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Geographical, technological and temporal delimitations in LCA

1 Introduction

• 1.1 Perspective and purpose
• 1.2 Applications
• 1.3 The contribution of market-based procedures to improved system delimitation

1.1 Perspective and purpose

The processes to include in a life cycle assessment (LCA) should as far as possible be the same as those that will actually be affected as a consequence of the decision that the specific life cycle assessment is intended to support. This is the fundamental rule to apply in all methodological choices in a life cycle assessment. Thus, there is a close link between the purpose or application area of the life cycle assessment and the methodological choices.

The purpose of life cycle assessments is to assess the environmental impacts of a choice of one product instead of another (or the choice of a specific product instead of refraining from this product). Such a choice between products results in a substitution of products, and it is the environmental consequences of this potential product substitution that a life cycle assessment seeks to assess. This implies changes in demand for the individual products, which may lead to changes in processes and their environmental impacts throughout the life cycle of the substituted products. To give meaningful results, the affected processes must be identified as precisely as possible. Therefore, life cycle assessments rely heavily on market information, i.e. information on how the market affects the potential choices and how the markets will react to these choices.

The purpose of this guideline is to provide clear and unambiguous market-based procedures for identifying the affected processes and describe them with respect to geography, time, and technology. The guideline contains three complementary procedures:

• A procedure for identifying the processes affected by a change in demand resulting from a potential product substitution (chapter 2)
• A procedure for identifying the processes affected by differences in the products provided by the substituting systems (chapter 3)
• A procedure for identifying future processes (chapter 4)

The aim of the three procedures is to minimise the arbitrariness in performing these crucial elements of a life cycle assessment.

1.2 Applications

The three procedures should be used in parallel or in iteration. For example, the processes to be identified by the procedures in chapters 2 and 3 (which are in themselves closely intertwined) may be affected by the identification of future processes (the procedures of chapter 4).

The three procedures should be applied in the inventory analysis (see figure 1.1) in connection to the actual collection of data, and thereby contribute to a delimitation of the further data collection to those processes that are of importance to the result of the study.

Figure 1.1. The position of the issues of this guideline in the overall framework of a product life cycle assessment

Thereby, the three procedures naturally comes after the subjects treated in the guideline “The product, functional unit and reference flows in LCA”, namely the determination of relevant product functions and product alternatives, the definition of the functional unit, and the determination of the reference flows.

In a first iteration, starting with the reference flow of the product (for a composite product this is often identical to the parts list), a maximum of 2 hours should be used for a rough identification of the processes to be included in the product systems – by applying the procedures in chapters 2 and 3 combined with readily available data and own order-of-magnitude estimates. Based on this, the procedures in chapters 4 can be applied with equal coarseness. Such an initial application of the procedures will provide insight into the parts of the product systems that need to be determined with more precision in a second iteration, and which parts of the procedures are most crucial to obtain this precision.

In general, applications of life cycle assessments differ in two dimensions:

• with regard to the time horizon of the study (short/medium or long term as determined by the period for which the conclusions of the life cycle assessment should be valid, plus the duration of the consequences of the possible decision on the affected processes), and
• with regard to how specific the object of study is defined (a specific product for a specific market or a group of products aimed at several markets).

This gives four possible application areas, differing with respect to the product functions and product alternatives to be covered, see table 1.1.

Table 1.1 Main categories of application areas, illustrated by four examples

While the general principles apply to all four application areas, some of the market-based procedures can be left out in applications where they are less relevant:

• Studies with a short to medium time horizon may not need the procedures for forecasting (chapter 4) and may more often involve changes within existing production capacity, and exclude changes with respect to capital investment (section 2.2.1).
• Studies with a very specific definition of the product may more often involve specified suppliers, thus omitting the last 3 steps of the 5-step procedure in chapter 2.

Obviously, the longer the time horizon, the more uncertainty will be introduced in the determination of what processes will be affected by a specific product substitution.

The market-based procedures are equally relevant for detailed, quantitative life cycle assessments and for qualitative studies, “screenings” and “matrix-LCAs”.

1.3 The contribution of market-based procedures to improved system delimitation

In previous methodological guidelines for life cycle assessment, clear and unambiguous procedures have been missing for what assumptions shall be made as part of the system delimitation and thus what processes shall be included in the product systems. This has also resulted in large differences in system delimitation in the life cycle assessments published up to now (see also the background report “Market information in LCA”), where the environmental effects of the product systems are often either overestimated (when including processes that will not be affected in practice) or underestimated (when ignoring processes that will actually be affected).

