing criticality Figure 21 Recommended methodologies and indicative costs (Option A) Figure 22 Fallback methodologies and indicative costs (Option B) Figure 23 Prioritisation of impacts for assessment Figure 24 Recommended methodologies and indicative costs, for Option C Figure 25 Recommended methodologies difficulties, risks and uncertainties Figure 26 Mock-up of a possible Space Benefits Scoreboard Figure 27 Mock up of a possible Space Highlights table ii Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

5 EXECUTIVE SUMMARY Introduction This report presents the results of a study to design a methodology to evaluate the direct and indirect economic and social benefits of public investments in space. It encompasses both a review of methodological options and available data, and concludes with a series of practicable recommendations for ESA to take forward the anticipated measurement exercise, and otherwise develop the state of the art in the evaluation of public investments in space. The proposed methodology is broad in scope, inasmuch as it will provide the basis for an ex post assessment of all European public investments in space, while also covering all of the main types of societal impact, whether that is industrial competitiveness, advances in scientific understanding or enhanced international relations. Methodology The study was carried out by the Technopolis Group in a 12-month period, and entailed extensive desk research, targeted interviews with expert methodologists and peer review. It was conducted in three successive phases: 1. Phase 1: a conceptual phase to analyse the evaluation problem, define key concepts and review relevant assessment methodologies 2. Phase 2: a detailed review of available data sources in terms of their ability to support the methodologies identified in Phase 1 3. Phase 3: development of a proposal for a practicable evaluation methodology(ies), based on the outputs of Phases 1 and 2 The findings of each phase were presented in separate reports or Technical Notes. Technical Note 3 built on the definitional work and data assessment set out in Technical Notes 1 and 2, respectively, and constitutes the Final Report for the study. This report This report presents our proposal for a suite of linked methodologies to assess the direct and indirect economic and social benefits of public investments in space. It is intended to enable ESA to develop a specification for an important future assessment study. It also provides an overview of the outputs of the exploratory parts of the study as reported in Technical Notes 1 and 2, in order to present the conceptual model for the impact categories and explain the selection of methodologies for their assessment. The report is structured such that the recommended methodologies are presented for each impact category in turn, following the conceptual model developed in phase 1 (as shown in Figure 7). This is followed by a discussion of the relative importance of impact categories, a prioritisation process across all impacts and the presentation of options for implementation. Finally, a process for aggregating, presenting and using the assessment outputs is proposed. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 1

6 Impact Categories Fourteen impact categories for space investments are identified, sub-divided into three impact groups: economic, environmental and social (Figure 7). While the term social impact can be used as an overarching term encompassing all impacts that accrue to society, i.e. all economic and other impacts, we use the term to denote a group of effects that are not directly financial in nature and are experienced by individuals or society as a whole rather than businesses. Similarly, under this definition, environmental impacts can be viewed as a sub-set of social impacts, however their importance as an impact category in the space context is such that they are considered separately. Figure 1 Schematic of space investments and impacts 1.1 Economic Impact Categories The six categories of economic impact are grouped into two tiers to separate those that are (i) short-term financial effects generated as an immediate result of public funding and (ii) wider economic effects that take some time to accrue to a wider group of economic actors. The first tier comprises three types of economic impact that arise as a result of the wages and profits generated by: The upstream space sector, the organisations in receipt of public expenditure (direct impact), and their supply chains (indirect impact). Direct impacts also arise in the downstream sector, the industrial users of space outputs The subsequent economic impact as those wages and profits are put to further use within the economy (induced impact) 2 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

7 Second tier economic impacts arise as a result of the diffusion and use of space infrastructure, capabilities and technologies in the wider economy, i.e. beyond the space sector: Knowledge spillovers occur where advances in scientific and technical understanding developed in the space sector diffuse into wider society and crossfertilise with other intellectual endeavour and support the emergence of new innovations in various locations Market spillovers are the benefits accruing to producers and consumers who benefit in unearned ways from technological advances. Producers may find they can (in the short term) sell a product or service for more than they would be prepared to accept (producer surplus which competitive pressures tend to erode away), while consumers gain access to novel products with additional functionality not fully reflected in the price (consumer surplus) Environmental Impacts Space infrastructure and capabilities lead to environmental impacts as a result of the deployment of space-enabled value-added products and services by consumers, business and public agencies. The route by which space investments lead to environmental effects is typically extremely complex, involving many other actors, data and capabilities and presents a fairly difficult assessment challenge. Therefore environmental impacts are sub-divided into an intermediate and final stage in the chain of inputs to impacts: Environmental policy-making. Space-derived data contributes to (i) the identification of environmental problems or issues; (ii) the formulation of environmental policies; and (iii) the effective implementation of those policies Positive effects on environmental parameters. The objective of environmental policies is the protection and improvement of the environment and therefore space investments contribute to the intended environmental impacts such as levels of greenhouse gases in the atmosphere, biodiversity, forest cover, air/water quality, etc. Social Impacts Investments in space generate a range of social effects including both those that are intended such as advancing scientific understanding or improved social wellbeing through defence and civil protection, as well as effects that are more indirect, and that may be intended or unintended to different degrees, such as international prestige and influence, inspiring the public and encouraging young people to study science and engineering. As a result, social impacts are highly varied, with different effects in terms of who they affect (individuals, nations etc.), what they affect (the knowledge stock, human health/lives, international prestige) and the scale of the contribution of space investments to what are typically much larger concerns. The social impacts are defined in the following six categories, however it should be noted that the list is not exhaustive: Advances in understanding contributions to the stock of human knowledge, in particular to our understanding of our planet, the solar system and universe Strategic impact in terms of geopolitics, whereby a space-faring nation or region experiences enhanced international prestige and influence and nondependence (i.e. European self-reliance as regards access to space and critical space-derived services) Space for education inspiring young people to study science, technology, engineering and mathematics (STEM) subjects and pursue careers in science and technology Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 3

8 Defence contributions to the enhanced protection of citizens through the increasingly pervasive use of space-enabled communication and surveillance systems Civil security and protection through, for example, protecting citizens from natural and man-made disasters and situations Externalities so-called free benefits resulting from space, such as: contributing to a sense of European identity, global cultural awareness and digital access and social inclusion Assessment Methodologies Having defined a long list of important types of impact, the study team went on to review the sorts of methodologies available to trace and quantify socio-economic impacts. The evaluation literature reveals a wide range of methodologies in use, from individual case studies to more comprehensive cost benefit analyses. Most impact assessments relate to a specific public policy or programme, where there are quite specific objectives and related activity, and result in some kind of judgement on the sufficiency or effectiveness of a given policy. Here, the methodological aim is more ambitious, encompassing all sources of public investment and all types of impact. Conventionally, this kind of complex socioeconomic system would be studied using macro-economic models developed over many years with very substantial investment by government and run by statistics agencies or other national institutions. Individual economic sectors tend not to figure prominently in such macro models, and where relevant models have been constructed to treat space explicitly, they are still at an early stage of development, they do not have the scope required. These models may develop into a singular, integrated methodology, however that will take many more years of conscious development effort and empirical expansion and calibration. For the time being at least, the team concluded that any overarching evaluation methodology must be a conglomerate of different assessment elements focusing on the individual impact types or possibly groups of closely related impact types (e.g. economic). It was also concluded that the overall approach would need to combine both quantitative statistical methods to count and monetise inputs and outputs where possible, as well as qualitative methods, better suited to capturing and conveying various important strategic and cultural contributions. On balance, we concluded that the first tier economic impacts were reasonably well addressed by available methodologies, albeit current data sources have certain important gaps, but that there were methodological and data shortcomings for almost all types of wider economic, environmental and social impacts. Figure 2 takes this idea of a conglomerate approach quite literally and presents what we consider to be the best methodology for each of the 14 impact categories. In each case, we have proposed what we consider to be a practicable approach, albeit entailing a degree of development effort. We call this Option A, which is the full set of our preferred methodologies. The implementation requirements are described in full in the main body of the report. 4 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

9 Figure 2 Impact assessment methodologies (Option A) Impact Methodological approach (Option A) ECONOMIC: Direct ECONOMIC: Indirect ECONOMIC: Induced ECONOMIC: Knowledge spillovers Extensions of current surveys to include: Universities, public research institutes and internal Agency activities Sampling of downstream sector, to better define the downstream sector Reconciliation of data on funding with that on recipients sales, using Euroconsult global statistics on public funding agencies Creation of input-output coefficients for a bespoke space sector, based on existing data supplemented by extension of current surveys to include information on volumes and sources of supplies into the space industry Extension of current macromodels, to incorporate a bespoke space sector (consistent with suggested developments on indirect impact) Improved identification of cases of spillovers at national and EU levels Improved data collection to capture more data on costs and benefits Rolling programme of in-depth case studies of known examples, with estimation of gross and net (inclusive of opportunity costs) benefits Use of OECD space patenting information to (a) highlight particular spillovers for investigation and (b) enable citation analysis for levels and trends in crossfertilisation between space and other sectors ECONOMIC: Market Spillovers (producer & consumer surplus) ENVIRONMENTAL Environmental policymaking ENVIRONMENTAL Positive effects on environmental parameters Structured compilation of major publicly-funded space initiatives from which novel devices or services are known to have been derived Analysis of the results of the benefits of these devices or services in terms of market penetration, and per-unit benefits to consumers and producers accruing over time, along with use of net-present-value and discounting procedures Inclusion of assessment of consumer and producer surpluses from new developments, as a routine component of ongoing programmatic and system level evaluation of public investments in space For impacts on policy makers and policy making Design, test and implement a new periodical international survey of environmental policy-makers and other actors to determine people s perceptions of the role of space investments in (i) identification of environmental problems; (ii) policy development; and (iii) policy implementation Design and implement a rolling programme of in-depth historical tracking back case studies that reveal the nature and extent of space contributions to specific and important environmental policies or treaties For impacts on environmental parameters, combine micro and macro approaches: Detailed case studies of identified benefits (micro level) Application of the FeliX model to space investments (macro level) SOCIAL: Advances in understanding SOCIAL: Strategic impact SOCIAL: Space for education Bibliometric and citation analyses Profile the volume and international standing of European space research using Web of Science (WoS) bibliometric data Trace influence of space research on other disciplines, using bibliometric citations Institute a rolling programme of discipline-level reviews For geopolitics: Network analysis based on UN database of international space treaties For non-dependence Analysis of secondary data collected in the ESA, EDA, EC Joint Task Force Case studies of technologies that have been transformed by public investments from dependent to non-dependent Eurobarometer poll of European scientists and engineers to assess influence of space on their career choices as compared with other possibly important triggers Rolling programme of case studies to determine the cognitive and inspirational impact on young people of specific space-related educational programmes or visitor attractions and simulations Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 5

10 Impact Methodological approach (Option A) SOCIAL: Civil security and protection SOCIAL: Defence SOCIAL: Externalities Mixed methods - a combination of a micro and macro approaches: Detailed case studies of identified benefits (micro level) Application of the FeliX model to space investments (macro level) Rolling programme of case studies to determine the functional and economic improvements realised through the use of next generation space-enabled services, including assessment of the extent to which key aspects of military capabilities are now critically dependent on space Eurobarometer-style opinion survey to assess willingness-to-pay for specific externalities Options for Implementation Implementing all of the proposed methodologies in Option A would be costly, given the development effort implied. Therefore two other options were prepared. The first, Option B, is based on making use of existing or fallback methodologies where they exist. Option C presents a targeted approach whereby the impact categories have been prioritised based on their relative importance, the availability of acceptable fallback methods and the potential improvement gained by the proposed new methodology. The result would still entail a substantial amount of development effort, however the proposal is to target the very poorly represented but important impact types. In particular, we recommend devoting most effort to the extension of the overall methodology to encompass (i) the spillovers that result from space technologies and space-enabled applications and (ii) the non-economic social effects in education, science and international relations. In summary: Option A: Implementation of a wide-ranging programme of methodological development projects in order to support measurement improvement in all impact categories (indicative cost: 3M- 5M) Option B: Implementation of a light-touch approach, which relies on existing data and methodologies as described in the fallback approaches in Figure 24 (indicative cost: 400K- 500K) Option C: Implementation of a middle approach, which works through the menu of impact types picking from Options A or B based on a judgement as to the need for more and better data and the tractability / value for money represented by the implied methodological improvement (indicative cost: 2M- 3M) Figure 24 presents Options B & C. Option C is presented in terms of whether it requires the implementation of the proposed methodology as contained in Option A or the fallback methodology as contained in Option B. Plus, for a number of impact categories it is suggested that no assessment be made. The resulting Option C solution focuses on the impacts where space makes a particular contribution that is tangibly different from other sectors and other forms of public investments such as the knowledge spillovers resulting from investment in R&D and the social and environmental impacts resulting from the application of the very specific capabilities of space. By contrast the first tier indirect and induced economic impacts are not unique to space and alternative assessment approaches and appropriate data exist. Therefore it is possible to assess these impacts without developing space-specific methodologies and data. However the direct impact on the space sector itself and on the downstream sectors remains incomplete and open to significant improvement. While Option B promises a much lower implementation cost, it would result in a significant reduction in coverage and robustness as compared with Option A. In terms of coverage the assessment would almost entirely focus on the economic impacts, leaving the environmental impacts and most of the social impacts not assessed. Furthermore, this option does not move forward the state of the art in assessment of 6 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

11 the benefits of public investments in space and neglects many of the important impacts particular to space. Figure 3 Options B and C Impact ECONOMIC: Direct ECONOMIC: Indirect Option B: Fallback approach Estimates based on data from current surveys of European industry Use of existing estimates of indirect effects, using standardised factors ( multipliers ) for other sectors applied to measures of direct impacts for space ECONOMIC: Induced Use of rules of thumb or averages or ranges of values derived from available macroeconomic models ECONOMIC: Knowledge spillovers ECONOMIC: Market Spillovers (producer & consumer surplus) ENVIRONMENTAL Environmental policymaking ENVIRONMENTAL Positive effects on environmental parameters SOCIAL: Advances in understanding Use of existing estimates of the importance of knowledge spillovers, assuming the space sector to be typical (in terms of spillovers) of sectors where such studies have been carried out. Use of available estimates of costs and benefits, including profits and price-reduction opportunities and quality improvements, of existing or planned initiatives where major studies have already been carried out, such as for GMES and Galileo There are no substantial existing alternatives There are no substantial existing alternatives Bibliometrics with much narrower disciplinary focus Rely on space journals to conduct disciplinary reviews Option C: Middle approach Option A Option B Option B Option A Option A Option A Option A Option B SOCIAL: Strategic impact SOCIAL: Space for education SOCIAL: Civil security and protection There are no existing alternatives Synthesis of a number of very different and quite patchy qualitative studies There are no existing alternatives Option A Option A No assessment SOCIAL: Defence There are no existing alternatives Option A SOCIAL: Externalities There are no existing alternatives No assessment Presentation and Use of the Assessment Outputs While the results of an assessment of each impact category are in and of themselves useful, it is clearly desirable to aggregate and present the results as a whole. However, the scope of the assessment covering a diverse range of impacts - means that no single metric can be applied across all categories. While a number of the environmental and social impacts can be converted into economic metrics, the majority cannot be monetised or simply result in qualitative assessments. Even with the proposed programme of methodological development, the impact assessment procedure will not be able to integrate all benefit streams; there cannot be a single number that quantifies the total impact of public investments in space. This may be possible in the longer-term, as space-specific macro models mature and empirical data accumulate to the point one might more confidently begin to monetise various intangibles. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 7

12 As a solution for the medium term, a Space Impacts Scoreboard is proposed. Figure 27 presents a mock-up of a possible suite of quantitative indicators and qualitative highlights that might form the basis for a public report, which could be released following the completion of the latest assessment round. We anticipate the first assessment may produce results for the recent past (annual, current ministerial cycle) and possibly an historical and accumulated picture (post-1975). The scoreboard approach would also lend itself to the methodology being repeated periodically, perhaps every two years, so that trends could also be revealed and commented on. It is suggested that particular presentations should be developed for different audiences, for example, the general public, ESA and Europe s space agencies and Europe s finance ministries. The content of each presentation would need to be defined in discussion with each of the audiences, however at this stage, we assume that moving from left to right, from the public to the finance ministries, would require an extension in the number of metrics and the technical nature of the commentary. The figure below presents a treatment of the results designed for the general public. Figure 4 Mock up of a possible Space Impacts Scoreboard and Highlights table Space indicators (Quantitative) Context and inputs Space highlights (Qualitative) Context Total public investment in civil space Major new space missions / programmes launched Number of space missions flying or in development Spend on space education (space for education) Number of current and new international agreements Economic Value of measurable economic effects Number and financial value of spinoffs from space Number of space engineers in employment Environmental % of policy-makers that judge space to be critical to environment % of population that judge space to be critical to environment Social % of space research articles that >2X world citation rate % of population that judge space to be of strategic importance Major new sales to international customers Major new mergers and acquisitions Major new mergers and acquisitions Economic Notable space-related spinoff companies Major new services / markets linked with space Major new process innovations / savings Environmental Major new environmental initiatives linked with space Social Major scientific breakthroughs Major new inter-governmental agreements New educational programmes Major new social benefits 8 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

13 INTRODUCTION 1. The Study Technopolis was commissioned by ESA to undertake a study to design a methodology to evaluate the direct and indirect economic and social benefits of public investments in space. The aim of the study was to: propose a methodology or methodologies that could be applied to make such an evaluation; consider the basis for their implementation; and discuss what type of results could be achieved. The methodology was intended to address the benefits of past public investments in space and as such was to provide an ex post assessment of benefits. Furthermore the scope of the assessment was intended to be broad covering all forms of impacts that might arise as result of public investments in space. The study was defined in three sequential work packages. Firstly, an analysis of the evaluation problem, definition of key concepts and review of available assessment methodologies. This was followed by a detailed review of available data sources in terms of their ability to support the methodologies identified. Finally, based on the previous work packages, the development of a proposal for methodology(ies) for future activities to conduct the evaluation. 1.1 Methodology The study was conducted by a team of consultants at Technopolis with extensive experience of designing and conducting evaluations and assessments of public investments in science, technology and innovation. The study methodology (Figure 5) was based on inputs from the academic and grey literature, and interviews with external experts (in methodological approaches, data collection and assessment) combined with extensive desk research and team workshops. The study was an iterative process with the study team meeting regularly to identify and define key concepts and impact categories, develop intermediate tools for the assessment of methods and data, and to present and justify recommendations. Figure 5 Study methodology Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 9

14 1.2 Structure of the report This final report presents a proposal for an overarching methodology, in fact a suite of linked methodologies, which is intended to serve as the basis for ESA specifying an important future measurement study whereby it will commission one or several contractors to evaluate the direct and indirect economic and social benefits of public investments in space in Europe. It is based on the work carried out in the final phase of the study, which developed the findings from two previous work packages, set out in the respective technical notes: TN1 defined the key concepts and space impact categories and also identified a long list of potential assessment methodologies, from cost benefit analyses to input-output models to qualitative research methods and case studies TN2 presented the study team s review of available data sources and the extent to which there were relevant and accurate data available to feed or implement the methodologies identified in TN1 The final report has evolved from what was originally, Technical Note 3, and is structured as follows: Chapter 2 presents the conceptual model and the definitions of the impact categories Chapter 0 presents a summary of the review of assessment of available data The subsequent chapters present the proposed methodology(ies) for each of the impact categories: Chapters 3 to 7: economic impacts Chapters 10 to 12: environmental impacts Chapters 13 to 19: social impacts Chapters 20 and 20 present our proposal for integrating the methodologies and for presenting the outputs for each of the impact categories 10 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

15 2. The Conceptual Model and Definitions 2.1 Introduction Historically, public investments provided the impetus for the development of European capabilities in space and underpinned growth in the corresponding industrial base. Today, while investments in space come from both public and private sources, the public sector remains a critical source of funding, supporting space research, technology development, service demonstration and infrastructure deployment. In Europe, public investments in space are dominated by the European Space Agency and national space agencies. There are however several other important sources of public investment, whether that is international bodies like the European Commission or EUMETSAT or regional agencies striving to support economic development through support for their local space cluster. In some countries, these civil programmes are complemented by substantial additional investments from defence ministries. The great majority of this investment is directed to the European space sector, which is to say the private businesses and public research organisations that design, build and fly space missions. It also includes the space agencies themselves, a proportion of which conduct substantial space activities in-house, whether that is carrying out research or running missions. Overall, we see the following activities: Produce and operate space infrastructure and systems Conduct technology development and service demonstration Conduct space-based research Administer space budgets Figure 6 Logical framework: flow from investments to impacts These activities result in physical space-based systems and services and new knowledge that can then be deployed by a wider group of economic actors for further Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 11