Compared to this, the market-based approach to system delimitation (presented in chapters 2 to 4) is more stringent, requiring specific procedures to be followed with respect to identification and justification of the assumptions made regarding market conditions, so that the resulting system provides the best possible description of the consequences of the potential product substitution under study. This can include issues such as market boundaries, production constraints, trends in market volumes, relative prices, and decision-making processes. By this inclusion of information on market conditions, the procedures lead to a reduction in the possible errors related to system delimitation. Furthermore, the size of the product systems to investigate are reduced, since only those processes are included that will actually be affected by the product substitution under study. Our experience shows that for more detailed life cycle assessments, which place a large demand on specific, high-quality data, the additional time spent in collecting market data (see section 2.5) will quickly be outweighed by the timesaving in having fewer processes from which to collect detailed environmental data.

Lacking explicit procedures to determine the specific market conditions, it has been general practice to apply some default (implicit or explicit) assumptions on what processes are affected and thus to be included in the product systems. Some typical assumptions have been:

• The processes that are affected are those in the current supply chains, in which case the product systems are constructed by linking the current suppliers and customers.
• The processes that are affected are specific potential suppliers/customers, e.g. it may be assumed that only processes with modern technology are affected, in which case the product systems are constructed by linking these processes.
• A range of current or potential suppliers/customers may be affected, in which case the product systems are constructed by linking different possible processes in a number of scenarios, often a worst, best, and/or an average scenario, the latter being similar to:
• All actors on the markets are affected (and included) in proportion to their current or expected share in the supply, so that the product systems can be constructed as an average of the current or potential suppliers/customers on the markets. The geographical and temporal delimitation of these markets have often been quite arbitrary, due to the disregard for market information.

Such default assumptions (and the corresponding assumptions regarding multi-product systems, see section 3.6) can be seen as specific cases of results you could also obtain from the market-based procedures. However, it is unlikely that one of the above assumptions would in fact be generally valid throughout a product system.

Obviously, the market-based procedures can also be applied to different scenarios where the assumptions regarding the market conditions are varied, e.g. when you are in doubt about the actual market conditions, or when the decision-maker is able to influence what markets are affected throughout the product life cycle, and what actors are affected on each of these markets. This may be the case e.g. in studies by a market-leader or in studies aimed at societal action plans and legislation). Even in such cases, where the normal market mechanisms are overruled, the market-based procedures still provide a good framework for explicitly documenting this dominating influence of the decision-maker.

The market-based procedures outlined in chapters 2 to 4 may be applied in two ways:

• as an alternative to the traditional default assumptions,
• as additional procedures to validate, adjust, and supplement a product system originally made with default assumptions.

There may be several arguments for using default assumptions first, and to use the market-based procedures as a supplement:

• The default assumptions may be used in a pedagogical introduction to life cycle studies, since at first sight it may appear simpler: All that is needed is knowledge on current or potential suppliers and customers – other market relations may be disregarded, and data need only be collected from enterprises in one's own supply chain. As the life cycle is explored, and the understanding of the value chain grows, a more differentiated view on market conditions may slowly be introduced. It should be noted that ignoring actual market conditions might lead to collection of data that later turn out to be irrelevant, so unless data are readily available, it cannot be recommended to carry this approach through to a data collection strategy.
• The default assumptions may be useful in the early stages of a life cycle study, where there is a need simply to explore the life cycle, to increase the understanding of the value chain. This may be especially relevant in a life cycle study performed for a decision-maker with a long time horizon and a strong influence on the actors and markets in the product chain. A study based on standard assumptions may pinpoint the processes and relations most important to influence in a product system (known as “hot-spot-identification”). However, when this leads to suggesting a specific alternative measure or policy, the consequences of the implementation of this alternative should anyway be assessed by the market-based procedures, to avoid the risk of sub-optimisation.

The market-based system delimitation can also be applied when the potential product substitution is unknown, as may be the case e.g. in life cycle assessments for hot-spot-identification, for setting priorities that does not immediately involve a change, and for environmental labelling and environmental product declarations). It is not necessary to know the specific comparisons in which a product system may later be used. The market-based procedures can be applied to delimit an isolated product system, occurring as the result of producing, using, and disposing one unit more or less of the product in question, corresponding to the choice of the product as alternative to refraining from this product. This can be done independently for any product system. Later, when specific comparisons are required, these may be obtained simply by subtracting the individual product systems.

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Version 1.0 December 2005, © Danish Environmental Protection Agency