16 economic and social purposes. This flow of investments (inputs) through activities and outputs to impacts is illustrated as a logical framework in Figure 6. The logical framework is a useful tool to structure the conceptualisation of the route between public investments and impacts and, in the study, guided the literature review to identify and define impacts. 2.2 Definition of Impacts Impacts were identified through a combination of: (i) review of the academic and grey literature concerned with public investment in space, ranging from European and national policy documents and their supporting arguments to individual studies of space policies and programmes areas; (ii) our own previous studies of the impacts in the space field; and (iii) and our wider knowledge and understanding of the literature in science, technology and innovation studies. Key areas of space activity such as Earth observation, satellite navigation, satellite communication and space-based research were studied in some detail and impacts identified across all areas were compared and consolidated. Fourteen impact categories were identified, sub-divided into three impact groups: economic, environmental and social benefits. While the term social impact can be used as an over-arching term encompassing all impacts that accrue to society i.e. all economic and other impacts, we use the term to denote a group of effects that are not directly financial in nature and are experienced by individuals or society as a whole rather than businesses. Figure 7 presents a model of these 14 impact categories, showing their links to specific economic actors. This schematic and the 14 impact categories form the basis of the proposed methodology to assess the benefits of public investments in space. The impact categories are described in a little more detail in the following sub-sections, with the definition for each impact category presented in a summary table towards the end of the section (Figure 8). 2.3 Economic impact categories We identified six types of economic impact which we grouped into two tiers to separate those that are (i) short-term financial effects, generated as an almost immediate result of public funding and (ii) wider economic effects that take some time to be generated and accrue to a wider group of economic actors First tier economic impacts The first tier comprises three types of economic impact that arise as a result of the wages and profits generated by: The upstream space sector - the organisations in receipt of public space (direct impact) and their supply chains (indirect impact). Direct impacts also accrue to the downstream sector, that is, the industrial users of space outputs The subsequent economic impact as those wages and profits are put to further use within the economy (induced impact) It is important to note that these immediate (or first tier) financial impacts apply to any area of public expenditure, irrespective of economic sector and irrespective of the value of outputs, i.e. the goods and services resulting from the expenditure. The impacts from these three categories may be similar whether the expenditure is undertaken to address an important social need (such as education, healthcare or defence), for activities with a more indirect benefit to society (such as R&D) or even for an activity that is useless in its direct output. However, space is a special case in one respect: we are including the value-added of the downstream sector, which is derived largely from exploitation of data produced by publicly-funded activity in the upstream sector, in the direct category. 12 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

17 2.3.2 Second tier economic impacts By contrast, wider economic (second tier) impacts of space, as compared to any other public investment, longer-term impacts, are dependent on how public investments are used. Public investments in space stand apart from public investment in other infrastructures and public services inasmuch as a very substantial proportion of that total undertaking is given over to R&D in order to develop knowledge and technology for future exploitation. Other streams of substantial public investment, for example in transport or education, are very much more mature and dominated by service delivery, rather than technology, and service development. Furthermore, space infrastructure provides data and/or services that can be utilised by other economic actors to develop innovative products and services for a wide range of end-users. Together, R&D investments and the development of downstream products and services leads to longer-term economic impacts in terms of economic spillovers. Figure 7 Schematic of space investments and impacts The second tier impacts comprise three further types of economic impact: consumer and producer surplus (together known as market spillovers) and knowledge spillovers Market spillovers The downstream sectors develop innovative value-added products and services based on space infrastructure (SatNav, SatCom and EO systems) that are either entirely new or superior to those that they replace, offering enhanced performance and Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 13

18 functionality or supporting entirely new activities by their users. However, as a result of market forces the price does not reflect the full value of these new /superior products and services, leading to an economic gain or market spillover for users in the form of a consumer or producer (if the user is a business) surplus. For example, the performance and functionality of personal computers has increased substantially over the last 10 to 15 years due to technological developments but the purchase price (in real terms) has decreased. In addition, downstream businesses generate first tier impacts via their own wages and profits and so contribute additional first tier impacts. The value of these products and services may well be larger than the space sector itself Knowledge spillovers An implication of the high levels of R&D associated with public investments in space is that investments in space may produce very substantial additional economic benefits, through for example knowledge spillovers, as compared with other arenas of public investment, such as roads. The knowledge generated from space R&D and, to some extent space production more generally, cannot be entirely appropriated by those conducting the knowledge generating activities, leading to free information or knowledge spillovers for others to deploy for innovative purposes. Knowledge spillovers occur when the advances in scientific and technical understanding diffuse into wider society and cross-fertilise with other intellectual endeavour to support the emergence of otherwise impossible innovations in many and various unexpected locations. They arise from knowledge created by one agent used by another without compensation, or with compensation less than the value of the knowledge (Jaffe 1996) 1. This spillover effect can be intentionally facilitated by the knowledge generator e.g. in scientific publications or hindered by the use of patents. However patents, while protecting the inventor from direct commercial exploitation of an invention, also require the disclosure of knowledge that may be applied by others in new and different applications. In practice, any commercialised products or services involving new knowledge are potential sources of knowledge spillovers. As well as covering knowledge embodied in products and services, the term knowledge spillover might also be used to include knowledge embodied in a researcher moving from one employer to another, the latter exploiting the stock of know-how the researcher brings with them. In short, knowledge spillovers capture know-how transmitted to others mainly through four Ps : publications, patents, people and products. In the space sector, knowledge spillovers can lead to impacts not just in non-space sectors but also in other businesses in the space sector and within space companies themselves. Many space companies are divisions of larger businesses, typically in the wider aerospace and or defence sectors, thus providing opportunities for internal knowledge spillovers to lead to successful commercialisation of spin-off products for other business divisions. In this case companies may be able to produce substantial private returns from the public support for space R&D. 2.4 Environmental impact categories Environmental impacts come about as a result of the deployment of space-enabled value-added products and services by consumers, business and the public agencies. Investments in space infrastructure provide either data (about the Earth s atmosphere, oceans, land cover etc., scientific data on the solar system/universe, position and time etc.) or capabilities (communications, access to space etc.) that are used by 1 Jaffe, A.B. (1996), Economic analysis of research spillovers: Implications for the Advanced Technology Programme, mimeo 14 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

19 individuals, the public sector and businesses for activities that intentionally or unintentionally lead to environmental effects. Earth observation from space for example, has explicit environmental objectives and therefore intended environmental effects through its contribution to an improved understanding of the environment, improved environmental policy-making and methods to monitor environmental features in support of environment policies. For investments in SatNav, SatComs and space R&D, any environmental impact is unintentional and a result of downstream applications that lead to reduced emissions, energy efficiency etc. or due to spillovers where technologies developed for space are used in other applications and sectors such that they lead to environmental benefits. These different ways by which space investments can lead to environmental impact are categorised as follows: Environmental policy-making. Space data (from EO in particular) contributes to (i) identification of environmental problems or issues that require action; (ii) the formulation of environmental policies; and (iii) the effective implementation of those policies Positive environmental effects on environmental parameters. The objective of environmental policies is the protection and improvement of the environment and therefore space investments contribute to the intended environmental impacts such as levels of greenhouse gases in the atmosphere, biodiversity, forest cover, air/water quality, etc. In addition downstream applications and knowledge spillovers may also lead to positive environmental impacts for example reduced vehicle mileage due to the use of SatNav for efficient routing and fleet management. These impacts are typically unintended effects whose prime goal is economic (e.g. reduction in costs through efficient fleet management) In a sense, environmental impacts are a means to an end in that they eventually lead to economic or social impacts (e.g. human health benefits due to better air quality or economic impacts of mitigating climate change). However we include environmental impact as a category in its own right for two reasons: firstly the link between environmental impacts and social and economic ones is often not straightforward and therefore it makes sense to consider this important intermediate stage in the chain of inputs to impacts; and secondly, protecting the environment for its own sake (as well as for economic and other social reasons) is a clear goal of public policy. 2.5 Social impact categories Social impacts cover a wide range of domains where space has an effect. These are highly varied in nature including those that are a direct and intended output of space investments such as advances in scientific understanding as well as those that accrue through the deployment of downstream services in areas such as the health and protection of citizens. In addition, space contributes to a number of more oblique, but nevertheless important, impacts such as geopolitical influence, inspiring and educating young people and European autonomy. These impacts are highly varied, with different effects in terms of who they affect and what they affect and furthermore, the contribution of space investments to these wide impact domains is likely to be fairly difficult to discern and be relatively small. We have identified six social impacts, however the list is not exhaustive: Advances in understanding the impact of using space-based systems to conduct scientific research about the Earth, the solar system and the universe, for example the International Space Station or the Hubble telescope Strategic impact the geopolitical influence gained as result of being a spacefaring country or region Space for education the inspirational and educational effect on young people, encouraging them to study and possibly pursue careers in science and engineering Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 15

20 Defence the impact of deploying space systems to create enhanced defence capabilities in communications, navigation and surveillance Civil security and protection the deployment of space systems to protect or improve human lives such as using Earth observation to predict and respond to natural disasters, the use of satellite communications to provide healthcare in remote regions Externalities non-market benefits gained free of charge as result of space activities such as a sense of European identity though common space activities, cultural awareness as result of wider communication networks 2.6 Impact categories and indicators Figure 8 presents a definition for each impact category and the quantitative indicator with which it can be assessed. Where there is no quantitative indicator, a brief description is provided of the nature of the qualitative assessment that could be made. As would be expected, the economic impacts will be assessed in terms of the standard economic metrics: value-added and jobs. The environmental and social impact categories do not have a similar set of well-defined and internationally agreed indicators. In the environmental domain, indicators exist for specific environmental parameters such as levels of greenhouse gases, areas of forest protected or land available for agriculture etc. Some of these indicators may be convertible into financial figures that represent the value of the environmental parameter in its own right (such as the various measures to value carbon) or in terms of its subsequent effect on economic or social factors (such as GDP). However, in most cases there is not a welldefined or agreed conversion factor. Figure 8 Impact category definitions Impact category ECONOMIC Direct Definition An immediate financial impact that results from the public sector purchasing goods and services from economic actors in order to develop and operate space-related functions. Also included are income flows generated in downstream space sectors directly dependent on data generated from publicly-financed upstream initiatives. A direct impact will also be generated by the expenditure on space administration. These impacts are essentially reducible to the flows of income and direct employment (wages) and profits they support. Quantitative indicator(s) Valued-added ( ) Employment (no. of jobs) ECONOMIC Indirect A financial impact that results from the public sector making purchases in the space sector, wherein space companies make contingent investments and purchases from their supply-chain in order to meet their public sector orders. This supports additional jobs and profits in the supply-chain. This impact will also be generated by the downstream sectors as space infrastructure is utilised for further economic activity. Valued-added ( ) Employment (no. of jobs) 16 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

21 Impact category ECONOMIC Induced ECONOMIC Knowledge spillovers ECONOMIC Market spillovers Definition A financial benefit that results from the spending by individuals in receipt of wages / salaries from employment generated by the public sector making purchases in the space sector, whether this be from wages paid directly by the space sector, or from wages paid by their suppliers as a result of orders made by the space sector. Various areas of the economy are thereby stimulated through income (or Keynesian ) multipliers. This impact will also be generated as a result of the spending of those employed in the downstream sectors. This impact arises where the advances in scientific and technical understanding developed in the space sector diffuse into wider society and cross-fertilise with other intellectual endeavour and support the emergence of otherwise impossible innovations in many and various unexpected locations. These impacts arise from leakage of benefits through the operation of market forces, which tend to cause some of the benefits from a new product or process to accrue to buyers. Competitive pressures mean that prices do not fully reflect the willingness to pay of purchasers. This can produce consumer or producer surplus, the former representing benefits accruing to the buyer, the latter to the seller. Thus consumer surplus is the difference between the price that the consumer is willing to pay and the actual price paid and producer surplus is the difference between the price at which a product is sold and the lowest price at which the producer is prepared to sell. Quantitative indicator(s) Valued-added ( ) Employment (no. of jobs) Valued-added by new products/services ( ) Differences between actual and acceptable prices ( ) ENVIRONMENTAL Environmental policy-making The contribution of space investments to: Identification of environmental problems/issues that require policy action The development of appropriate policies to protect /preserve the environment The effective implementation of environmental policies (e.g. monitoring environmental parameters) Number of policies created (wholly or in part) as result of new knowledge/understandin g from space investments Number of policies whose implementation is dependent (wholly/ partially) on space investments/infrastructur e Number of policies in development dependent (wholly /partially) as result of new knowledge/understandin g from space investments ENVIRONMENTAL Positive effects on environmental parameters The contribution of space to improvements in environmental parameters, arising for example from: Implementation of environmental policies Positive environmental effects resulting from downstream applications and/or spillovers Environmental parameters, including: Greenhouse gas emissions Areas of forest cover Areas of productive land (for agriculture) Biodiversity / ecosystem services metrics Etc. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 17

22 Impact category SOCIAL Advances in understanding Definition Contributions to the stock of human knowledge in particular to our understanding of our planet, the solar system and universe Quantitative indicator(s) Volume and international standing of European space research outputs, based on bibliometric indicators such as citation scores Qualitative accounts of key scientific achievements and contributions to the status of knowledge for discrete bodies of space research SOCIAL Strategic impact Geopolitics - fostering positive international relations and enhancing international prestige and influence in the form of: International cooperation closer ties between countries through space-related collaborations Cohesion closer ties within Europe through space-related collaboration International prestige and leadership due to excellence in space science /engineering and using space to support development goals Non-dependence ownership and self-reliance in space systems, technologies, data and space-derived services, leading to: Autonomy freedom to design, implement and use space systems to meet Europe s needs Constant access to necessary data/information provides diplomatic security and enables strategic planning Authority in international negotiations through access to own data sources plus ability to make informed decisions through access to own independent and high quality data Geopolitics: Main output is qualitative: the position of Europe with respect to other countries in terms of its geopolitical influence as demonstrated by international space agreements Some quantitative indicators related to position within the network (e.g. centrality, betweenness) Non-dependence: Number of vulnerable technologies and change over time Qualitative: describing the role of public investments in transforming vulnerable technologies to nondependent status SOCIAL Space for education SOCIAL Civil security and protection SOCIAL Defence SOCIAL Externalities Inspiring young people to study science, technology, engineering and mathematics (STEM) subjects and pursue careers in science and technology. Protecting citizens from natural and man-made disasters and situations, through, for example: Improving disaster prediction and crisis management Border surveillance for civil purposes Emergency communications backup Contributions to the protection of citizens though use of space systems, including capabilities in: Military communications Border surveillance Navigation Intelligence (espionage) Protecting space assets Free benefits as results of space investments/ activities, such as: European identity Cultural awareness and access Digital inclusion Communicating from remote locations Percentage of current scientists and engineers whose career choices were strongly influenced by space Number of lives saved Number of Quality Adjusted Life Years (QALY) Qualitative assessment of extent of reliance on space technologies by the military Financial value of externalities in terms of willingness-to-pay 18 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

23 2.7 Review of Available Data Introduction During the study, 121 data sources were identified as potentially relevant as inputs to methodologies to assess the impacts of public space investments. These were examined in greater detail to determine their relevance and suitability for future use (and reported in TN2). Among the 121 sources, there were only a small number of independent secondary datasets with most being data sets collected for one-off studies of particular impacts (or as is often the case, examples of particular examples of particular impacts) or studies that made use of a combination of secondary and primary data. The process of examination revealed that there are very few independent secondary datasets available that can be used as is, i.e. without additional data collection, to assess the impacts of space. Therefore the methodologies proposed will require considerable levels of primary data collection. A brief summary of the situation regarding the data available for each impact domain (economic, environmental and social) is presented below Data for the assessment of economic impacts The set of first tier of economic impacts (direct, indirect, induced) is the area best covered by secondary independent datasets. However even here, there are limitations to the data available. The key point being that the three impact categories are related as the quantification of the direct impact feeds into models to estimate the indirect and induced impact, and therefore any limitations in the assessment of the direct impact feeds into the others. As discussed in more depth in chapter 4, there is no single data source that provides a complete assessment of the direct impact and therefore this aspect of data collection needs to be resolved before robust assessments of the indirect and induced impacts can be made. For the second tier economic impacts (market and knowledge spillovers), data is very limited. Data is available for either very particular examples of impacts (and in fact very few of these exist), or in a standardised and generic form (e.g. spillover multipliers). The former presents issues in terms of applicability to other circumstances while the latter raises concerns as to relevance and robustness Data for the assessment of environmental impacts Data to assess the contribution of public space investments to environmental parameters are extremely limited. While secondary independent data exist for a number of key environmental parameters (such as those collated by international agencies) they are not sufficient to enable an assessment of the role of space in any changes that have occurred. Furthermore, there is limited data available to enable a robust attribution of changes in environmental parameters to space investments and therefore this impact category presents a considerable assessment challenge. The intermediate environmental impact category, the role of space investments in environmental policy-making, presents its own assessment challenge. In this area there are only a very small number of descriptive studies and no quantitative data Data for the assessment of social impacts Social impacts are highly varied, addressing a wide range of different, and often intangible, societal features. Therefore not only is there no single indicator to encompass all impacts, furthermore, even the identification of suitable indicators is problematic. As a result the social impacts of space investments are rarely studied in a quantitative manner. Instead, studies tend to focus on highly particular examples of impact and make use of qualitative data and bespoke analytical treatments. To extend the assessment of datasets, the search was widened to include parameters that could be of relevance but not specifically directed at space. Even so, datasets are Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 19

24 limited and the assessment of social impact will require the collection of a considerable level of primary data. 2.8 Additionality The issue of additionality A primary consideration for policy is the extent to which the impacts of space activity derived from public investments are additional. This concept has the following aspects: Impacts generally result from multiple causes. Within benefits identified as at least partly due to space-based activity, there is a need to assess the proportionate contribution of that activity (the attribution problem ) Within the space contribution, it may not be the case that all outputs derive from, or actually required, public investments; a proportion of the output (the deadweight ) might have been achieved from other funding sources (particularly private company resources) had the public investment not been forthcoming Subtracting off the deadweight and any contributions from non-space activities give a measure of the impact (value added) of public investments in space. However, the contribution of space activity can be considered not only in terms of these (gross) benefits, but perhaps more importantly in terms of the degree to which they are over and above the benefits available from equivalent expenditures on alternative areas of public investment, or from what would have happened without such expenditures (net benefits) The first of these is much more of an issue for some categories of impact than for others it does not apply to Tier 1 economic benefits, for example. Its importance is considered below with reference to other particular impact categories. With respect to the second category of additionality, the vast majority of previous studies have been concerned exclusively with gross benefits, sometimes in comparison to costs space expenditure of 1m may be estimated to increase GDP by Xm, for example, giving a benefit/cost ratio of X. Valuable as such studies may be, they do not provide evidence for the possible comparative advantage of investments in space compared with investments in other areas 2. What is (ideally) needed is a tool for comparing benefits of space expenditures with specified alternatives, or with none (implying lower overall public expenditures, with potentially lower tax burdens or a reduced government borrowing requirement). The final aspect of additionality relates to the extent that space has characteristics that make it different and separable from other areas of publicly funded activity and therefore making public investment particularly worthwhile. The particular characteristics of the space sector include: A relatively high skill intensity among workers in the space area A high R&D intensity, with a disproportionately high proportion of the effort directed at the development rather than the research end of the R&D spectrum. This suggests that the primary focus of space R&D is towards practical (but not necessarily market-oriented) application The importance of a downstream space sector, exploiting and adding value to information generated by activity in the upstream sector 2 It seems to be an almost universal conclusion of evaluation studies of public support for private industry, (particularly for R&D), in any area of the economy, that the overall benefit/cost ratio is positive. In this regard, the UK Treasury Green Book speaks of an optimism bias : the demonstrated systematic tendency for appraisers to be over-optimistic about key project parameters. 20 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

25 Potentially large cultural, educational and inspirational impacts, from space exploration in particular Contributions to other areas of considerable importance to society such as defence and climate change Implications for evaluation methodologies The above discussion suggests that there is a strong case for directing more attention (especially if resources for assessment are limited) to impact areas where the space sector has different characteristics from other sectors, and where these differences are expected to lead to substantially different levels of impact. In the following section we discuss the implications of this for the prioritisation of methodological benefits, with reference to additionality issues where appropriate. Each of our identified impact categories is covered in turn, with a summary of its perceived prioritisation in terms of methodological development, with reference to assessment of additionality associated with public space investments First tier 1 economic impacts To the extent that, as previously noted, tier 1 (direct, indirect and induced) economic impacts apply to any area of public expenditure, there is nothing special about space. However, survey evidence on which the measurement of direct impact is based also serves to define the scale and boundaries of the sector, and as such is important in the specification of the entity whose benefits the overall exercise is designed to assess. This is particularly pertinent in the case of the downstream sector, which is a relatively small recipient of public funding; however, much of its value-added is derived from exploitation of data produced by publicly-funded activity the upstream sector, which is here treated as a specific category of the direct impact. Clear specification of the upstream and downstream sectors and the assessment of direct impact are conceptually very similar. Investments by space agencies contribute to value-added by the space sector (direct impacts) and to their purchases from other sectors (indirect impacts). This provides another potential route for the estimation of the combined direct and indirect impacts, excluding the contributions from downstream sectors derived from their applications using upstream derived data. Induced impacts of public investments may not be very different for the space sector than for any other. While it may be the case that, with disproportionately high incomes, space-sector employees have different propensities to consume and different spending patterns to consumers overall, the impact of such differences are likely to be small, and to be exceeded by the large uncertainties inherent in estimates of induced impacts generally. The conclusions from this are: It is important that the space sector be delineated more precisely than is currently possible, via improved surveys of upstream and downstream companies, and including other sector participants Defining the downstream sector as users of upstream-generated data, surveys should be used to quantify the extent of their dependence on such data Improved estimates of indirect and induced impacts are a lower priority, although attempts to reconcile agency investment data with information from space-sector recipients would provide a valuable means of increasing confidence in definitions of sector boundaries The impacts on both upstream and downstream sectors of a cessation of public investments should be explored, with particular emphasis on the availability and relative costs of alternative sources of funding and/or data, to provide evidence for the additionality associated with Tier 1 economic impacts Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 21

26 2.8.4 Second tier economic impacts The presence of Tier 2 economic impacts knowledge and market spillovers are a major justification for public sector sponsorship for private sector R&D. Broadly, public investment in space is for procurement or for R&D, the latter forming a relatively large component, and the former generally requiring at least a degree of development work. Tier 2 impacts, particularly knowledge spillovers, are thus likely to provide a high degree of additionality for space investments. Knowledge Spillovers The high R&D intensity of the space sector suggests that knowledge spillovers are of particular importance to it. This is reinforced by the high skill intensity of the sector, which gives staff the opportunity to develop their skills in ways likely to prove effective in other applications. Market Spillovers Market spillovers from space have been subject to relatively little attention in the past, so their importance for the sector is somewhat unclear, although the widespread market penetration of consumer devices based on downstream value-added services, in particular, suggests that consumer surpluses may be considerable. Market spillovers are benefits accruing to producers and, much more significantly in the long run, consumers who benefit in unearned ways from technological advances. Producers may find they can (in the short term) sell a product or service for more than they would be prepared to accept (producer surplus, which competitive pressures tend to erode away), while consumers may be prepared to buy at a price higher than that offered (consumer surplus). Computers provide an often-quoted example over the last two or three decades, huge improvements in performance have been accompanied by dramatic price reductions, prices in many cases being well below those that many consumers would be willing to pay. The importance of taking account of consumer surplus is that such price reductions lead to a reduction in perunit Tier 1 benefits (direct, indirect and induced impacts on GDP), while consumer welfare has clearly increased. As indicated above, market spillovers in the space sector can arise from downstream consumer products and services performing novel functions, or functions previously obtainable at lower quality and/or higher cost (e.g. satellite-navigation devices superseding maps). Another possible source is from spinoffs initially stimulated by knowledge spillovers, where a new product or service initially dependent on space technology but applied in a non-space area offers an improved and/or cheaper alternative to existing products or services Environmental and social impacts Space, particularly Earth observation, from space, has long contributed to our understanding of the planet and its physical, chemical and biochemical mechanisms and processes. Starting as a scientific tool, the ability to measure the earth s parameters has increasing become an important tool for monitoring the Earth and its environment for both scientific and regulatory purposes. Therefore the role of space is viewed as particularly important for environmental impacts. However environmental impacts are the result of multiple inputs of which space is just one the actions of politicians and policy-makers in developing environmental legislation and/or regulation or example, and the use of Earth-based measurement systems to monitor environmental parameters. Therefore it is important to determine the additionality of the space investment i.e. the relative scale and importance of the space contribution to the overall impact. Similarly while social impacts are regarded as highly important by space agencies, many of these impacts are the result of multiple causes and the role played by space inputs needs to be fully understood to enable an accurate assessment of the extent of impact attributable to public space investments. 22 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

27 ECONOMIC IMPACTS 3. Introduction 3.1 Definitions The definition of economic impacts and indicators to assess them is a well-developed field of study and standard definitions are used here. These include the first tier impact categories common to all economic activity (direct, indirect, induced) and the second tier impacts associated with investments in R&D and technology development (market and knowledge spillovers). The definitions are set out in Figure 9. Figure 9 Definition of economic impact categories Direct economic impact Indirect economic impact Induced economic impact Knowledge spillovers Description An immediate financial impact that results from the public sector purchasing goods and services from economic actors in order to develop and operate space-related functions. Also included are income flows generated in downstream space sectors directly dependent on data generated from publiclyfinanced upstream initiatives. A direct impact will also be generated by the expenditure on space administration. These impacts are essentially reducible to the flows of income and direct employment (wages) and profits they support. A financial impact that results from the public sector making purchases in the space sector, wherein space companies make contingent investments and purchases from their supply-chain in order to meet the their public sector orders. This supports additional jobs and profits in the supply-chain. This impact will also be generated by the downstream sectors as space infrastructure is utilised for further economic activity. A financial benefit that results from the spending by individuals in receipt of wages / salaries from employment generated by the public sector making purchases in the space sector, whether this be from wages paid directly by the space sector, or from wages paid by their suppliers as a result of orders made by the space sector. Various areas of the economy are thereby stimulated through income (or Keynesian ) multipliers. This impact will also be generated as a result of the spending of those employed in the downstream sectors. This impact arises where the advances in scientific and technical understanding developed in the space sector diffuse into wider society and cross-fertilise with other intellectual endeavour and support the emergence of otherwise impossible innovations in many and various unexpected locations. Indicator(s) Valued-added ( ) Employment (no. of jobs) Valued-added ( ) Employment (no. of jobs) Valued-added ( ) Employment (no. of jobs) Valued-added ( ) Market spillovers: Producer & Consumer surplus These impacts arise from leakage of benefits through the operation of market forces, which tend to cause some of the benefits from a new product or process to accrue to buyers. Competitive pressures mean that prices do not fully reflect the willingness to pay of purchasers. This can produce consumer or producer surplus, the former representing benefits accruing to the buyer, the latter to the seller. Valued-added ( ) Thus consumer surplus is the difference between the price that the consumer is willing to pay and the actual price paid and producer surplus is the difference between the price at which a product is sold and the lowest price at which the producer is prepared to sell. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 23

28 3.2 Overview of methodologies recommended The methodologies proposed for the direct, indirect and induced impacts are based on standard economic approaches and tailored for the space context. The extent of customisation required is variable as are the possibilities to make improvements resulting in different levels of alignment with, and therefore robustness for, the space context. Methods to assess market and knowledge spillovers in their entirety are less well-developed, nevertheless methodologies do exist and we present recommendations based on previously utilised methods and some newer more experimental approaches. The chapters that follow address each economic impact in turn, presenting a discussion of the existing methods and available data and the extent to which customisation, improvements or new approaches are required. A number of options are presented for each impact category and a recommendation made as to the preferred methodology. A fallback methodology is also presented that describes what could be achieved if no, or at least very limited, additional resource is available. The recommended and fallback methodologies are summarised in Figure 10. Figure 10 Recommended methodologies: economic impacts Impact category Recommended methodology Fallback Direct economic impact Indirect economic impact Extensions of current surveys to include: Universities, public research institutes and internal Agency activities Sampling of downstream sector actors, including details of information sources and consequences for business of nonavailability of space data to better define the downstream sector Use of Euroconsult data on support provided by public funding agencies Reconciliation of data on funding with that on recipients sales Creation of input-output coefficients for a bespoke space sector, based on existing data supplemented by extension of current surveys to include information on volumes and sources of supplies into the space industry. Estimates based on data from current surveys of European industry Use of existing estimates of indirect effects, using standardised factors ( multipliers ) applied to direct impacts Induced economic impact Extension/adaptation of current macromodels, to incorporate a bespoke space sector (consistent with suggested developments on indirect impact). Use of rules of thumb or stylised facts based on averages or ranges of values derived from available macroeconomic models Knowledge spillovers Improved identification of cases of spillovers and data collection on benefits Case studies of known examples, with estimation of gross and net (inclusive of opportunity costs) benefits Use of OECD space patenting information to (a) highlight particular spillovers for investigation and (b) enable citation analysis for levels and trends in cross-fertilisation between space and other sectors Use of existing estimates of the importance of knowledge spillovers, assuming the space sector to be typical (in terms of spillovers) of sectors where such studies have been carried out. This involves identification and use of stylised facts or rules of thumb as multipliers, e.g. one notable spillover worth Xm expected per Ym of expenditure 24 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

29 Impact category Recommended methodology Fallback Market spillovers: Producer & Consumer surplus Structured compilation of major publicly-funded space initiatives from which novel devices or services are known to have been derived Analysis of the results of the benefits of these devices or services in terms of market penetration, and per-unit benefits to consumers and producers accruing over time, along with use of net-present-value and discounting procedures Ongoing inclusion of assessment of consumer and producer surpluses from new developments as they occur, as a routine component of evaluation and monitoring of the impacts of public investments in space Use of the currently available estimates of costs and benefits, including profits and price-reduction opportunities and quality improvements, of existing or planned initiatives where major studies have already been carried out, such as for GMES and Galileo 4. Direct Economic Impacts 4.1 Introduction This chapter outlines a method for estimating the direct economic impact of public investments in space, by which we mean the income and employment generated immediately in the space economy consisting of the upstream component and the downstream sector providing goods and services dependent on it - by the public sector purchasing goods and services in order to develop and operate space-related functions. This is important not only in contributing to an assessment of the impact of the sector, but also as a means of improving the definition of the sector and aiding establishment of a consensus regarding its boundaries. In simple terms, public investment of 1m should produce 1m of direct economic activity, possibly reduced to cover the administrative cost of allocating the investment. There may also be some small loss of direct benefits to Europe resulting from imports through contracts or sub-contracts being placed with actors located outside Europe. In practice, each 1m of public sector expenditure on space goods and services will require subsidiary purchases within the sector (e.g. intra-sectoral subcontracts) and from the wider economy, whether that is raw materials or business services. Therefore, the direct value added generated in the European space economy by European governmental space expenditure will be somewhat less than 100% of that expenditure figure, possibly in the range 50-80%, with the balance used to buy more general goods and services from elsewhere in the economy or the rest of the world. 4.2 Approach and Methodology The basic information required for estimating the direct economic impact of public investments in space is the activity generated by those investments, as measured, for example, by turnover, value added or employment. Value-added is the preferred output measure; it reflects the contribution of the sector to GDP, essentially equal to the value of sales (or turnover) minus the value of inputs from other sectors. Turnover includes the value of goods and services bought in by the space sector from elsewhere in the economy (or overseas), which we consider separately under indirect impacts. For reasons given above specifically imports and administration costs public expenditure on space goods and services is not an accurate measure of direct economic impacts. An alternative approach is by means of surveys of activity of actors in the space sector. Ideally, the overall approach would include a process of reconciliation between data obtained from funding sources and surveys of funding recipients, to give Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 25

30 confidence in the veracity of the estimates and improve understanding of the way in which funds are distributed. 4.3 Data collection The space economy is a rather broad concept, including as it does a range of diverse but easily identified types of contractor (such as satellite manufacturers) and also, for example, in-house technologists working for a national space agency. A substantial fraction of total public investment in space is spent through in-house laboratories and institutions as well as with various external public or not-for-profit organisations (such as universities). These are not companies in the conventional sense, but they do employ thousands of people producing goods and services in response to public agencies commissions. Our definitional net needs to be cast wider still, to include public space contracts being placed with satellite operators, financial services businesses and even downstream service providers. The space economy does not align well with standard industrial classification systems. For example, the UN s International Standard Industrial Classification codes incorporate spacecraft manufacturing with that of aircraft (ISIC 303) and launchers with freight and passenger transport (ISIC 511/512). Because of this, bespoke surveys tend to be more useful sources of information. Data collection is discussed under three headings surveys of the upstream sector, surveys of the downstream sector, and information gathering from funding sources Surveying the upstream space sector Two international surveys stand out as the most relevant sources of data for the upstream space industry, ESA s own European Space Industry Survey 3 and ASD- Eurospace s annual Facts and Figures report. Both surveys work with a directory of 200 or so known space businesses. They do not include the downstream sector, nor do they include all ground segment and equipment manufacturers. Moreover, the focus on industry means they have less good coverage of public research organisations. The ESA European Space Industry Survey is carried out every three or four years. Its scope is the upstream space infrastructure industry, i.e. suppliers present in the launch vehicle, satellite and associated ground segment domains. The associated ground segment includes activities that support satellite and launcher operations. The focus is limited to the upstream sector on the grounds that ESA s influence in the downstream market is more limited. Data collected, which is of particular relevance to the present study include: Company space sales and staffing, with breakdowns by market and activity Values of inputs procured, broken down into corresponding detail The ASD-Eurospace Facts and Figures report is published annually. Its key focus is also on detailed information on sales and employment. The survey is not limited to Eurospace members. The 2011 ASD-Eurospace report estimates net sales for the European space industry at around 6.1 billion for 2010 (and employment at 35,000 full-time equivalents). This figure includes an estimate of 3.2 billion for sales to European public customers. The balance is made up by sales to private customers in Europe and private and public customers in the rest of the world. 3 Bertin Technologies/Euroconsult for ESA (2009), European Space Industry Survey Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

31 4.3.2 Surveys of the downstream industry Official statistics are useful insofar as they capture key information such as GVA and employment levels by industrial sector. As we have already discussed, because of the diversity of the downstream space sector, there is no single industrial classification that covers the entire sector. However, out of the three downstream value-chains, satellite communications, satellite navigation and earth observation, the former does have its own industrial classification Satellite telecommunications activities (ISIC class: 6130), which could be useful when estimating its direct impacts. The other two do not and are disbursed untidily across several different classifications, including: Manufacture of communication equipment (ISIC class: 2630) Manufacture of instruments and appliances for measuring, testing and navigation (ISIC class: 2651) Data processing, hosting and related activities (ISIC class: 6311) Other research and experimental development on natural sciences and engineering (ISIC class: 7219) Other parts of the space sector are buried in other classifications 4 A one-off study carried out by the Paris-based consultancy Euroconsult, commissioned by ESA, provides the most comprehensive look to date at the European downstream space sector. 5 This survey provides a mapping of the downstream space sector into the three main value chains satellite communications, satellite navigation and earth observation. These are further divided into a total of 16 macro segments, such as transport, consumer broadband and land monitoring, which are in turn further divided into market segments for services, addressing customers with specific global, regional and local requirements. 6 An important but difficult issue concerns definition of the boundaries of the downstream sector. Downstream satellite communication companies include those that transmit or broadcast information over satellites and those that manufacture the receivers this requires, including satellite television broadcasters and broadband services for remote areas. In the case of satellite navigation, a company producing GPS receivers clearly manufactures a space-enabled product and is part of the downstream sector, while users of such receivers are not. Overall, the downstream sector should only comprise enterprises that make use of information from upstream satellite technology by directly receiving and adding value to it. The outer boundary of the downstream sector is notoriously rather fuzzy. Grey areas include, for example, mobile devices that incorporate applications dependent on data provided by satellites but which are not entirely dependent on satellite-derived data. Providers of such devices are best considered as users of space-sector outputs rather than as themselves part of the space sector. The US-based Satellite Industry Association (SIA) publishes an annual global survey 7 which, however, does not report European activity separately and does not explore governmental sales among satellite services companies. There have also been several 4 International Standard Industrial Classification of All Economic Activities, Rev.4, United Nations 55 EUROCONSULT (2007) Assessment of the Downstream Value-Adding Sectors of Space-Based Applications: Final Report, for the European Space Agency, Paris 6 ESA, Euroconsult, ibid., p. 9 7 The State of the Satellite Industry Report (June 2011) was prepared by Futron for the SIA. It includes an estimate for worldwide satellite-services sales overall (US$ 100 billion in 2010) and by broad segments. Its time-series data show revenues doubling in the period , driven to a very great degree by satellite television and market expansion in Asia. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 27

32 studies at member state level; however these have been one-offs and are clearly not sufficient in terms of their geographical scope Public sector funders enquiry Euroconsult carries out an annual governmental survey covering all the data necessary for this exercise. Its makes these data available through its report, Profiles of Government Space Programs. The report provides time-series data and analyses of government expenditure on space for agencies in 60 countries. The report, and associated spreadsheets, provides various data charts and analyses relevant to the assessment methodology, including but not limited to: Annual and time-series governmental expenditure by country and by agency Annual and time-series governmental expenditure by country, civil and military Annual and time-series governmental expenditure by country and application 4.4 Analysis Ideally, analysis of the data requires that it be manipulated, as necessary, into a form that allows: Unambiguous specification of the boundaries of the upstream and downstream segments of the space sector Within each, estimates of value added, additionality and employment, perhaps disaggregated according to activity-based and/or market-based sub-segments Estimates of the value of inputs to each segment from other industries Specification of boundaries Specification of the upstream sector is relatively straightforward. The downstream sector may best be defined in terms of survey questions by their degree of dependence on the upstream sector, and the effect on their business in the hypothetical event of satellite-based information becoming unavailable. Subsidiary purchases made within the space economy which are covered in the ASD-Eurospace survey might best be treated as part of the total direct economic benefits, using a working assumption that the mix of contracts and sub-contracts will be similar in all markets including sales to the public sector. The analysis would use the aggregate proportion of intra-sectoral purchases for sales to the public sector. All space companies are likely to be purchasing goods and services from other economic sectors, from chemicals to financial services. These are excluded from direct economic benefits: for this reason we need to estimate value added rather than turnover. We define these secondary purchases as indirect economic benefits, and address their estimation in a separate chapter Value-added and additionality As indicated above, survey data on industry activity tends to report output values in terms of sales rather than value added the latter measure is more useful in representing the contribution of the sector to GDP. Sales data can be converted to value-added by subtracting off the values of inputs such data are available in the ESA upstream survey or by applying some generic revenue-to-value-added conversion factor to the sales figures. Additionality the extent to which public support to industry creates additional activity, or (at least to some extent) merely forms an alternative source of funding for work that would be done anyway is an important issue in evaluating support for industrial R&D in particular. However, given that much public investment in space is 28 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

33 purchasing components of new space infrastructure, it seems unlikely there will be much risk of public funds substituting for or crowding out private investment. Publicly supported space activity may displace private activity at the margins, however particularly where European or national institutions are investing in capability building within firms or co-finance the piloting and demonstration of new satellite systems and services. Overall, we would expect public investment in the upstream sector to be highly additional. The question of additionality is likely to be a more significant issue for the downstream sector, and needs to be addressed in any survey of that sector. 4.5 Scope The scope of the data required for direct impacts in terms of sectoral coverage are the upstream and downstream sectors as discussed above, adjusted (as the ASD- Eurospace survey does) for intra-sectoral trading, and covering in-house space agency activity, universities and public research institutes as well as companies. The downstream survey would be designed to build on the space industry survey, sampling organisations in each of the key market segments that are not covered: operators, ground segment, value-added services. Geographically, data is required covering all ESA member states. On the funding side, expenditures by ESA, national space agencies and other public bodies are required. The Euroconsult survey is comprehensive and covers the full extent of public investments of relevance to the proposed assessment methodology. It does not include data about the destination of those investments, and the extent to which a given public body s expenditure is spent with its in-house space agencies or externally and where it is external whether it is within Europe or the rest of the world. 4.6 Implementation Possible data sources for implementation are reviewed below The upstream sector Given that two established surveys of the upstream sector - the ESA and ASD- Eurospace surveys already exist, the most obvious course is to build upon these. Although not undertaken annually, the ESA survey, currently being carried out, is the obvious choice as a starting point, being under the direct control of ESA itself. For completeness, a module of the new survey could be directed to universities and public research institutes The downstream sector Surveying the downstream sector can serve a number of purposes: To determine the extent of the sector s receipts of public funding for space To assess its dependence on the upstream sector, which in turn would help to delineate the boundaries of the downstream sector To help identify spinoffs from space activity The 2007 ESA-Euroconsult survey of the downstream sector involved interviews with around 50 downstream organisations (respondents from a longer list of named service providers, equipment suppliers and R&D organisations), spanning the satcoms, satnav and earth observation markets. The 2007 exercise could be repeated, re-using the market segmentation and database, but tying the questions to the needs of the assessment methodology: direct sales to governmental space programmes and sales and employment more generally. While there will have been a lot of changes within that list of named individuals and organisations in the intervening five years, the segmentation and database is a good starting point for a new survey. A little further Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 29

34 work and judgement to expand and rebalance the survey population would be appropriate. The extent to which the downstream sector is the direct recipient of government expenditure on space, and therefore how important it is for the assessment methodology, is unclear. However, even were we to discover (after the first iteration) that the direct economic benefits were not sufficiently large to warrant the creation of a new periodical survey, the size and dynamic nature of these space-dependent economic sectors is a hugely significant indirect benefit of governmental expenditure on space. A new survey probably larger and more robust than we would need for sizing the direct economic benefits would be justified. The fall-back position would be to use the estimates for governmental income for value-added services companies in each of the key market segments, which ranged between 0-3% and were estimated at 0.5 billion within a total of 22 billion (2005) Public sector funders enquiry Profiles of Government Space Programs is a comprehensive report published annually, with no obvious important missing data components. As such, it provides a good source of expenditure data to feed into the proposed assessment methodology. There is one practical problem however, which concerns the terms of access to the data and the possibility of its re-use within the assessment methodology. Profiles of Government Space Programs is a charged publication, with a price in 2012 of around 5,000 for a single hard copy of the report and a soft copy of the underlying data. That fee permits a single team within a single organisation to use the report and data for its own purposes, and the terms and conditions of sale prohibit wider dissemination or use. ESA does of course purchase copies of the report. The annual survey and report is a very valuable commercial asset. However, Euroconsult has indicated its willingness to explore the terms on which it might be able to permit ESA to re-use a sub-set of the survey data in the proposed assessment methodology. This discussion should also include the requirements for gaining permission to publish selected key metrics within the assessment report. If acceptable terms for the re-use and selected publication of Euroconsult data cannot be agreed, then the fall-back position is to use either the European Space Directory s annual estimate of institutional sales or the Eurostat GBAORD statistics on space R&D. The former misses some key programmes (e.g. the EU RTD Framework Programme), while the latter only includes civil expenditure on applied research and technology (e.g. military satellite expenditure is classified to the defence category not space and EUMETSAT would be missing altogether). ESA could choose to replicate certain aspects of the Euroconsult survey within the EU, as public funders are clearly able to furnish third parties with relevant and comparable statistics. That would enable ESA to refine its survey over the first two or three iterations, to acquire exactly the right statistics to plug certain gaps in expenditure / revenue data and to strengthen the verification process. On the downside, such an exercise might easily cost 250,000 for each iteration, more in the first year, and would be something of a challenge or distortion to the current situation where the market is providing those data on a pay-by-use basis. On balance, this course of action seems unwarranted at this point in time. 4.7 Methodology Options Status quo Use of currently available secondary data, i.e.: ESA European Space Industry Survey , currently being updated, and the ASD-Eurospace annual Facts and Figures report 30 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

35 ESA/Euroconsult assessment of the downstream value-adding sectors European Space Directory data on sales and Eurostat data on space R&D This option would mean that important gaps in current surveys particularly government intramural spend, direct support for operators and downstream sectors, universities and imports would be omitted. Moderate additional effort (200 person days per annum) Extensions of current surveys to include: Universities, public research institutes and internal Agency activities Sampling of downstream sector actors, including details of information sources and consequences for business of non-availability of space data to better define the downstream sector Use of Euroconsult data on support provided by public funding agencies Reconciliation of data on funding with that on recipients sales This is the recommended option Major additional effort (500 person days annually) Creation of a set of new surveys to the upstream and downstream sectors Creation of new surveys of space agencies to identify all public funding of space activities This option is not recommended as it would unnecessarily duplicate much existing work and would be relatively expensive. Response rates from recipients of public funding are also likely to be poor given likely resistance by industry in particular to an additional survey. However the survey of space agencies might be necessary if the data on public funding from private sources (e.g. Euroconsult) is found to be incomplete or if there are issues with publishing data from this source in the wider public domain. 5. Indirect economic impacts 5.1 Introduction Following a widely-used convention 8, we define indirect impacts as the contributions to national value added and employment contributed by sectors supplying the space industry as a result of public investments in that industry. Also to be included are the suppliers to the industries supplying the space sector, giving a set of (in principle infinite) impacts along the supply chain. The supplying industries are not themselves part of the space sector but are dependent on it; in the short-term their contribution is dependent on the demand for spacesector outputs, but in the longer run they may be able to respond to a reduction in the demands of the space sector (or to its disappearance) by expanding their customer base and/or diversifying their activities, or alternatively their human and capital resources may find application elsewhere. 8 E.g. Oxford Economics, Size and Health of the UK Space Industry, 2010 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 31

36 5.2 Approach and Methodology In principle, the methodology involves straightforward compilation of data on the values of inputs to the space sector from each of its supplying industries, inputs to these industries from each of their suppliers, and so on up the supply chain 9. Such data (albeit not necessarily in the required form or level of disaggregation) are available in input-output tables that model interactions between sectors, goods and services that is, they model who is selling what to whom. The tables come in various guises and the following brief description uses European System of Accounts (also abbreviated as ESA) definitions and terminology. The basic components are supply and use tables, which show the supply of goods and services within the economy. Rows are labelled by products, in accordance with the CPA ( Classification of Products by Activity ) and columns by NACE categories. CPA and NACE are fully aligned, the CPA showing the principal products of the industries according to the NACE. The supply table shows the pattern of production; the use table, the structure of demand. From the supply and use tables, symmetric input-output tables (with both rows and columns labelled by products or with both labelled by industries) are derived. These are the primary tables used for input-output analysis. Essentially, the number in the cell in the ith row and jth column of the industry-industry matrix (say A) shows the demands of industry j for the outputs of industry i, i.e. the value of the flow of goods and services from industry i into industry j in the year to which the table refers. These inter-industry flows represent intermediate demand (of one industry for the products of another). Final demand is the (vector) of consumption by households (and Government) for the products of each of the industries classified. The total demand for an industry s products is the sum of these two for example, some output from agriculture forms an intermediate input to the food processing industry, some is purchased directly by consumers as final demand. It is possible to tag on various additional rows to cover issues such as intermediate sectoral and final demands for various forms of primary and secondary energy, and emissions of various kinds. These issues are quantified in terms of quantities rather than financial values. 5.3 Data collection As pointed out in the discussion of direct benefits, space activities do not have a specific category in economic classification systems. As well as precluding precise delineation of the space sector, this imprecision also necessarily affects indirect (and induced) benefits over- or underestimates of the size of the space sector will lead to corresponding biases in estimates of these benefits. Among the Standard Industrial Classification codes as used in input-output tables, that with the most clearly indicated space component is (manufacture of aircraft and spacecraft). Others, which include space products and services (upstream and downstream) include (e.g. Hertzfeld 2002): Transport equipment (includes space launchers) Radio and TV equipment (includes communication satellites) Optical instruments (includes remote sensing cameras) Navigational equipment (includes GPS receivers) Broadcasting and telecommunications (includes satellite communications) 9 This applies if the value of each input is measured as value-added; if measured as total cost, double counting can ensue. 32 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

37 A common approach is to estimate the proportion of such categories that can be ascribed to space, and assume that the inputs used by the space part of them are in the same proportion to the total, thereby introducing two potential sources of error. In some studies, a survey of space companies includes requests for non-space inputs, improving the accuracy of estimates of indirect effects. 10 Key sources of internationally comparable input-output data are OECD and Eurostat OECD data The latest set of OECD input-output tables covers 44 countries with data for years around 2005, with standardised 37-sector coverage based on ISIC Rev. 3. This represents a contraction from the 48-industry breakdown used in the 2006 edition of the OECD I-O database, which split ISIC code 35 other transport equipment into three sub-categories, one of which was ISIC 353 aircraft and spacecraft. In addition, the current service category transport and storage (ISICs 60-63) formerly identified ISIC 62 air transport separately. This means that the current industry breakdown may be too aggregated for the sectors identified for use as proxies for space. Issues connected with the extension of the existing OECD input-output framework to incorporate explicit representation of the space sector are discussed in section Eurostat data Eurostat has published a 600-page manual describing methodologies and procedures for the compilation of supply, use and input-output tables in the European Union, to assist in member states in compiling the tables, foster quality and stimulate harmonisation. The European System of Accounts (ESA) classifies industries according to the General Industrial Classification of Economic Activities within the European Communities (NACE) 11 and products according to the Classification of Products by Activity (CPA). The ESA Regulation currently requires the application of the main classifications with 60 products and 60 industries. 12 Most EU member States have submitted symmetric input-output tables (SIOTs) to Eurostat, although only supply and use tables are currently available for some. These submissions have been used by the Institute for Prospective Technological Studies (IPTS) of the JRC to construct a preliminary product-by-product EU-27 SIOT for the year The aggregate EU27 and the 27 individual Member States tables follow the Eurostat manual guidelines, having 60 NACE A60 sectors and 60 types of products (CPA Level 2) Analysis Input-output analysis can be seen as being developed in a number of sequential stages: (i) Input-Output coefficients By dividing entries in the cells in a particular column by that column total gives the share of the total output contributed by inputs from each of the row industries and by the components of value added. These shares form the matrix of input coefficients which sum to unity for each column. Similarly, dividing each row entry by the 10 Such information was requested, for example, in the 2010 survey reported by the UK Space Agency, The Size and Health of the UK Space Industry, which estimated value-added multipliers of 1.91 and 3.34, respectively. 11 NACE Rev 1.1 is consistent with ISIC Rev 3.1, but somewhat more disaggregated. 12 Eurostat Manual of Supply, Use and Input-Output Tables, 2008 Edition, p Rueda-Cantuche et al. (2009), A Symmetric Input-Output Table for EU27: Latest Progress Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 33

38 corresponding row total shows the shares of total output of the row industry going to each (intermediate and final) destination. This yields the matrix of output coefficients, in which the rows sum to unity. (ii) Leontief inverse By definition, the total output Q of an industry is the sum of the flows of its outputs into all industries in the economy (including itself) plus the final demand F for its products. Thus for industry 1 Q 1 = a 11 Q 1 + a 12 Q 2 + a 13 Q F 1 where for example a 12 is (value of intermediate flow from sector 1 to sector 2) / (total output of sector 2). Thus the a 1j s are the shares (proportions) of sector j s output contributed by sector i., i.e. the input coefficients for the domestic intermediate. Generalising Q i = Σ ja ij Q j + F i And in matrix terms the Leontief inverse follows as (1-A) -1 in the equation Q=(1-A) -1 F, which reflects the direct and indirect requirements of intermediates 14. (iii) Multipliers The output multiplier pertinent to a given industry is the column sum of the coefficients in the Leontief inverse. This indicates the increase in the sum of direct and indirect effects of a unit increase in final demand for industry output. 5.5 Scope The scope of expected results from an analysis of indirect impacts could be: Impacts of the overall international (European or wider) space activities, however funded. Such studies would require international-level data (with input-output coefficients etc. consistent across countries) International impacts resulting from specifically publicly funded activities Impacts of space activities (total or publicly-funded) on specific national economies. Use of national input-output models Impacts of particular public space investments, e.g. projects or programmes 5.6 Implementation There appears to be a case for more systematic identification of inputs and outputs from the space sector by means of a more systematic treatment of current aggregated input-output categories, with the establishment of rules of thumb for its definition in terms of proportions of other sectors which could be generally accepted. A more radical option is the creation of an additional space sector row and column from newly acquired primary data, which would probably not require any amendment to the data for the sectors that currently incorporate space activity, since space represents only a very small proportion of them. The new primary data would involve collection of additional information on the sources of inputs to the space industry, and the destinations of outputs from it. The sectoral classification under which such data would be collected would depend on the sectoral breakdown used in the input-output structure within which the separately specified space sector was to be incorporated. 14 (1-A) -1 = I+A+A 2 +A 3 +, where A gives the direct requirements of producers and A 2 onwards give indirect requirements for intermediates at previous stages of production. 34 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

39 One option is to split the space contributions to ISIC 35, to give a separate spacecraft category, and to separate out the space components in ISICS A further category other space incorporating inputs and outputs not included in the above could also be included. This would yield 40x40 input-output system for specific analysis of the indirect impacts of the space components. The data requirements for such an extension are seen to be as follows: Survey evidence (involving upstream European space companies) of the total value of inputs to the space-related activities of firms receiving public space investments, which in turn is a necessary component for deriving estimates of value-added, discussed in the section on direct benefits Estimates by survey respondents of the approximate percentage split of these inputs between industrial sectors, based on the 40-sector disaggregation described above. It is likely that only around 5-8 sectors would make significant inputs to the space industry, so that this is unlikely to be an onerous task Estimates by survey respondents of the value of sales of their outputs to downstream space (value-added) service providers, categorised by the sectors in which such providers operate. Such information should allow a realistic extension to the 40x40 input-output system envisaged above From this, a matrix of input coefficients could be derived by dividing each entry by the output of the sector labelling the corresponding column, yielding the so-called Leontief matrix. Inversion of this matrix, producing the Leontief Inverse, then generates a set of output multipliers which indicate the sum of indirect impacts on the various industrial sectors, the newly-defined space-related sectors being of interest in the present context. The methodology seems to be viable a hypothetical input-output system with an additional space sector was explored in Appendix G of Technical Note 1. However, the credibility of the methodology depends on the practicality of assembling the required additional data, which is likely to be costly. It has also been pointed out to us that significant noise is likely to be associated with an attempt to specify a small sector within a large framework; sensitivity to activities of a few major players is likely to lead to instability in the input-output framework. Application of this approach at a regional level, for regions where space constitutes a relatively high proportion of overall economic activity, would reduce this problem, although regional perspectives are not a major focus of the current study. Overall, then a large investment in improving estimates of indirect effects does not at present seem justified. 5.7 Methodology Options Status quo Use of existing estimates of indirect effects, using standardised factors ( multipliers ) applied to direct impacts Low-level additional effort (40 person days): In-depth investigation of the component of space input typically contained in more aggregate input-output categories, to allow improved estimates of indirect impacts This is the recommended option. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 35

40 Moderate additional effort (100 person days): Survey of firms similar to that of existing European surveys (or extension of existing surveys) for data on volumes and sources of inputs for the space sector specifically More major additional effort (200 person days): Additional surveying of firms as above, with a view to creating input-output coefficients for a bespoke space sector, based on existing data supplemented by extension of current surveys to include information on volumes and sources of supplies into the space industry 6. Induced economic impacts 6.1 Introduction Induced impacts are those which result from the spending by employees in the space industry (and its supplying industries) of income derived from public investments in space. Various areas of the economy are thereby stimulated through income (or Keynesian ) multipliers. This impact will also be generated as a result of the spending of those employed in the downstream sectors. 6.2 Approach and Methodology macroeconomic models Since spending of earned income in space and its supplier sectors is likely to cross a wide range of economic areas and overall impacts are likely to be complex and involve various feedback processes, the usual methodological approach is to make use of a large-scale macroeconomic model of the economic area involved. Quantitative macroeconomic models are used to describe relationships between economic variables of a nation or region, specifying static snapshot scenarios or the dynamic evolution of the economy. They may comprise single relationships (such as Solow s growth model in the 1950s), or large numbers of interrelated equations describing relationships between many economic factors (including output, employment, trade, prices and many others, often covering several economic sectors individually. The latter offer the opportunity to capture complex feedback mechanisms likely to exist in real economies, at the expense of considerable complexity with a tendency for black box type attributes, whereby mechanisms producing model outputs may be difficult to trace. In the context of assessing economic impacts of public investments in space, macroeconomic models present (at least in principle) a means of expressing the whole picture, compared with methodologies of more limited scope which (with the possible exception of cost-benefit analysis) would necessarily give a more partial description. Up to the 1970s, macroeconomic models generally provided dynamic descriptions of economic evolution based on large numbers of econometrically-estimated equations providing linkages and numbers of feedback mechanisms between the variables, generally demand-driven and with explicit representation of resource underutilisation (predominantly Keynesian ). More recently, particularly following the so-called Lucas critique 15, suggesting that models should be based on more fundamental factors such 15 Lucas, R.E. (1976) Economic Policy Evaluation: A Critique, Carnegie-Rochester Conference Series on Public Policy 1, pp The Lucas Critique essentially asserts that econometric equations estimated from data using observed relationships between economic variables depend on the policy framework in place at the time, and that they will provide misleading indications of the effects of a new and different policy framework. 36 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

41 as technology and with stronger theoretical foundations. Classes of models have included computable general equilibrium models, which may be static or dynamic, and dynamic stochastic general equilibrium models with greater emphasis on shortterm dynamics. Such models do not necessarily involve full market clearing (even in the longer term), but typically have a much stronger neoclassical flavour than their predecessors. 6.3 Data collection Assuming the use of a macroeconomic model is followed, the data requirements are those of such a model a wide range of production, employment, trade, price and other financial data, all or most of which is usually obtained from official sources. The advantages and drawbacks associated with the use of existing models, with or without modification, and the possibility of a new space-specific model, are discussed later in this section. 6.4 Analysis The basic theory is fairly simple. By definition, Government (public) spending is one component of national income/gdp, along with consumption and investment. So one unit of public spending immediately increases GDP by one unit, but also increases consumption (and hence GDP) by (say) c units as recipients of the public financing spend their money c ( marginal propensity to consume ) is less than 1 since some of the income is assumed to be saved. Purchases from this extra income mean more money in the pockets of product/service providers, who in turn spend a proportion c of this money, and so on ad infinitum. The total long-run effect on national income of an increase ΔG in public spending is ΔY= (1+c+c 2 +c 3 + ) ΔG = (1/(1-c))ΔG. Since c is usually assumed to be around 0.8 people spend roughly 80% of their income this gives a multiplier of around 5, the type of number often given in textbooks. In practice things aren t so simple, mainly because of crowding out the additional consumption could ultimately be at least partly at the expense of existing consumption. There are people who argue that the multiplier is less than one you get less out than you put in or even negative. Imports are an issue too. If resources (people, machines) are already fully utilised more spending will just mean inflation (Keynes wrote during the great depression, so he was not concerned at all with such matters). So the value of the multiplier is likely to depend strongly on the state of the economy. Estimates of the size of the multiplier now tend to be derived from large-scale macroeconomic models, consisting of hundreds or thousands of econometrically estimated equations linking demand, supply, employment, industrial investment, imports, exports, prices, interest rates in many industrial sectors (though interestingly, generally, not endogenous technical change - NEMESIS 16 might be an exception in that respect). Finance ministries in all major industrial countries have them, but tend to interpret the results for public consumption. The UK Treasury model is publicly available and is run by the Ernst & Young ITEM (Independent Treasury Economic Model) Club, and there are lots of versions within academic groups. The methodology is generally to send a pulse of increased Government spending (or reduced taxation) through the model, and look at the impact on the variables, particularly GDP. Typically, a pulse of additional public expenditure is input to a model, and the induced effects simulated over future time periods. Results are typically dependent on model structures, which can be underpinned by a variety of alternative economic theories, and outcomes can be extremely sensitive to the in-built assumptions, 16 New Economic Model of Evaluation by Sectoral Interdependence and Supply. See ERASME team, The NEMESIS Reference Manual Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 37

42 including, for example, the extent to which private investments are crowded out by the additional public expenditure. Unfortunately, numerical estimates of the multiplier vary widely, and a scan of recent literature gives no indication that consensus is any nearer than it was 40 years ago (when anti-government-spending Monetarists first started suggesting that public spending was not only useless but counterproductive). Values depend critically on model structure, which depends in turn on the views of the model builders on how the economy works. Estimates of the multiplier are not something that finance ministries routinely make public. There is some more recent evidence from the US and Europe - in January 2009, a high-powered group from the President s Office of Economic Advisors (Bernstein- Romer) estimated that a 1% increase in government purchases would result in an increase in 1.6% in real GDP, based partly on results from the US Federal Reserve economic model. The general response seems to have been that even a multiplier of 1.6 is too high a German group led by Volker Wieland estimate a multiplier between 0.5 and 0.6 for a permanent increase in US government spending from the end of They explain the difference between their results and those of the Fed partly in terms of different assumptions about interest rates and partly their incorporation of expectations. For Italy, Faggian and Biagi estimate a national multiplier of around 1.6, using methods based on assumed marginal propensities and leakages (taxes, imports, savings) rather than an economic model. Using various theory-based models, Kaszab (2011) of Cardiff Business School find multiplier values for the UK consistently under unity using various assumptions although with fixed interest rates he gets a result close to that of Berstein-Romer in the short run. Rather than get further embroiled in the morass of detail, uncertainty and ambiguity surrounding this issue, the best strategy seems to be to acknowledge the uncertainty and (perhaps) advocate the use of a particular source model for ESA-based estimates. There seems to be no obvious criterion for arguing that one estimate is better than another, but if values provided by any particular model look reasonable and can broadly be explained, that seems to be the best bet. Candidate models include national econometric models such as that of the UK Treasury, models used by private academic and consultancy groups such as Oxford Economics (who have already applied their model for this purpose) and NEMESIS. The issue of the Keynesian multiplier is potentially significant and therefore cannot be ignored, and the methodology of sending a shock through a macroeconomic model and assessing the impact seems to be the best available. Limitations centre around the theory-dependent uncertainties associated with the estimates, which need to be recognised. 6.5 Scope The scope of the expected results could be the induced impact of total (or publiclyfunded) European space activities, requiring consistent international-level data, or the induced impacts on specific national economies, or (at least in principle) induced impacts at a sub-national regional level. The scope of a study could also relate to particular public space investments, e.g. projects or programmes. 6.6 Implementation In principle, any macroeconomic model may be used to estimate induced impacts. It is however possible that the pattern of expenditures by space-sector employees and the structure of their decisions to spend rather than save may not be typical of employees overall. To this extent, use of a model in which a space sector is separately identified might be expected to provide more reliable results. Estimates of induced impacts, however, are extremely uncertain and more likely to be influenced by the 38 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

43 underlying assumption in the model regarding types and strengths of feedback processes than by particular sectoral representations. The next level of implementation, requiring some additional effort, involves extension of an existing model to represent the space sector more explicitly. If this route is chosen, the extended model would be expected to be applicable to a wider range of economic impacts (including Tier 2 impacts). A more radical alternative for the assessment of induced (and other economic) impacts is the construction of a new model, specifically for the purpose of analysing the impacts of public space investments. Features of such a model would include: Representation of the European economy, albeit at a fairly high level of aggregation, together with particular representation of the space sector, calibrated according to best available data, combined with new primary data assembled specifically for the purpose Ability to incorporate results from micro-level and other studies of Tier 1, 2 and 3 impacts of public space investments, in order to provide a comprehensive overview of the benefits of such expenditures Such a model could provide an accounting framework, acting primarily as a means of combining the benefits of space expenditures in an appropriate way (in particular, avoiding double counting), or could encapsulate a more comprehensive dynamic representation to cover the temporal evolution of space expenditures. 6.7 Methodology Options We can identify four levels at which a macroeconomic approach could be applied to induced impacts (and more generally to the space sector). In order of increasing extent of required methodological development, these are: Status quo Use of rules of thumb or stylised facts based on averages or ranges of values derived from available macroeconomic models Low-level additional effort (20 person days): Use of an un-adapted existing model to simulate impacts of public space-sector investments, using outputs from sectors represented in the model which incorporate elements of the space sector, on the assumption that this sector is broadly typical of the larger sectors which incorporate it Moderate additional effort (100 person days): Extension/adaptation of current macromodels, to incorporate a bespoke space sector (consistent with suggested developments on indirect impact) This is the recommended option Major additional effort (500 person days): Construction of a new custom-made model specifically designed for the assessment of economic impacts of the space sector Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 39

44 7. Knowledge Spillovers 7.1 Introduction These arise from knowledge created by one agent used by another without compensation, or with compensation less than the value of the knowledge (Jaffe )). Benefits from knowledge spillovers occur through the leakage of advances in understanding developed by recipients of public investments in the space sector to others (in the space sector or elsewhere) not directly participating in the initial activity. Knowledge spillovers occur when the advances in scientific and technical understanding diffuse into wider society and cross-fertilise with other intellectual endeavour to support the emergence of otherwise impossible innovations in many and various unexpected locations. A knowledge spillover can be intentionally facilitated by the knowledge generator e.g. in scientific publications or hindered by the use of patents. However patents, while protecting the inventor from direct commercial exploitation of an invention, also require the disclosure of knowledge that may be applied by others in new and different applications. In practice, any commercialised products or services involving new knowledge are potential sources of knowledge spillovers. As well as covering knowledge embodied in products and services, the term knowledge spillover might also be used to include knowledge embodied in a researcher moving from one employer to another, the latter exploiting the stock of know-how the researcher brings with him or her. Knowledge spillovers may thus be transmitted to other actors mainly through one or more of the four Ps : publications, patents, people and products. An implication of the high levels of R&D associated with public investments in space is that these investments may produce very substantial additional economic benefits, which derive from this focus on research and innovation. The knowledge generated from space R&D and, to some extent space production more generally, cannot be entirely appropriated by those conducting the knowledge generating activities, leading to free information or knowledge spillovers for others to deploy for innovative purposes. In the space sector knowledge spillovers can lead to impacts not just in non-space sectors but also in other businesses in the space sector and within space companies themselves. Many space companies are divisions of larger businesses, typically in the wider aerospace and or defence sectors, thus providing opportunities for internal knowledge spillovers to lead to successful commercialisation of spin-off products for other business divisions. In this case companies may be able to produce substantial private returns from the public support for space R&D. A potentially very important category of spinoff occurs where R&D carried out under public contract leads to later product sales to third parties. A new satellite commissioned by a national space agency may, for example, later lead to sales of similar satellites to other countries. To the extent that additional R&D is needed to adapt the satellite to the needs of the third parties, these sales may be considered to result from knowledge spillovers; to the extent that they represent an opportunity for the company involved to generate additional profits from existing knowledge (and to contribute to GDP and employment), they represent an example of market spillovers (producer surplus), the subject of the next section. 17 Jaffe, A.B. (1996), Economic analysis of research spillovers: Implications for the Advanced Technology Programme, mimeo 40 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

45 7.2 Approach and Methodology Alternative approaches used in the literature that warrant investigation in the current context are: Case studies: identification of individual spillover innovations and/or other benefits from transmission of knowledge Analysis of patent data Use of econometric or macroeconomic models Case studies These involve investigation of actual or potential knowledge flows from publiclyfunded space R&D, or of new products or services resulting from such flows. Approaches differ in methodology and scope. The BETA group, 18 for example, have carried out analyses of the effects of knowledge development and transmission within ESA contractor organisations. An important point here is that, apart from information on the award of ESA grants and the recipients of them, no secondary data is required. Being restricted to the in-house impact on ESA contractors themselves, the analysis does not involve consideration of spinoffs to third-party organisations. The problems of identification and attribution associated with such external spinoffs are thus avoided at the expense of limiting the coverage to contractor organisations, although within such organisations a wide range of economic benefits is covered, falling into four main groups - technological effects, commercial effects, organisational and methods effects and work-factor effects. As pointed out earlier in the report, internal spinoffs can include third-party orders for products or services (possibly with some adaptation) resulting from R&D carried out under public contract. The Space Policy Institute at George Washington University identified firms who had successfully marketed products traceable to NASA R&D investments by design, a non-random sample biased towards successful cases was employed. NASA s spinoff and technology transfer publications were used as a starting point, informal searches and interviews with NASA staff subsequently leading to 41 companies for study. These included firms supported by NASA and also firms deemed to have adopted NASA technology but without formal ties to the Agency. The economic benefits identified were divided into the same four main groups used the BETA group studies Use of patents As described in the OECD Patent Statistics Manual 19, patents provide a description of how inventions have been made and the prior research activity on which they depend. In particular, patent citations highlight the use of previous inventions in new inventions citations of other patents or the non-patent literature help to quantify knowledge transfers across organisations, geographical regions and technology fields, and, importantly in the current context, knowledge spillovers from specific inventing entities such as companies, universities or public research centres to industry. Several studies have shown that the number of citations a patent receives is associated with its technological importance and social value. 20 Citations generally result from searches conducted by examiners assessing the degree of novelty and inventive steps undertaken in the development of a new invention. Citations have traditionally been used for (a) the measurement of knowledge flows and spillovers (b) the measurement of patent quality and (c) the strategic behaviour of 18 Bureau d Economique Theoretique et Apliquee, based at the University of Strasbourg 19 OECD (2009), OECD Patent Statistics Manual. 20 E.g. Trajtenberg, M. (1990), A Penny for your quotes: patent citations and the value of innovation, RAND Journal of Economics, 21 (1) pp ; OECD Patent Statistics Manual p. 115 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 41

46 companies 21. It is useful to distinguish between backward citations, which refer to previous patent documents, and forward citations, citations subsequently received by a particular patent. The extent of forward citations by space-related patents is of particular interest here, since they indicate the presence of knowledge spillovers leading to downstream research efforts Applications of econometrics and macromodels Knowledge spillovers can be represented by means of single-equation econometric model, or within the context of a macroeconomic model that contains explicit representation of knowledge spillovers, resulting from past R&D. In NEMESIS, as an example, R&D stocks accumulate (and decay) over time, and are distinguished as to whether they originate from private R&D expenditure, from public research or from foreign sources: For spillovers from private R&D, patent statistics are used, together with the OECD Technology Concordance. The latter identifies the probability that a patent with a particular International Patent Classification (ITC) (based on technologies) has a particular combination (I, J) of source (producer) sector I and sector of use J Public knowledge stock (as an accumulation of public sector research) is assumed to spill over between sectors in proportion to their share of total private R&D expenditures Knowledge externalities acquired by a sector J from foreign sources are represented as a sum of foreign countries R&D stocks in that sector, weighted by the recipient countries imports from each country as a proportion of total domestic consumption of the outputs of sector J The total domestic knowledge accumulated in sector J is then the sum of stocks derived from domestic in-sector R&D and spillovers from other sectors and from public laboratories (domestic and foreign). Changes in sectoral total factor productivity and in product quality are then linearly related to changes in accumulated sectoral knowledge. 7.3 Data collection Chapman (1989) observes that, in the area of spinoffs, the scope is vast and the documentation sparse. This appears to remain the situation, although it is clearly an area where information is diverse and scattered, and where opportunities for improvement may be limited. In addition, available studies are disparate in their approaches, illustrating the fact that there is no common approach in this area and that the economic effects of a spinoff can be many and varied, and often supported by little or no hard data. This carries the risk that extending the list with factors based on dubious data foundations enables artificially large impacts to be derived Case studies: New products and services derived from knowledge spillovers Basic data sources containing lists of spillovers are compiled by NASA and ESA. NASA s compilation of spinoffs appears in the annual publication Spinoff; the ESA data is compiled from referrals from its Technology Transfer Network and is not in the public domain. The compilations of spinoffs are likely to be incomplete, and (in the case of NASA) are generally stronger on description than quantification of impact, and (in the case of ESA) convey very little information. Also it is difficult to determine the extent of the contribution of space activity, or any evidence on which to base a counterfactual. These factors severely constrain the scope and veracity of impact analyses that can be carried out. 21 OECD (2009), OECD Patent Statistics Manual. 42 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

47 Data important for assessment of the economic impact of spinoffs may be seriously deficient in the identification of cases of spinoff. There is no guarantee that an important new technology will be identified as being initiated by, or related to, space activity, even where this is the case. Even if identified, Chapman et al. argue that they may not be published in (for example) Spinoff, on the grounds that they are difficult to describe in terms suitable for public consumption. Chapman et al. cite NASTRAN, a computer programme developed by NASA for structural analysis of large rockets and later modified for thousands of non-nasa applications, as an example of this. On the other hand, several products (Teflon, Tang, Velcro) have widely been (wrongly) interpreted as space spinoffs, although not through mistakes or misrepresentations by NASA or other agencies. Additionally, where an appropriate identification is made, there can be great difficulty in determining the extent of the contribution of space activity. Information currently available on identified ESA spinoffs is limited. The compilation assembled by ESA s Technology Transfer Network is restricted to the information available to that network, and it is impossible to gauge the comprehensiveness of spinoffs captured through the Network. Information on spinoffs that are identified is patchy, and while detailed case studies are always necessary for a realistic quantified assessment of the economic impact of individual spinoffs, there is a strong case for improvements in the quality and consistency of data obtained by the Network. This is an important issue. Spinoffs constitute a very significant component of the overall socioeconomic impact of space activity, and are also perhaps the major justification for public investment. They are certainly used as such as a defence against criticism of public investments in space as opposed to investments in other areas of public welfare Patent data The OECD have recently made available to researchers a series of patent-related datasets to allow researchers to conduct their own specific analyses of microdata: The OECD EPO/PCT Citations Database provides information on patent and nonpatent literature citations contained in patent applications filed to the European Patent Office or via the Patent Co-operation Treaty. The database covers all citations in EPO and PCT patent documents published since 1978, totalling almost one million EPO/PCT patents. For each citation, the origin and EPO search codes are recorded. Summary counts of backward citations (number of citations made) and forward citations (number of citations received) are included for all EPO patents The OECD REGPAT Database contains patent data linked to names, addresses and low-level regional codes of inventors, and can be combined with the EPO/PCT Citation Database Both databases include International Patent Classification Symbols ( Search Codes ). Crucially for our purposes, the OECD monitors space-related patents filed under the Patent Co-operation Treaty (PCT), the European Patent Office (EPO) and the USPTO. Space patents are identified using a combination of codes from the International Patent Classification and key word searches in the patent title. Five domains of spacerelated patents some of which are apparently allocated to more than one domain - are identified: General satellite technologies (60% of space-related patent applications filed at the EPO over ) Satellite navigation (34%) Cosmonautics (28%; Patent category B64G - covers space-related systems and applications including satellites, launchers, components, tracking systems, simulators) Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 43

48 Satellite communications (18%) Satellite Earth Observation (less than 1%) The latest OECD Patent Database is dated 2010, with an accompanying 2009 Patent Statistics Manual. The statistics show a significant reduction in space patents after 2002, particularly in the US apparently a statistical aberration due to delays in updating databases. Patents filed under EPO and USPTO both rose rapidly in the late 1990s and have roughly plateaued since. Downstream products and services have apparently gained in importance relative to cosmonautics. The OECD report points out that innovative activity in space may be under-represented owing to secrecy around some areas of space R&D. The following chart shows numbers of patents, broken down into five areas or domains of space activity. Figure 11 Breakdown of space-related patents by main domain ( ) 59.6% 60.5% 50.2% Patent applications filed under the PCT Patent applications filed to the EPO Patent grants at the USPTO 36.0% 36.4% 33.7% 31.8% 28.9% 25.3% 16.1% 17.8% 12.8% 0.2% 0.5% 0.5% General satellite technologies Satellite navigation Cosmonautics (B64G) Satellite communications Satellite Earth observation Source: OECD (2011), Space Economy at a Glance Other available data on invention and innovation Firm-level innovation surveys have emerged as an important complement to the classical but more indirect considerations of R&D expenditure (innovation input) and patents (an intermediate metric). Innovation surveys are now conducted by national statistics offices across the EU (i.e. the Community Innovation Survey or CIS) every two years, and the harmonised surveys and results permit analysis of trends in innovation across sectors and regions. The results are reported separately by Eurostat in its science and innovation indicators and also compiled in the biennial European Innovation Scoreboard, alongside other metrics on framework conditions (e.g. educational attainment), BERD and patent applications. Equally important, the CIS is widely replicated around the world, and there is now a growing body of innovation data available for academic, policy makers and others to reflect upon. The OECD Innovation Microdata Project, launched in 2006, makes use of survey data (notably from the EU Community Innovation Survey) to derive internationally coordinated results on innovation indicators and (from econometric analysis) on relationships between innovation and various economic, and policy-related factors OECD (2009): Innovation in Firms: A Microeconomic Perspective 44 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

49 Unfortunately, while offering an increasingly powerful means by which to compare performance among nations and test policy portfolios, the surveys are generating data from a few thousand businesses in each country, encompassing the entire economic spectrum, and as such they are too coarse to investigate the space sector specifically. In a majority of countries, there will be very few or no returns from businesses involved in the space sector, and as such, these important databases cannot currently offer an alternative to the patent data approach discussed above for that sector. 7.4 Analysis In a recent presentation to the International Astronautical Congress, 23 results of eight historical studies of NASA technology transfers (spinoffs) were presented, 24 several based on the compilations in the Spinoff publications, others on modelling and simulation. Estimated benefits are unanimously impressive, though difficult to compare directly some studies quote benefits in terms of increased sales or cost savings, others in terms of value added and/or jobs, others in rates of return per $ of NASA investment. While noting the impressive results, the NASA presenters complain of inconsistent assumptions and measures, irregular occurrence and nonsustainability of studies, and difficulties of aggregation. In very general terms, a typical feature of such studies appears to be the lack of a counterfactual what would have happened (to the resources used in the space activity, and consequently to the overall economy) in the absence of the NASA support? This apparent neglect may well be due, at least in part, to restrictions imposed by lack of available data, considered further below. Analytical options are considered further in sections 7.6 and Scope The scope of the expected results could be the knowledge spillovers of total (or publicly-funded) European space activities, requiring consistent international-level data, or the knowledge spillovers on specific national economies, or (at least in principle) knowledge spillovers at a sub-national regional level. The scope of a study could also relate to particular public space investments, e.g. projects or programmes. There is a need to address issues such as leverage of public funds, substitution, and additionality. Case studies of knowledge spillovers have been carried out at various degrees of breadth and depth. The BETA studies referred to above can be described as deep but narrow they are limited to spillovers realised within space contractor organisations, but within that explore a range of benefits including not only impacts on productivity and sales but also on business organisation and methods, on development of human capital, and on the development of new collaborations and networks. Other studies focus on particular products or processes derived elsewhere in the economy indirectly from space research. 7.6 Implementation Case studies Because of importance in the rationale for public investment in space, improvements in the data relating to spinoffs and analysis of their impacts appear to be highly desirable. There is also the need to improve the veracity of existing information on 23 Comstock, D. and Lockney, D. (2011): A Structure for Capturing the Quantitative Benefits from the Transfer of Space and Aeronautics Technology, Innovative Partnerships Office, NASA Office of the Chief Technologist. Presentation to the International Astronautical Congress, Cape Town, South Africa 24 The studies cited were carried out between 1971 and 1997, reinforcing the impression that little work of this nature has been carried out over the last 15 years or so. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 45

50 space-related spinoffs as indicated above, the examples of Teflon, Velcro and Tang, widely thought to be spinoffs from space programmes but in fact invented previously, and widely used in space programmes indicates the importance of the care required in attributing products to spinoffs in space. There is a case for a substantial review of collection of information on spinoffs by ESA and other European agencies, with a view to improving coverage, quality of information and consistency. Such a review should also consider any lessons that can be learned from NASA s procedures in compiling its Spinoff publication while itself limited in various areas, it does provide more information, and is more accessible and consistent, than its ESA counterpart. The data required for case studies needs to be collected on an individual basis in the course of the study. The main requirement here seems to be for a consistent approach to the assessment, with clear statements of impacts included and not included, perhaps leading to documentation produced by ESA for best practice in conducting such assessments, analogous to the UK Treasury s Green Book on best-practice guidelines for investment appraisal. Particular care is needed to take account of the risk of optimism bias, which some argue is endemic in the project assessment community. 25. In particular, over-optimism can take the form of exaggerating additionality the contributions of public funds to projects which in some cases may have gone ahead in some form without the grant and to ignore or understate opportunity costs (or, equivalently, the counterfactual). To take account of this, impact assessments should ideally include assembly of data on issues such as displacement, (the negative effects on sales of existing products, and on the firms that produce them, from substitution by new space-derived products). In addition, the results of employing resources devoted to space in other areas. There is of course also the risk of double counting 26. Methodologically, case-study-based analysis of the impact of knowledge spillovers should be as broad as possible, covering all of: In-house contractor benefits, including human capital and organisational benefits, as in the BETA studies, and including knowledge used to supply third parties with products or services resulting directly from a public contract The international dimension of spillovers Net economic benefits from innovations derived from knowledge spillovers, following a methodology we have used in earlier studies (including that of the impact of British National Space Centre programmes) 25 HM Treasury, The Green Book Appraisal and Evaluation in Central Government. This document notes that There is a demonstrated, systematic, tendency for project appraisers to be overly optimistic. This is a worldwide phenomenon that affects both the private and public sectors. Many project parameters are affected by optimism appraisers tend to overstate benefits, and understate timings and costs, both capital and operational. 26 E.g. the value of industry sales includes the costs of bought-in (indirect) supplies value added is the preferred concept and sales are also covered in procurement expenditures by public bodies. 46 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

51 Figure 12 Microeconomic impact methodology Financial inputs by private companies Financial inputs from public and other sources Total financial inputs Outputs increased turnover (discounted) Output additionality (deadweight) Net effect of support for producer R&D, invention, innovation displacement spillovers multipliers Total net economic effects Source: Technopolis The items for which data need to be sought (typically by interview and/or survey) are as follows: Inputs, Typically, a publicly-supported project will be financed by at least matching funding from the private companies carrying out the research, who may also meet subsequent development/production costs Outputs, in particular benefits to participating organisations, in terms of increases in sales, value added and profits. Sales may include subsequent public-sector grants 27 which follow from the case study but which do not form an integral part of the inputs to it. Benefits will typically accrue over a number of years and the estimated need to be subject to an appropriate discounting procedure Additionality, is an estimate of the extent to which support was necessary for that part of the work to go ahead and for the benefits to be realised 28 Spillovers and Multipliers, the latter generally derived from a macroeconomic model Displacement effects, these require a judgement regarding the extent to which sales arising out of innovation substituted for sales the business might have been expected to secure in any event (presumably with lower returns), or indeed the 28 Different categories of additionality are recognised in the literature, relating for example to the effects of a grant on total project inputs, outputs/benefits, or firm behaviour. Here we are concerned with estimating the extent to which the grant was required to realise the economic benefits identified in the table. Thus 100% additionality implies that none of the benefits would have been obtained without the grant the project would not have been carried out and other beneficial contracts assumed to be dependent on it would not have been won. In such a case, a firm may have devoted resources to other development projects (not necessarily in the space sector) yielding some returns, presumably lower than those obtained under the BNSC award. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 47

52 sales of its competitors. Thus a displacement of 30% suggests that 70% of outputs contributed a net economic benefit, other things being equal Analysis of patents We propose that these patent data could be applied as follows: Backward citations are a useful measure of the sources of knowledge for space research a measure of the spin-in of technological data assisting and informing the development of space inventions Forward citations can be used for impact analysis of areas where space-related patents are most frequently used, and in particular to identify particular inventions which are dependent on prior R&D in the space area. This represents a potentially useful route for the identification of important knowledge spillovers from space sector research Mapping flows across economic sectors requires translation of technological areas specified in patent documents (the International Patent Classification system is a technology based system not a sectoral one) into industrial sectors (the supplier or user sectors). However, can be done using the OECD Technology Concordance 29 We suggest that the latter procedure could be used to map spillovers in some general sense from space-related technologies to technologies in the rest of the economy, which would be a useful supplement to the current stock-taking mechanism. Presently, the ESA Technology Transfer Network records and publishes basic information about any examples of spinoffs from ESA contracts that are identified by its agents or ESA contractors. Ultimately, when properly calibrated, such a mapping procedure could be used to produce a quantified assessment of the impact of knowledge spillovers from the space sector to the rest of the economy, which in principle could be added to Tier 1 impacts and to producer/consumer surpluses to yield an overall measure of the economic impacts of public investments in space to European economies. Clearly, there would need to be a substantial amount of further development in order to monetise such indicative flows in a credible manner. Further investigations of data availability/quality, based on the OECD-prepared patent data, are needed to assess the possible applications, but these may include: Following Jaffe, statistical analysis of the relationships between firm-level patenting activity and own-firm R&D and other firm R&D, to assess the importance of private and social returns Country comparisons of R&D and patenting activity Subsector comparisons (within the space sector) to determine which areas of R&D are the most productive in terms of inventions Use of patent citations to introduce a measure of patent quality into the above We recognise that analysis of patents has its limitations in any sector, however it may be especially challenging for space, where other forms of protection may be preferred (e.g. secrecy considerations particularly for military applications of space) and this combined with a highly concentrated global industry and small number of clients means we see patent output numbering in the hundreds rather than tens of thousands. These characteristics are likely to be more or less pronounced in different application fields, too. We also acknowledge the use of patents for tactical reasons, and that the commercial value of patents is uncertain and exhibits very high levels of variance, and 29 Johnson D.K. (2002), The OECD Technology Concordance (OTC): Patents by industry of manufacture and sector of use, DSTI/DOC(2002)5. 48 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

53 that the importance of a particular citation in a patent application is highly variable. Despite all of these measurement and valuation issues, the OECD patent data represents a potentially valuable new addition to the evaluation toolbox for space, which could provide a potentially novel insight into the map of technological relationships within space and between space and other sectors Econometric models Some authors have used econometric techniques to investigate characteristics of knowledge spillovers, in some cases calibrated using data from Community Innovation Surveys. 30 Capron and Cincera, for example, look at the role played by universities in providing technological information in R&D collaborations, while Monjon and Waelbroeck 31 investigate the impact of several types of knowledge spillovers on the decision to innovate, concluding that a wide range of information sources are important. Macroeconomic models offer another possible analytic vehicle, with incorporation of representation of knowledge spillovers. Given the relatively small size of the space sector the highly skewed nature of the benefits from knowledge spillovers, it does not seem that such routes offer a costeffective approach to analysing the impacts of knowledge spillovers in that sector. 7.7 Future Development Options Development options, in order of increasing effort required, are as follows: Status quo Applying current methodologies and existing secondary data: Use of existing estimates of the importance of knowledge spillovers, assuming the space sector to be typical (in terms of spillovers) of sectors where such studies have been carried out. This involves derivation and use of stylised facts or rules of thumb, e.g. one notable spillover worth Xm expected per Ym of expenditure Low-level additional effort (100 person days): Review of current systems for identifying spillovers Surveys of firms for systematic identification of spillovers, perhaps with incentives Moderate additional effort (300 person-days): Improved identification of cases combined with data collection on benefits, as above Case studies of known examples, using a comprehensive methodology with estimation of gross and net (inclusive of opportunity cost) impacts Use of patenting data to (a) highlight particular spillovers for investigation and (b) enable citation analysis for levels and trends in cross-fertilisation between space and other sectors This is the recommended option. The additional contribution of patent data should be considerable: OECD s patent database and its ongoing identification of space patents are new and highly relevant developments 30 E.g. Capron, H and Cincera, M. (2003), Industry-university S&T transfers: What can we learn from Belgian CIS-2 data? 31 Monjon, S. and Waelbroeck, P. (2003), The nature of innovation and the origin of technological spillovers: an econometric analysis on individual French data Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 49

54 Major additional effort (500 person-days): Improved identification of cases combined with data collection on benefits Use of patenting data, as above Incorporation of potential for knowledge spillovers into a major new modelling initiative to assess the benefits of public expenditures in space, including patenting information. Under this option, analysis of knowledge spillovers would be incorporated into an overall framework which includes all economic impacts of public space investments, as discussed in Section Market Spillovers 8.1 Introduction These impacts arise from leakage of benefits through the operation of market forces, which tend to cause some of the benefits from a new product or process to accrue to buyers. Competitive pressures mean that prices do not fully reflect the willingness to pay of purchasers. This can produce consumer or producer surplus, the former representing benefits accruing to the buyer, the latter to the seller. Thus consumer surplus is the difference between the price that the consumer is willing to pay and the actual price paid and producer surplus is the difference between the price at which a product is sold and the lowest price at which the producer is prepared to sell. The fact that a producer will sell at lower than the actual price yields the potential for profits which provide a measure of producer surplus. In particular, the downstream space sectors develop innovative value-added products and services based on space infrastructure (satnav, satcom and EO systems) that are either entirely new or superior to those that they replace, offering enhanced performance and functionality or supporting entirely new activities by their users. However, as a result of market forces the price does not reflect the full value of these new /superior products and services, leading to an economic gain or market spillover in the form of a consumer or producer surplus. For example the performance and functionality of personal computers has increased substantially over the last 10 to 15 years due to technological developments but the purchase price (in real terms) has decreased, yielding substantial unearned benefits to users. The introduction of new products or processes typically leads to both producer and consumer surpluses. In the short term, the producer may enjoy a large advantage over competitors, yielding relatively high surpluses in the form of superprofits ; in the longer term, these are typically eroded away in the face of competitive pressures forcing price reductions, with benefits moving in the direction of the consumer. Nordhaus 32 uses data relating to the American economy over the period to estimate the proportion of social returns from technological advances accruing to producers and consumers, respectively; the conclusion is that most of the benefits are passed on to consumers, with innovators capturing only about 2.2% of the total social surplus from innovation. This figure follows from a typically low rate of initial appropriability (around 7%) immediately following the innovation; combined with a high subsequent rate of depreciation of the innovation-related profits. 32 Nordhaus, W.D., Schumpeterian Profits in the American Economy, Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

55 8.2 Approach and Methodology Producer surplus can be estimated from profits derived from an innovation, i.e. revenues derived from it (product sales, and perhaps IP related sales such as licenses) minus costs of R&D and manufacture, items not relatively available from secondary sources but potentially available on a case-study basis. Consumer surplus can in principle - be estimated from a demand curve showing quantities demanded as the price varies; Figure 13 shows the simplest case of a linear demand curve, the shaded area (0.5*Q*(P MAX P*)) representing the consumer surplus. This is the total excess above the asking price P* that consumers are willing to pay (P MAX being the most any consumer is willing to pay). While data needed to estimate the demand curve is rarely available, approximations to the consumer surplus can sometimes be made from an assumption of a linear demand curve and an estimate of the price elasticity of demand of the product, or of similar products. 33 In many cases, consumer surplus may more readily be estimated from reductions in price or improvements in quality compared with pre-existing products satisfying similar requirements, requiring the availability of appropriate comparative data. Figure 13 Example of a linear demand curve Source: Technopolis Consumer surplus can only be realistically handled on a case-by case basis, and the overall importance of this component of the economic impact is thus dependent on the effectiveness with which spillovers from space activities are identified. Consumer surplus is ideally estimated through the use of consumer demand curves, although such an approach is rarely practical. In practice, consumer surplus resulting from an identified innovation can be assessed using: Willingness to pay analysis: surveys of consumers of particular space-derived services to assess the extent to which they would have been prepared to acquire the service at a higher price At a lower limit estimate of consumer surplus, comparisons can be made between the costs of the new service (such as satellite navigation) and the costs of services it replaces (such as map reading). The additional consumer surplus provided by 33 In this case consumer surplus equals 0.5*P*Q*/η, i.e. one-half of revenue divided by the price elasticity. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 51

56 the new service will normally be a combination of the price advantage and the quality improvement it offers over its substitute (one of these factors may be negative, for example the new product may be more expensive but offer higher quality which more than compensates) 8.3 Data collection Primary data is normally collected on a case-by-case basis. Ex-ante estimates of surpluses can be based on assumed price elasticities or willingness to pay approaches, while ex-post estimates can be derived from market penetration and financial benefits from efficiency and/or quality improvements. Many studies of producer and consumer surplus (such as the value of information study by the UK Office of Fair Trading, EC49) identify lack of data as a key constraint, requiring the collection of primary data on a case-by-case basis - data from value of information studies should in principle be collectable for the analysis of space applications - or the use of reasonable assumptions, ideally accompanied by estimates of the sensitivity of conclusions to those assumptions. In the absence of usable estimates of price elasticity, an essential requirement for the estimation of consumer surplus associated with a new product is identification of a close existing substitute for the product, for which the new product may itself substitute. The consumer surplus (or the increase in it) may then be estimated from comparisons of price and quality, i.e. the extent to which the new product represents an improvement over those previously available Need for further data collection Most of the areas of work identified in this section are concerned with the microeconomic level, and potential requirements for new data are: The identification of relevant space cases generating producer and/or consumer surpluses, similar to the issue discussed in the previous section on knowledge spillovers. Here however, the evidence to be sought relates not so much to identifying product and service spillovers, particularly in non-space sectors, resulting from space-related R&D, but rather to sales of particular novel devices and services, to be followed by an analysis of the division of surplus benefits between consumers and producers Most data required for analysis of producer and consumer surpluses needs to be collected on a case-by-case basis. However, classification of surpluses, their association with particular groups of beneficiaries, and identification of existing substitutes might prove to be a valuable exercise 8.4 Analysis A recent study by Analysys Mason however, finds that consumer benefits from the deployment of high speed broadband are small, where consumer surplus benefits represent only 1.6% of those gained from input-output calculations. It seems likely, though, that consumer surpluses resulting from widely adopted services such as satellite navigation are very large. In each case selected, analysis would comprise: Assessment of the demand, over time, for the space-derived product or service (any appropriate units) Estimation of the saving, and/or the value of quality improvement, compared with the nearest alternative (e.g. maps, terrestrial-based weather forecasts) per unit of demand 52 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

57 8.5 Scope Like most others, this issue can be addressed: At the macro level, with an attempt to assess the total benefits (nationally or internationally) of space activity At the micro level, with reference to individual projects or programmes Ex post, on the basis of observed market penetration/sales Ex-ante, on the basis of expected market penetration/sales (perhaps with alternative low/medium/high scenarios) 8.6 Implementation Areas where public investments in space can generate consumer and producer surpluses include: Technologies that lead to or support the development of new products, for example products derived from the availability of the satellite-based navigational signal, improving locational accuracy and ease of navigation Data from earth observation satellites leading to, for example, improvements in weather forecasting, of potential value to farmers (e.g. to help inform harvesting schedules) and the electricity supply industry (improving demand forecasting) Spillovers to other industries applications leading to private and social returns in non-space area 8.7 Future Development Options Status quo Use of the currently available estimates of costs and benefits, including profits and price-reduction opportunities and quality improvements, of existing or planned initiatives where major studies have already been carried out, such as for GMES and Galileo. Low-level additional effort (50 person-days): Structured compilation of major publicly-funded space initiatives from which novel devices or services are known to have been derived Analysis of the results of the benefits of these devices or services in terms of market penetration, and per-unit benefits to consumers and producers accruing over time, along with use of net-present-value and discounting procedures Moderate additional effort (50 person days initially, with additional ongoing resource needs): Compilation of major outcomes from space investments, and analysis of them, as in low-level additional effort as above Ongoing inclusion of assessment of consumer and producer surpluses from new developments as they occur, as a routine component of evaluation and monitoring of the impacts of public investments in space. This is the recommended option Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 53

58 9. Economic impacts in summary The preceding sections describe the methodological options and associated data requirements for quantifying five very different types of economic impact, in a discussion that extends across more than 30 pages and gets really very technical in parts. So, here we have attempted to summarise matters. Figure 14 shows the main economic impact categories identified, and recommended approaches to their evaluation. Direct impacts are obtained from large-scale surveys of individual actors, and spillovers basically need treatment on a case-by-case basis of some kind. Results from these categories can feed into an accounting framework for aggregation. Indirect and induced impacts require a modelling framework, generally input-output for the former, and a causal macromodel for the latter, which may be combined in one model. Results from all five categories combined yield what is here called Total Gross Economic Impacts. This does not account for benefits foregone resulting from the resources used for being unavailable for use in other areas, such as public works or reductions in taxation. These foregone benefits may be greater or lesser than the benefits from space investments, the difference being Total Net Economic Impacts. Figure 14 Economic Impacts: Summary Chart Both gross and net benefits are important. The former reveals the nature and extent of the economic benefits obtained from public expenditure on space, that economic (as well as other) returns are generated. However, opportunity costs should not be ignored, and at least awareness should be shown, perhaps with some precautionary discount applied to the gross estimate, even if the true opportunity costs can t be estimated accurately. This would be expected by Finance Ministries, and would also help to highlight the extent to which space expenditures produce economic benefits additional to those gained from other public expenditures or policies. 54 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

59 ENVIRONMENTAL IMPACTS 10. Introduction 10.1 Definitions Investments in space infrastructure provide either data (about the Earth s atmosphere, oceans, land cover etc., scientific data on the solar system/universe, position and time etc.) or capabilities (communications, access to space etc.) that are used by individuals, the public sector and businesses for activities that intentionally or unintentionally lead to environmental effects. Earth observation from space has explicit environmental objectives and therefore intended environmental effects through its contribution to an improved understanding of the environment leading to improved environmental policy-making and methods to monitor environmental features in support of environment policies The objective of these environmental policies is, ultimately, the protection and improvement of the environment and therefore space investments contribute to the intended (positive) environmental impacts in areas such as levels of greenhouse gases in the atmosphere, biodiversity, forest cover, air/water quality, etc. For investments in satellite navigation, satellite communication and space R&D, any environmental impacts are typically unintentional and a result of downstream applications that lead to reduced emissions, energy efficiency etc. or are due to spillovers where technologies developed for space are used in other applications and sectors such that they lead to environmental impacts. Therefore two categories of environmental impact are defined (Figure 15). Figure 15 Definition of environmental impact categories Impact category Definition Quantitative indicator(s) Environmental policy-making Positive effects on environmental parameters The contribution of space investments to: Identification of environmental problems/issues that require policy action The development of appropriate policies to protect /preserve the environment The effective implementation of environmental policies (e.g. monitoring environmental parameters) The contribution of space to improvements in environmental parameters, arising for example from: Implementation of environmental policies Positive environmental effects resulting from downstream applications and/or spillovers Number of policies created (wholly or in part) as result of new knowledge/understanding from space investments Number of policies whose implementation is dependent (wholly/ partially) on space investments/infrastructure Number of policies in development dependent (wholly /partially) as result of new knowledge/understanding from space investments Environmental parameters, including: Greenhouse gas emissions Areas of forest cover Areas of productive land (for agriculture) Biodiversity / ecosystem services metrics Etc. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 55

60 10.2 Overview (and rationale) of methodologies recommended The review of methodologies and data in the earlier part of the study revealed that there have been very few previous studies on the impact of space on environmental policy-making with most studies focusing on the impact on environmental parameters. Our recommendation focuses on both impact categories because the primary role of space (particularly the investments in Earth observation that have explicit environmental objectives) is to provide data and information about the environment that enable others to make decisions and act to improve it. The policies are then intended to lead to positive environmental effects. Space investments contribute to the positive environmental effects along with the data inputs, knowledge and actions of a wide range of other actors. As previous studies have shown, the link between the space contribution and the environmental impact is not straightforward or easy to identify 34 and therefore it makes sense to consider the important intermediate policy-making stage in improving the environment. In addition to Earth observation other space investments can lead, usually unintentionally (at least from their original purpose) to an improved environment, or at least, a less degraded environment. These are, in economic terms, considered to be externalities of the space investments but for the assessment described here are treated in tandem with the intended positive environmental effects of Earth observation. There have been just a few studies on the role of space in environmental policy-making and these have used a historical narrative approach. These provide rich and detailed accounts of the role space investments have played and are a valuable source of evidence of impact. There appears to have been no attempt to assess the scale or extent of the role of space across a range of different environmental policies. Therefore we recommend a method that balances the detailed information provided by historical narratives with a survey of environmental policy-makers to provide quantitative and qualitative information on the extent of the role of space. There have been many more studies of the contribution of space to positive effect on environmental parameters, however while data sets exists for many key environmental parameters, the methods deployed all suffer from the difficulty of disentangling the contribution of space investments from all other investments made. Furthermore most of the studies of environmental impact focused on developing projections of future impacts (ex ante studies) rather than estimates of impacts achieved to date. The challenges of attributing environmental of impacts to space investments are wellknown and the European Commission has put considerable resources into researching the issue further. This has resulted in the development of a macro-scale model (the FeliX model) specifically designed to trace the effects of investments in space-based and terrestrial Earth observation systems and we recommend that this model be utilised, and possibly developed further, to model past (ex post) space investments and environmental impacts. We believe there is no other model with a focus so close to ESA requirements. We recommend that this be complemented with detailed microlevel case studies of specific examples of investments and impacts to develop a better understanding of the contribution of space to specific impacts. The case studies will provide evidence of impact in their own right and contribute, over time, to improving the macro-level model. We do not cover the negative environmental effects of space investments. The small number of studies that addressed the environmental impacts of space launches were reviewed, and all suggested that the negative impacts were relatively low. Of course, this may change with time, if launches become more frequent and/or fuels change. Furthermore the economic activity stimulated by space investments (as for all investment) will have contributed to broader negative environmental impacts. 34 As reported in TN1 and TN2. 56 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

61 However, for the present study, this layer of complexity is not specifically addressed but its absence should be noted when positive impacts are reported. Figure 16 Recommended methodologies: environmental impacts Impact category Recommended methodology Fall-back position Environmental policy-making Positive effects on environmental parameters Mixed methods - a combination of: Regular surveys of environmental policymakers to determine role of space investments in (i) identification of environmental problems /issues; (ii) policy development; (iii) policy implementation In-depth historical tracking back case study (studies) of space contributions to specific and important environmental policies or treaties Mixed methods - a combination of a micro and macro approaches: Detailed case studies of identified benefits (micro level) Application of the FeliX model to space investments (macro level) There are no existing alternatives or established processes in place to assess this impact category or relevant data sources that could be used. There are no real alternatives based on existing methods and existing data as previous studies: Are ex-ante assessments Cover different geographic regions Suffer problems of attributing impacts to space investments 11. Environmental Policy-Making 11.1 Methodology We propose a mixed methods approach that will provide (i) quantitative data to demonstrate the extent to which space investments have provided the knowledge required to identify, develop and implement environmental policies and (ii) qualitative data to demonstrate the important or critical role that space inputs have played in specific policies or policy areas. The mixed methods approach entails a combination of: Regular surveys of environmental policy-makers to determine the role of environmental policies role of space investments in (i) identification of problem where action is required, (ii) policy development and (iii) policy implementation In-depth historical tracking back case studies of space contributions to specific and important environmental policies or treaties The survey would be aimed at environmental policy-makers at national, European and possibly international levels to develop a broad and quantitative account of the role of space investments in terms of its extent (how many environmental policies make use of space investments) and its relative importance (what proportion of all environmental policies make use of space investments). The survey will provide a broad but fairly shallow account of the use of space investments. Therefore we recommend that it is complemented by more in-depth studies of the role of space investments in environmental policy-making by studying specific examples of either particularly important policies and/or policies where space is known to have played a key role. The case studies will be historical focusing on past policy development and past/current implementation where the role of space can be shown to be tangible and actually realised rather than on current or forthcoming policy developments where the role and policy benefits are largely projected into the future. They will provide detailed narrative accounts of the role space has played in developing and/or implementing important environmental policies. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 57

62 11.2 Data collection methods Surveys of environmental policy-makers There is no existing data available to support an assessment of this impact category, therefore primary data collection is necessary. The first time such a survey is run, a database of survey recipients will need to be created. While this is not a trivial undertaking, potential recipients would be expected to be located in government departments responsible for environmental policy making and public agencies responsible for implementing environmental policies. It might be possible to identify recipients via professional associations, memberships of international policy-making fora and other such bodies. The aim is to reach as wide a group of policy-makers as possible at the European and international levels and representative samples at national levels. In principle an on-line survey is the most efficient mechanism for conducting surveys however in the first run it would be appropriate to interview (face-to-face and telephone) a small group of environmental policy-making experts to understand how best to approach the community and to trial a draft questionnaire. After the trial, the questionnaire and the survey delivery method (online survey, telephone, face-to-face) will be finalised for future surveys. The survey will collect primary data on: The number of policies in place, in development and that have made/ continue to make use of space data/capacities The total number of policies in the environmental field The top 5 or 10 policies in terms of their impact, or expected impact, on the environment In-depth historical case studies The field of environmental policy-making is highly complex and a survey can only tell us so much. Gaining an understanding of how space investments have made an impact on environmental policy requires the gathering of more complex qualitative data on how space-derived data and knowledge has influenced and informed policy-making and/or is used in supporting policy implementation. Data collection will involve: Desk research and interviews with environmental policy experts to identify and select important/critical environmental policies where it is known that space investments have played a key role. Examples can be considered at national, European and international levels Desk research and literature review of the policy selected for study Primary data collection: exploratory semi-structured interviews with key actors in the policy development from a range of groups: environmental policy-makers, environmental scientists, space community, industry and NGOs, using an approach based on development of an historical path from the policy as implemented to its origins 11.3 Data analysis and interpretation criteria Surveys of environmental policy-makers The data provide by the survey respondents will be aggregated and grossed-up statistically (where appropriate such as for the national samples) to provide: Number of environmental policies created wholly as result of new knowledge/understanding from space investments Number of environmental policies created partially (and an estimate as to what extent) as result of new knowledge/understanding from space investments 58 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

63 Number of environmental policies whose implementation is dependent wholly on space investments Number of environmental policies whose implementation is dependent partially (and an estimate as to what extent) on space investments Number of environmental policies in development dependent wholly on new knowledge/understanding from space investments Number of environmental policies in development dependent partially (and an estimate as to what extent) on new knowledge/understanding from space investments Questions will also seek to understand the alternatives to space investments, such as access to data from terrestrial sources, to provide an analysis of what might have been happened without space investments Analysis of the survey data would provide: An assessment of the proportion of all environmental policies that rely on space investments A qualitative assessment of the role of space investments Identification of the key policies in terms of actual or expected environmental impact and determine how much these rely on space investments. These policies can be considered as candidates for the in-depth historical case studies In-depth historical case studies The historical narrative is intended to identify and describe the exact role played by space investments in important environmental policies. The aim to identify: what space investments have been used; how they have been used; and what their exact role has been. For example the role of space-derived data might include: Providing data to contribute to the scientific understanding of a key environmental process Providing critical data to demonstrate to policy-makers and/or general public that an environmental issue warrants action Providing data for establish a baseline and monitoring process for an environmental parameter(s) Contributing to the assessment of environmental parameters on a global scale Finally the assessment will address how critical the space-derived data has been to policy-making and policy implementation and if there were any viable alternatives that would have led to the same outcome. Depending on policy/ instrument studied, it may be possible to provide a quantitative estimate of the relative scale of space-derived data/knowledge, as compared to other sources, underpinning to the development of the policy Scope Surveys of environmental policy-makers The survey would have a broad scope targeted at all key environmental policymaking bodies at European and international levels and a statistically representative sample at national level. The robustness of the survey is dependent upon two factors: a well-designed questionnaire; and reaching the most appropriate individuals in policy-making bodies. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 59

64 In-depth historical case studies By the very nature of case studies the scope is narrow, focusing on specific examples, but with the scope growing over-time as more case studies are completed. However the coverage can be focused on what are believed to be (by experts) the most important policies ensuring that while the scope is limited, the importance and relevance is high. The robustness is dependent on the level of resources (in time and money) available to conduct the study. There is a risk of optimism-bias from interviewees but this can be mitigated as far as is possible by gathering data from a broad cross-section of interviewees Implementation Surveys of environmental policy-makers The implementation process will entail more resources the first time the survey is implemented to: Build a database of relevant policy-makers Develop, trial and modify the questionnaire and survey delivery methods Run and analyse the survey results for the first time Review the process and results, improve the process/data collection tools and define the future regularity of the survey The level of resource for the first implementation is estimated to be: person days over an elapsed time of 6 to 9 months Subsequent implementations will require slightly less resources (40-50 person days), but depending on the time between surveys the database may need to be reviewed and updated each time. All data to be analysed is new primary data and therefore the overall success of the survey is highly dependent upon identifying the appropriate survey recipients, this may be costly to generate for the first run. Alternative approaches could involve disseminating the link to an online survey via professional associations In-depth historical case studies A detailed in-depth historical study entails: The selection of a key policy for the study Desk research to identify background documentation and interviewees Extensive desk research, literature review and a programme of interviews Analysis and development of a historical narrative The level of resources for the first implementation is difficult to estimate accurately as it depends on scale of the policy selected (e.g. the Kyoto Protocol vs. a national policy on air quality). However we make the following estimate for a study of fairly largescale policy: person days over an elapsed time of 6 to 12 months The study is dependent upon secondary data (documentation) and primary data (interviews) and while it might be feasible to attempt to produce a case study based on desk research alone, there would be the risk that the contribution of space investments, particularly their criticality to key decisions, might not be visible. 60 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

65 Climate change is a considerable concern for environmental policy makers and an ex ante impact assessment of GMES 35 estimates that the costs of adapting to climate change are where most of the benefits of GMES will lie. Therefore a case study of key climate change policy or treaties might be appropriate. At an international level, climate treaties are addressed by the UN Framework Convention of Climate Change, the organisation responsible for the Kyoto Protocol. A case study could investigate the role of space in developing the protocol and/or the scale and importance of its inputs to the IPCC reports that underpin the Kyoto Protocol. An alternative case study might be the Vienna Convention the international agreement that underpins intergovernmental cooperation on research, observation and exchange of information on the ozone layer Relevance of the methodology Environmental policy-making is an important impact domain for space-based Earth observation and its role in policy-making is particularly under studied and therefore not well-understood. It is generally accepted that space plays an important role, and there is no reason to suggest otherwise, but existing evidence would appear to reside within the tacit knowledge base of the space and environmental policy-making communities. Therefore an exercise to make the knowledge more explicit would make a relevant and valuable contribution to identifying and understanding the impact of space investments. The combination of a broad-based survey and detailed case studies will provide an analysis of the scale of the impact (how many policies and how often) and the extent of the space contribution (how critical is space to the policies), plus insight into the role played by space investments and mechanisms by which they influence policy-making. There is no fallback methodology for this impact category as there are no suitable alternative sources of relevant data and information Future development options The future development would entail the improvement of the survey methodology as it is implemented over a number of cycles and a programme of historical case studies to build a portfolio of evidence. 12. Positive Effects on Environmental Parameters 12.1 Methodology As described above it is extremely difficult to disaggregate the role of the space contribution to changes in environmental parameters. This is compounded by the fact that any historical data on environmental parameters have been collected in a context where space inputs already exist and therefore constructing a baseline is also challenging. However the investment in GMES has increased the interest and investments in developing methods to assess socio-economic benefits related to Earth observation, for which a large proportion of the benefits are in the environmental domain. Therefore we recommend building on the work being done in this field. As for the impact on policy-making, we recommend a mixed methods approach that combines: 35 PWC, Socio-economic benefits analysis of GMES, 2006 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 61

66 A comprehensive macro-level modelling methodology (the FeliX model) 36 with Detailed micro-level case studies of identified environmental benefits 12.2 Data collection methods Macro-modelling with the FeliX model The FeliX model has already been developed but would need some modification to focus only on space investments (rather than all space and non-space data input to GMES) plus input data on relevant space investments. Making the modifications requires the construction of a number of simulation scenarios based on the inputs of experts collected over a three-day workshop. In order to conduct the assessment that would be suited to ESA s expectations, the following inputs to the FeliX model would be required: Financial investments in space-based EO over past (20-30 years or longer subject to data availability) relevant to environmental impacts New capabilities achieved for EO in last years entirely new forms of data, better data (accuracy, coverage, etc.) relevant to environmental impacts New approaches for EO data use developed in last years (e.g. warning systems, policy design) relevant to environmental impacts Ideally the data will be delivered at two levels of detail (subject to data availability) global and European Case studies of environmental benefits Case studies would focus on areas where space is believed to have led to improvements in environmental parameters. These might have arisen from space investments with explicit environmental objectives (i.e. Earth observation) or from unintended positive environmental impacts of downstream applications of other space investments whose primary aim is economic or social benefits such as reduced greenhouse gas emissions through improved logistics using SatNav (whose primary goal is reduced costs) or telemedicine (whose primary goal is improved quality of life). Data collection will entail: Desk research /literature review to develop chain of causality from space investment to environmental benefit Primary data collection: semi-structured interviews with experts in the field to verify the causality; provide estimates of the benefits achieved in specific cases; develop an understanding of the extent and criticality of the space inputs and the alternatives (if any) to the space investments. The experts will include people/businesses along the value-chain (e.g. downstream equipment or service providers as well as end-users) and technical/sector experts who can provide a broader overview of the specific examples being studied 12.3 Data analysis and interpretation criteria Macro-modelling with the FeliX model During the three-day workshop the FeliX model will be modified and run based on the scenarios developed with the experts and the input data provided. The output would then be reviewed by the experts and the model modified, as necessary, and re-run The FeliX model is managed by the International Institute for Applied Systems Analysis (IIASA) 62 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

67 The outputs of the FeliX model simulation take the form of graphs over time or accumulated values over time periods for each specified variable of the model. Most of the outputs constitute non-financial measures 37 such as levels of CO 2 (e.g. reductions in CO 2 levels or reductions in the rate of CO 2 emissions), biodiversity (e.g. mean species abundance) and ecosystem measures (e.g. access to water, levels of desertification/deforestation avoided) Case studies of environmental benefits The case studies will describe in detail how the environmental benefit has occurred and quantify the benefit on a European and/or international level. A detailed analysis of the link between space investments and impact will be presented which will enable a better understanding of the extent and criticality of the contribution of space to the impact category and the alternative scenario if the space investments had not been made. As, in many cases, the contribution of space is through the provision of data and information (as opposed as direct action to change behaviours or mitigate or remedy environmental harm), the case studies will contribute to debates about the value of information in decision-making processes. The case studies will present quantitative data on the impacts attained in the specific examples and the proportion of the benefits attributable to space. Where possible, and where suitable secondary data exists, the quantitative data will be extrapolated to develop estimates of the impacts on a larger scale Scope Macro-modelling with the FeliX model The macro-model is wide in scope and will provide estimates of benefits at a global level Case studies The case studies are narrower in focus and while benefits will be estimated at European and international levels they will only apply to the specific benefit studied Implementation Macro-modelling with the FeliX model The FeliX model can be used in the near-term with a small degree of modification to meet ESA s needs. This relatively short study would provide an order of magnitude estimation of environmental impact achieved from space investments to date. This would involve bringing together experts on space-based Earth observation and Earth observation users to develop appropriate inputs for the FeliX model and to tailor any elements of the model s structure where necessary. The process would entail: 5-10 days preparation by the FeliX model team A 3 day workshop with the experts to identify inputs and define the with and without Earth observation scenarios, managed and run by the FeliX model team Tailoring and running the model Review of model outputs with experts, and iteration of the model The level of resource for the first implementation is estimated to be: 37 Economic values can be assigned to some environmental parameters (such as the value of a tonne of carbon although various different approaches to its valuation exist) and therefore a financial measure can be calculated if desired. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 63

68 25-30 person days an elapsed time of three to four weeks Case studies of environmental benefits The development of an individual case study entails: The selection of a key investment/benefit area for the study Desk research and literature review to develop a description of the chain of causality between investments and benefits. Identification of precise role of the space investments Programme of interviews with experts and beneficiaries Data analysis and extrapolation to European and /or international scales Development of a detailed written case study The level of resources for each case study is estimated to be: person days over an elapsed time of four to six weeks The data required will be collected for each case study and for the FeliX model as required from both secondary and primary sources. Where data does not exist estimates will be made to fill gaps. In terms of robustness, the FeliX model has been calibrated with long time series data sets and sensitivity tested. Any modifications would also be sensitivity tested. However any tool that models complex inter-relationships of actors, resources and economic, social and environmental processes can only provide an estimates of its output parameters, and often only at the level of an order of magnitude estimate. For the case studies, the robustness is dependent on the level of resources (in time and money) available to the study Relevance of the methodology The link between space investments and actual (positive) change in the environmental parameters is diffuse and complex. Space-derived data play a role (along with other non-space data sources) in decisions of policy-makers that aims to instigate a slow process of behavioural change in society. While this is an intended benefit of space investments, other services that make use of space-infrastructure can create environmental benefits as an unintended by-product. Therefore identifying causes and effects and developing robust quantitative assessments is non-trivial and particularly challenging. The combination of modelling with case studies approaches the problem from two different angles (top-down and bottom-up) to provide an order of magnitude assessment at the macro level and detailed quantitative and qualitative assessments at the micro level. The case studies also provide a more important tool for increasing understanding of the links between space investments and impacts, learning which can be used to improve the macro-model. The only fallback methodology for this impact category would be to rely on ad hoc case studies created elsewhere that cover the impact. However at present there are very few, if any, case studies that meet the need directly and this might continue to be the case in the future. For example, the most noteworthy source of case studies, are the Framework 6 & 7 GMES focused projects (GEOBENE and EuroGEOSS) but these do not disaggregate space and terrestrial inputs and address projected impacts rather than realised impacts. Therefore such a fallback might result in no macro-level assessment and no, or very limited, data and assessments at a micro-level. 64 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

69 12.6 Future development options In the longer-term, the FeliX model could be developed to more specifically match ESA s requirements. This would involve a significant amount of work to develop the sub-systems within FeliX to better model the past (and forthcoming) capabilities provided by space-based Earth observation and, possibly, to include the environmental effects of space investments in satellite communication and navigation. The improved model could then be deployed to provide a more accurate assessment of the impacts to date followed by deployment on a regular basis (e.g. every two years) to capture the additional impacts resulting from the on-going improved capabilities such as space assets of GMES. This would be a major undertaking and would entail: A 12-month project comprising a number of in-depth studies to understand the chain of causality in specific application areas between space investments and environmental (and social) impacts. These would build on the knowledge gained during the initial development of FeliX whose original objective was to assess the ex ante impacts of GEOSS (covering both space and non-space based assets) The level of resources for the 12 month study would be: 3 to 4 researchers full-time for 12 months Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 65

70 SOCIAL IMPACTS 13. Introduction 13.1 Definitions Investments in space generate a range of social effects including both those that are intended such as advancing scientific understanding or solving (or contributing to) social concerns such as civil protection and defence, as well as effects that are more indirect, and that may be intended or unintended to different degrees, such as international prestige and influence, inspiring the public and encouraging young people to study science and engineering. As a result social impacts are highly varied, with different effects in terms of who they affect (individuals, nations etc.) and what they affect (the knowledge stock, human health/lives, international prestige) and, like the environmental impacts, the scale of the contribution of space investments to what are much larger concerns. We have identified and grouped six social impacts into six categories (defined in Figure 17) however it should be noted that the list is not exhaustive: Advances in understanding Strategic impact Space for education Defence Civil security and protection Externalities Figure 17 Definition of social impact categories Impact category Definition Quantitative indicator(s) Advances in understanding Contributions to the stock of human knowledge in particular to our understanding of our planet, the solar system and universe. Volume and international standing of European space research outputs, based on bibliometric indicators such as citation scores Qualitative accounts of key scientific achievements and contributions to the status of knowledge for discrete bodies of space research 66 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

71 Impact category Definition Quantitative indicator(s) Strategic impact Geopolitics - fostering positive international relations and enhancing international prestige and influence in the form of: International cooperation closer ties between countries through space-related collaborations Cohesion closer ties within Europe through space-related collaboration International prestige and leadership due to excellence in space science /engineering and using space to support development goals Non-dependence ownership and selfreliance in space systems, technologies, data and space-derived services., leading to: Autonomy freedom to design, implement and use space systems to meet Europe s needs Constant access to necessary data/information provides diplomatic security and enables strategic planning Authority in international negotiations through access to own data sources plus ability to make informed decisions through access to own independent and high quality data Geopolitics: Main output is qualitative: the position of Europe with respect to other countries in terms of its geopolitical influence as demonstrated by international space agreements. Some quantitative indicators that define position and importance (e.g. centrality, betweenness) within the network (as compared to other countries) Non-dependence: Number of vulnerable technologies and change over time Qualitative: describing the role of public investments in transforming vulnerable technologies to nondependent status Space for education Inspiring young people to study science, technology, engineering and mathematics (STEM) subjects and pursue careers in science and technology. Percentage of current scientists and engineers whose career choices were strongly influenced by space. Civil security and protection Defence Externalities Protecting citizens from natural and manmade disasters and situations, through, for example: Improving disaster prediction and crisis management Border surveillance for civil purposes Emergency communications backup Contributions to the protection of citizens though use of space systems, including capabilities in: Military communications Border surveillance Navigation Intelligence (espionage) Protecting space assets Free benefits as results of space investments/ activities, such as: European identity Cultural awareness and access Digital inclusion Communicating from remote locations Number of lives saved / not harmed. Qualitative assessment of extent of reliance on space technologies by the military. Financial value of externalities in terms of willingness-to-pay Overview of methodologies recommended The social impacts are highly varied and therefore no one assessment method or metric is applicable to all social impacts. Furthermore most impacts are rather intangible and therefore the assessment methods tend to be qualitative in nature. For each impact a number of methods were identified and reviewed. In some cases these methods had been previously applied in the context of space investments but for others this was not the case. Unlike for economic impacts where a number of established methodologies exist, most of the methods reviewed were non-standard; Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 67

72 they were designed for a single specific purpose and used as one-off implementations rather than established tried and tested methodologies. Therefore the methodological recommendations below are different for each social impact category and are somewhat experimental in nature. The first implementation of any method would be a test of the suitability of the method in terms of both the practicalities and cost of implementation and the usefulness of the outputs. The resulting assessments across the set of social impacts would be a combination of highly particular quantitative indicators and qualitative assessments. Figure 18 Recommended methodologies: social impacts Impact category Recommended methodology Fall-back Advances in understanding Bibliometric and citation analyses: Profile the volume and international standing of European space research outputs, using bibliometrics Trace the influence of European space research on other scientific disciplines, using bibliometric citations Discipline level reviews Identify and describe the scientific achievements and contributions to the status of knowledge for discrete bodies of space research, using qualitative research methods to prepare monographs, edited volumes of essays Bibliometrics with much narrower disciplinary focus Rely on space journals to conduct disciplinary reviews Strategic impact For geopolitics: Network analysis based on UN database of international space treaties For non-dependence: Analysis of secondary data collected in the regular ESA, EDA, EC Joint Task Force Plus case studies of specific technologies that have been transformed by public investments from dependent to nondependent There are no existing alternatives or established processes in place to assess this impact category or relevant data sources that could be used. Space for education Civil security and protection Defence Externalities Survey /poll of current scientists and engineers to assess degree of influence of space on career choices. Mixed methods - a combination of a micro and macro approaches: Detailed case studies of identified benefits (micro level) Application of the FeliX model to space investments (macro level) Survey methodology to collect user assessments of criticality of space to military capabilities. Survey methodology to assess willingness-topay for specific externalities. There are no existing alternatives or established processes in place to assess this impact category or relevant data sources that could be used. There are no real alternatives based on existing methods and existing data as previous studies: Are ex-ante assessments Cover different geographic regions Suffer problems of attributing impacts to space investments There are no existing alternatives or established processes in place to assess this impact category or relevant data sources that could be used. There are no existing alternatives or established processes in place to assess this impact category or relevant data sources that could be used. 68 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

73 14. Advances in Understanding 14.1 Introduction This chapter outlines a methodology for detailing the impacts of public funding of space research on advances in understanding. Historically, a substantial proportion of total public investment in space has been approved in order to carry out space research, important science that would be impossible using terrestrial solutions, or at least very much less powerful. The sums involved amount to billions of Euros each year, and the resulting advances in understanding enrich our lives and change our outlook on the world we inhabit. ESA was founded as a scientific organisation, and the ESA Convention underlines the centrality of European cooperation for scientific purposes. Space research fits the arguments of science as a public good, where such fundamental research is beyond the reach (affordability, appropriable benefits) of private individuals or even large businesses. Investments in space research generate several types of benefits: Space agencies procure novel technologies and systems in order to fly scientific missions, and those breakthroughs may find wider application through knowledge spillovers in new products and services Research infrastructure in space and data from space advance understanding of the world and the wider universe In this chapter of the report, we focus on the second of these two important social benefits of space Overall methodology and approach The overall approach proposes combining science metrics and historical analysis to provide a periodical count of research outputs on the one hand along with a more qualitative and insightful account of the influence and accomplishments of space research on the other. Specifically, we propose ESA look to implement two rolling impact assessment projects related to space research: Bibliometric and citation analyses Profile the volume and international standing of European space research outputs, using bibliometrics Trace the influence of European space research on other scientific disciplines, using bibliometric citations Discipline level reviews Identify and describe the scientific achievements and contributions to the status of knowledge for discrete bodies of space research, using qualitative research methods to prepare monographs, edited volumes of essays Before we turn to our approach it is worth taking a moment to think about what we mean by space research. The term tends to be used as the collective noun for all types of research undertaken using data from or scientific equipment in space, whether that is satellites orbiting the earth that provide measurements of atmospheric chemistry or deep space probes sending back detailed images of an object in a distant planetary system or microgravity research on the International Space Station. Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 69

74 The Committee on Space Research (COSPAR), a Scientific Committee of the International Council for Science (ICSU), has organised space research within nine discrete fields of science (each with its own sub-committee), which are: 38 Earth observations, using remote sensing techniques to interpret optical and radar data from Earth observation satellites Geodesy, using gravitational perturbations of satellite orbits Atmospheric sciences, aeronomy using satellites, sounding rockets and highaltitude balloons Space physics, the in-situ study of space plasmas, e.g. aurorae, the ionosphere, the magnetosphere and space weather Planetology, using space probes to study objects in the planetary system Astronomy, using space telescopes and detectors that are not limited by looking through the atmosphere Materials sciences, taking advantage of the micro-g environment on orbital platforms Life sciences, including human physiology, using the space radiation environment and weightlessness Physics, using space as a laboratory for studies in fundamental physics The term space research intersects with, but is not the same as, space science Data collection methods Bibliometrics and citation analyses In order to run the kinds of bibliometrics and citation analyses needed to profile space research, the bibliometrician would need to first construct a space research database. There are a number of small databases one might build upon, however given the uncertainty with regard to their coverage and concordance (and terms of access to the meta data), this would be a costly and challenging endeavour in itself. The scope of space research is also rather particular and heterogeneous and as such it does not fit well with the subject classifications used by either of the major publishing groups that maintain the two leading international bibliometrics databases. The bibliometric databases maintained by Thomson Reuters (the Science Citation Index within the larger set of Web of Science [WOS] databases) and Elsevier s equivalent database, SCOPUS, are both comprehensive and excellent resources. These two publishers record and index meta data on tens of millions of peer-reviewed articles published in thousands of journals covering all areas of scientific endeavour, with bibliographic data stretching back to 1900 in the case of WOS and 30 years for SCOPUS. Both databases cover most if not all subjects within the field of space research, from atmospheric chemistry to materials science. They are however quite costly to access and technically demanding to use, and as such the use of these data for 38 Each of these nine subjects is covered by the international journal, Advances in Space Research, The Official Journal of the Committee on Space Research (COSPAR), a Scientific Committee of the International Council for Science (ICSU) 39 The word space in the term space science refers to the research subject, rather than the research tool or infrastructures, as is the case with space research. In thematic terms it is therefore narrower than space research, which encompasses a range of earth-bound topics. Nevertheless, it is a broad field of scientific enquiry that involves the study of all aspects of the universe outside of the Earth s atmosphere, whether that is astronomy (study of bodies in space) or astrophysics (studies of the physics / processes governing the universe; theories of its origins). Space science comprises empirical and theoretical study, and is pursued both from the earth (e.g. using earth-based telescopes) and from space. 70 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

75 research evaluation purposes tends to be something of a specialised activity carried out by a few tens of organisations across Europe. In practice, this means the bibliometricians will need to make a space research database from scratch. They will need to devise multiple key word search strategies to interrogate the global content of one or other of the international databases in order to generate a long list of candidate publications. It would be possible to cross-reference this with other databases to get a sense of the extent of the WOS or SCOPUS coverage of space research outputs. The search period should go back at least 20 years to ensure a good cross-section of historical reports and citations. The gestation period for publishing and citation windows may be rather longer for space research, given the scale and duration of the accompanying scientific missions. Those long lists will then need to be screened manually by domain specialists scanning titles and abstracts in order to rule them in or out of the space-research database. Some experimentation and sensitivity analysis would need to be done, to determine the appropriate balance between a semi-automated criteria based process and expert judgement. The workload, elapsed time and cost will rise dramatically as one moves toward a more expert-based approach and away from hard search criteria. In any event, the resultant long list will need to be screened by a panel of experts and it perhaps makes sense to nominate one expert for each of the nine sub-fields defined by the COSPAR space research classification system. Creating the original database would be the most challenging part of the exercise, and once established the bibliometricians would be able to run the bibliometric and citation analyses quite quickly Discipline level reviews While we found various papers and books that elaborate on space research s contributions to scientific and public understanding, 40 they are essentially one-off studies. These qualitative reviews are not part of any series of publications that treat the subject consistently and add up over time through a rolling programme to give an overall view of the contributions of space research. Their scope and approach is nearly always unique, and non-additive. The US National Academies report on the scientific achievements of Earth observation 41 is an interesting example of a very relevant research assessment exercise, albeit it has been produced just once and is not a periodical. Moreover, it has something of a US flavour, naturally and reasonably reflecting the contributors and publisher s experiences. It does however suggest an approach that might be replicated by other national or international bodies, by appointing an editorial board to write a collected works, inviting eminent scientists to write about the evolution of their subfield and its contribution to the status of knowledge. The COSPAR backed international journal, Advances in Space Research, also publishes special editions from time to time showcasing the contributions of a particular field to the status of knowledge. The emphasis is on academic impact however, some of the papers have non-academic audiences in mind. It hints at the possibility of a more formal series of discipline-level reviews. We recommend ESA extend its special publication series to provide a platform for a rolling programme of discipline-level reviews, whereby two or three reviews might be 40 For example, Toward a global space exploration program: A stepping stone approach, Pascale Ehrenfreund et al, Advances in Space Research, Volume 49, Issue 1, 1 January 2012, Pages Or Mars Express: The Scientific Investigations (15 Jun 2009), a 280-page ESA Special Publication SP Earth Observations From Space: the First 50 Years Of Scientific Achievements, Committee on Scientific Accomplishments of Earth Observations from Space, Board on Atmospheric Sciences and Climate. Division on Earth and Life Studies, National Research Council of The National Academies, The National Academies Press, Washington, D.C. (2008) Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 71

76 underway at any point in time running over one or two years and involving a small secretariat and a panel of eminent international researchers who would together prepare a compendium of complementary and contrasting essays. Ideally, each edited book should also benefit from some editorial input by leading industrialists and a lay member, to keep a sharp focus on meaningful breakthroughs and wider benefits and the added value of European public funds. ESA might also consider supporting one or other space journals to develop a more systematic approach to publishing research syntheses and other reviews, which would provide feedstock for its special publications. The rolling programme of chapters produced by the community s éminence grise might be complemented by a more open approach to recording scientific benefits, e.g. simply running a biennial competition calling for essays, poems, videos that manage to convey the wonder and utility of space research Data analysis and interpretation Bibliometrics and citation analyses For the bibliometric analyses, we recommend counting the number of space research papers published annually in ISI-indexed journals and conference proceedings where at least one of the authors has a European address. This kind of output count is typically based on five-year blocks, rather than single year figures, to smooth out natural volatility in research output. This may be rather more important in a smaller field like space research, with perhaps one or two thousand new papers published globally each year. To aid interpretation, it may help to take the analyses back at least 20 years in the first iteration of the proposed methodology, to provide an historical time series and a robust reference for subsequent iterations. Using the author address as a filter also means one can quickly compute Europe s share in world output using ISI indexed papers and how that is changing with time. The proposed peer review would permit the count and trend analysis of space research papers to be reconciled with the nine COSPAR space research fields, at least for the several thousands of (ISI) space research papers with a European author. The analyses could be developed further using the ISI subject classification as the basis for gauging the average quality of all space research papers in a particular field as compared with all papers globally in the field. In essence, the bibliometric analysis would use ISI citation records to establish the citation scores for every paper in the space-research database and would then normalise those scores using the average citation rate for all papers published in the same field and journals in the same year. This can be done for journals (mean Journal Citation Score [JCSm]) or for the field (mean Field Citation Score [FCSm]). The ambition is to achieve a score or ratio of better than 1.0, showing that space research is more widely cited so more widely regarded and influential than an average publication in the selected sub-field. It would no doubt take several iterations to fully understand the most suitable indicators and the implications, as there will no doubt be as yet unidentified differences between the space research and other outputs in similar disciplinary fields. 42 The use of fiveyear blocks and normalised references should reduce problems with differences across fields in terms of publication behaviour and impact windows (timing). Using citation analyses would also permit one to identify perhaps 100 leading researchers and to use their personal publication record as a means by which to analyse the connections between space research and other fields (e.g. social network analysis). 42 For example, space science missions are large-scale, long-run projects with relatively discrete communities and the number of publications and the rate at which they garner citations may be very different to academics working with terrestrial subjects in what is ostensible the same discipline from the point of view of the bibliometrician. 72 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

77 It would also be possible to construct a productivity ratio of sorts, using the aggregate numbers of papers published every 5-years factored by an estimate for total European expenditure on space research in the equivalent 5-year block. Euroconsult s report, Profiles-of-government-space-programs, contains national and agency specific expenditure data on science budgets. However, the ratio may be somewhat disappointing for the lay reader with numbers an order of magnitude lower than one might expect to find for all research (which on average has dramatically lower infrastructure costs). Lastly, we recommend ESA invite its contractor to analyse the subject and geographical distributions of the authors who are citing the space research papers in an endeavour to identify patterns in intellectual flows. One might also look at the impact scores for the papers citing space research with a view to judging the extent to which these are above average works (on this measure) Discipline level reviews The programme of qualitative research would invite authors to describe the evolution of their particular field during the past years picking out the critical scientific achievements or milestones on the one hand and notable individual or institutional contributions on the other. These essays should also elaborate on the importance of public programmes to the rate and direction of progress. Moreover, each essay should also say more on any notable social or economic impacts that have arisen and were dependent in some part upon those publicly-financed research breakthroughs. Lastly, it would be interesting to know what the authors see as being the most urgent or exciting research questions for the following 10 years Scope of the results Bibliometrics The bibliometric analyses can be organised such that they are quite comprehensive in scope, covering most if not all sub-fields and all countries. There are certain limitations, inasmuch as the reliance on the Thomson Reuters ISI Citation Indices (Web of Science) emphasises English-language journal articles and will not include some proportion of total space research output. The size of the missing data is unclear, however a recent journal article written by authors at Leiden University and 4Con Space suggests it may be on the order of 30-40%. 43 At least, their calibration work found around 2,000 of 4,000 separately identified space research papers (Inspec, Pubmed, NASA, ESA) published in the period were also recorded in the ISI database. Their keyword search revealed an additional 1,500 space-research papers for the period in the ISI indexed journals, which were not captured in the other four sources. There was also an indication that the overlap and coverage of ISI had improved, as the publisher added to its journal set and publication types. On balance, we conclude that capturing 60%+ of the community s written output is a sufficient basis for following trends in the volume and mix of research output. With several thousand articles and tens of thousands of citations, there is also a sufficient body of material to judge the international standing (quality / impact) of this work Discipline level reviews The scope of the discipline-level reviews is contingent on the scale or ambition of the underlying programme of qualitative research. Were ESA to launch two or three major reviews for each biennial reporting cycle, the entire field could be fully 43 Calibration of bibliometric indicators in space exploration research: a comparison of citation impact measurement of the space and ground-based life and physical sciences, A.J. Nederhof, T.N. Van Leeuwen and P. Clancy, Research Evaluation 21 (2012) pp Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 73

78 addressed within a 10-year programme. One would no doubt wish to look at the success of the review process from time-to-time, however it is at least conceivable that the 10-year programme would simply repeat. As noted above, the individual reviews should cover a reasonably long time period 20+ years in order to ensure they encompass several scientific breakthroughs and notable social or economic effects. It is also conceivable the essays would include a forward look too, to complement the retrospective impact assessment Implementation Bibliometrics The proposed bibliometric analyses have been carried out on several occasions already. These studies have been carried out at different times and with a reduced scope to that envisaged here however, and while they do not in themselves constitute the answer to our question, they do at least point to a research process that is tractable albeit rather involved. There are clear limitations with respect to the availability of relevant data on space research authors and publications. The numerous international and national agencies that fund space research have something of a mixed record when it comes to systematically and consistently recording bibliographic information for their space research outputs. There is no integrated bibliographic database or repository, and no obvious or practical solution by which one might be constructed retrospectively. The absence of a single list of researchers or research publications complicates matters and given there is a poor alignment between space research (i.e. the COSPAR definition) and the subject classifications used by either WOS or SCOPUS, one cannot simply decant bibliometric data from a sub-set of pre-defined journals. In practice, this means the bibliometricians will need to make a space research database from scratch. Creating and validating the space-research database could easily take a year and cost several hundred thousand Euros. The total cost for constructing the database, running the related bibliometric and citation analyses might require a budget close to 0.5M and take two years to report. Subsequent iterations could be carried out for rather less than that, perhaps 50% of the cost of the first iteration. Once created, the database can be re-used for many other purposes and perhaps more importantly might provide the basis for improving future record keeping among relevant space agencies and research councils. Moreover, the choice of application and database structure should permit the inventory to be refined and extended over time. In the absence of further data collection, the bibliometric analyses would be greatly reduced in scope and may be too narrow to justify inclusion in the overarching evaluation methodology. While recent bibliometric studies have produced some relevant statistics, they are far too limited for our purpose here and are much more relevant as methodological references. In our judgement, desk research meta analysis using these past studies is not helpful. The only possible fall back option would be to focus the analysis on the one or two subfields where the ISI citation index contains a high proportion of space-research papers. There is a direct cross over between COSPAR and the Web of Science for earth observation and remote sensing, where there is a reasonably extensive set of highquality remote sensing journals. It may be possible to arrive at a reasonably good list 74 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

79 of journals for one or two other space research subjects, from astronomy 44 to space physics, however the great majority of relevant authors and publications are likely to be found diffused through the wider ISI journal set. On balance, while such an exercise might only cost one tenth of the proposed approach, we believe it would amount to poor value for money Discipline level reviews The overall approach would involve the creation of a small standing committee to oversee the rolling programme of reviews, the first job for which would be to devise a review programme, applying a standard format and process to research and write on key intellectual developments and social or economic outcomes across the spectrum of space research, choosing a unit of analysis (e.g. COSPAR fields) or scientific missions. Having agreed a programme and a modus operandi, the ESA secretariat would be in a position to constitute a working group to write the first edited volume. It may make sense to run with two working groups, so there is some opportunity for experimentation and accelerated learning. There is also a need to move through the programme in a timely manner. The costs of each review will depend on the scope of the review and on what the community will bear in terms of financial remuneration, but is unlikely to amount to very much less than 200K for each, and not including ESA staff costs: A small ESA team to provide a secretariat and coordinate each review. This may require 50 person days A chairperson, to lead and challenge the group as well as 5-10 eminent individuals willing to lead on particular topics and draft essays and chapters. Their out-ofpocket expenses would need to be covered as would the cost of various working group meetings, and panellists may need to be paid for their time. An honorarium of 10K should be sufficient for individual members, the chair may require a higher fee to reflect his or her very much greater responsibility and commitment A series of accompanying analytical studies, reporting on investment levels, key institutions / centres, bibliometrics and so on. Again, the cost will depend on very many factors, but no doubt substantial support could be provided within a 100K envelope Without this new process to generate relevant material and data, the proposed discipline-level reviews could not obviously form part of the planned evaluation methodology. While there is a body of literature (historical analyses) elaborating the contribution of space research to our understanding of the world, the studies are rather bespoke in form and content and do not reflect any pre-designed programme. They do not provide a platform for ESA to begin to digest and signpost impact assessments. As a fall back, it is just conceivable that one or other space research journals would respond to the challenge to begin to call for and publish a more systematic and comprehensive series of scientific reviews. 44 There are several other fields where space research might be expected to be very prominent (e.g. astronomy and astrophysics) however there is not obvious means by which to distinguish papers based on terrestrial telescopes for example as compared with those papers that are primarily reporting findings based on data from space telescopes or probes (in many cases, papers will use more than one source). Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 75

80 15. Strategic Impact 15.1 Introduction Having an advanced national space programme bestows a number of strategic advantages on individual nations and, in the case of Europe, to the continent as a whole. In terms of geopolitics it signifies technological competence (for both civil and military purposes) and economic status and confers international prestige and influence. It also increases a nation s autonomy and authority not only in terms of space activities but also in wider areas of policy (security, environment, etc.) - having access to data and knowledge enables informed decision-making and an authoritative position in international negotiations For assessment purposes we have divided the strategic impact into two sub-categories - geopolitics and non-dependence (as defined in Figure 17). The former includes the impact on international prestige and influence, international relations and European cohesion. The latter includes the autonomy and authority of individual nations/europe through self-reliance in space technologies and constant access to space-derived data and services enabling autonomous policy implementation and participation in international negotiations. 45 Strategic impact is, by its very nature, a complex and somewhat intangible concept not readily amenable to hard quantitative indicators. It has been traditionally assessed either by a case study methodology looking in-depth at specific examples of cooperation between specific countries or regions, or historical analyses of the role of space in policy areas such as foreign policy/diplomacy or international science and technology activities. A number of standalone studies have also addressed space vulnerability to assess the independence. A small number of more recent studies in foreign policy and international relations have deployed a network analysis methodology that provides a mapping of the volume and strength of relationships between actors (nations, organisations, individuals) that can be used as an indicator of the relative influence, prestige and power of their position in the network. We recommend that both methodologies be used: a network analysis for the geopolitics sub-category and case study methodology for the non-dependence benefit sub-category. The non-dependence category can also make use of existing secondary data sources Geopolitics: network analysis Methodology We recommend a network analysis of bi-lateral and multi-lateral international agreements, legislation and treaties relating to the space sector to illustrate, and enable an analysis of the volume and strength of relationships between individual European nations and Europe as whole with the wider international space community Data collection methods A list of international agreements in space-related activities is available from the UN in a report format. This would form the basis of a network analysis. It contains a list of around 700 multilateral and bilateral agreements and legal documents from The term non-dependence is used to mean free, unrestricted access to any required space technology, including access from other space-faring nations with which a country/europe has good international relations and therefore unrestricted access. By contrast, independence would refer to national or European access to the entire set of space technologies. Non-dependence is the standard definition used by the EC-ESA-ESD Joint Task Force. 76 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

81 (when the UN Ad Hoc Committee on the Peaceful Uses of Outer Space was established) to Desk research would be required to: (i) identify the signatories of the multilateral agreements (bilateral agreements typically include the countries in their titles); (ii) define and apply criteria as to which agreements are appropriate for the analysis; and (iii) define a process to deal with changes to nation states (e.g. Soviet Union, Russia and the former Soviet republics). A database of connections would be compiled from the dataset as input to the network analysis Data analysis and interpretation criteria The network analysis methodology provides an illustration of the network of international connections in terms of the number and strength of the connections between countries. It also enables a quantitative analysis of the strength of ties between nodes (countries or geographical regions in this case) and the centrality of specific nodes. The strength of a tie is assessed in terms of both the magnitude and frequency of interactions between two nodes. Centrality is a measure of importance or influence of specific nodes in the network and can be defined and analysed in a number of ways including: degree the node with the highest number of direct connections; betweenness the extent to which a node act as a bridge to other node); closeness - a measure of both direct and indirect connections. The analysis enables the key nodes to be identified in terms of the most active and the most central with these two measures implying a high degree of power and influence. While it would be expected that the nations that invest the most in space will be the most active in terms of number of connections, the various concepts of centrality might reveal some interesting patterns. The analysis would need to be conducted for both ESA as a single entity and for European nations individually as different patterns may emerge Scope The scope of the analysis would be international and cover the period 1958 to The analysis could be sub-divided into different time periods (e.g. decades), as this would reveal changing patterns with regard to investment and political influence such as the creation of ESA, the demise of the Soviet Union Implementation Implementation entails: Accessing UN documents and related databases or recreating same 46 Identifying criteria for inclusion of agreements in the analysis Building a database of connections - this is relatively straightforward for the bilateral agreements as the signatories are named in agreement titles. Desk research would be required to identify the signatories to the multilateral agreements Running network analysis, visualise output, conduct quantitative analysis of network features (strength of ties, centrality) The level of resource for the network analysis is estimated to be: person days over an elapsed time of two weeks 46 UNITED NATIONS International Agreements and Other Available Legal Documents Relevant to Space-Related Activities. Geneva: United Nations. [ Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 77

82 Available data The currently available data covers the period 1958 to This would be sufficient for an initial analysis but would need to updated to include the period from 2000 to the present day The level of effort needed to gather missing data The UN Office for Outer Space Affairs would appear to maintain lists of space-related treaties and agreements. A simple update in the same format as the 1999 report is not publicly available but it would seem that they hold the relevant information. However the extent and format of the data is not visible in the public domain and therefore estimating the additional resources required is problematic. The estimate below assumes that the required information on treaties between 2000 and 2011 (or thereabouts) is collected by the UN, but that a degree of additional work would be necessary to collate and standardise the format before the network analysis could be undertaken. The level of resource to extend the network analysis is estimated to be: person days over an elapsed time of six weeks Relevance of the methodology The methodology provides an analysis of the prestige and importance of Europe in international activities linked to space as this is where the direct influence of spacefaring nations will lie. While this might at first seem a little circular as, intuitively, one would expect to find that those that invest the most will be the most influential, it may reveal important patterns of changing influence over time and reveal the difference in the effects of activity at European and national levels. It would be expected that this influence would extend to other closely related domains such as defence, science and technology, and the analysis could be expanded (see below). There would appear to be no fallback methodology for this impact category as there are no readily available alternative sources of relevant data and information Future development options Future options include extending the analysis to other domains where international treaties are important and where space is known to play a role. This might include the role of space investments in the environmental domain for example, and it might be possible to extend the survey methodology in Section 11 (impact on environmental policy-making) to collect data on international environmental agreements, treaties and policies Non-dependence: secondary data and case studies Methodology Non-dependence, i.e. self-reliance in the design, build and operation of space infrastructure is underpinned by access to the relevant technologies and skills. We recommend a methodology that combines: Desk research using existing data collected to track the status of critical technologies for which Europe is currently not non-dependent, and Case studies to demonstrate the role of public investment to address access to specific critical technologies 78 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space

83 Data collection methods A Joint Task Force (JTF) composed of ESA, the European Defence Agency and the European Commission (established in 2002) identified and defined a catalogue of critical space technologies, the so-called list of urgent activities for critical space technologies for European non-dependence. The catalogue undergoes a formal review process by the JTF each year and an official update every two years. The update includes a survey of industry to identify the status of each technology. This provides a count of the critical technologies and their status with respect to a list of undesired dependence situations (such as technology / product blocked for certain end users, higher costs and delays, lack of information, in particular technical and quality information). A case study (or series of case studies) would focus on specific critical technologies for which public investments have changed its dependence status. A series of interviews with the JTF, space agency staff and industry that have received public funds would collect qualitative (and quantitative if relevant) data on the process of transforming technologies from dependent to non-dependent Data analysis and interpretation criteria The JTF survey data provides a count of the number of technologies in the catalogue considered to be dependent every two years. A time series presentation of the number of technologies considered to be of immediate concern (level 3.3 in Figure 19) can be presented to illustrate changes over time. A review of changes in the overall catalogue would also show how technologies move into or out of the catalogue over time. Interviews with JTF members would enable an estimate of the proportion of vulnerable technologies of all space technologies to be determined. Figure 19 Example of output from JTF industry survey ESA 47 The case studies would develop a descriptive account of the situation before and after public investments, describing where and how technologies were previously sourced and the particular dependency issues and situation as result of public intervention plus an account of the role of public space investments in the process of transforming technology from dependent to non-dependent status. Quantitative data, where 47 Design of a Methodology to Evaluate the Direct and Indirect Economic and Social Benefits of Public Investments in Space 79