Market information in life cycle assessment
3 Market-based definition of the functional unit
The functional unit is a central term in LCA, as it signifies the common basis for a product substitution or comparison. In practice, the functional unit is only one specific aspect of the larger task to:
- determine the object of study thereby making a first delimitation of the product systems to be studied. Example: Artificial outdoor-lighting with daylight-spectrum for existing European fittings.
- provide a quantified reference unit for all other data in the study (this is the functional unit). Example: Lighting 10 square metres with 3000 lux for 50000 hours with daylight spectrum at 5600 K. The functional unit describes and quantifies those properties of the product, which must be present for the studied substitution to take place. These obligatory properties (the functionality, appearance, stability, durability, ease of maintenance etc.) are in turn determined by the requirements on the market on which the product is to be sold, as already outlined in section 2.1.
- determine the reference flows that provide equivalence between the alternative product systems in a comparative study. Example: 15 daylight bulbs of 10000 lumen with a lifetime of 10000 hours compared to 6 daylight bulbs of 10000 lumen with a lifetime of 25000 hours. The reference flows translate the abstract functional unit into specific product flows for each of the compared systems, so that product alternatives are compared on an equivalent basis, reflecting the actual consequences of the potential product substitution. The reference flows are the starting points for building the necessary models of the product systems.
For a systematic treatment of these elements of a product life cycle study, we have developed a 5-step procedure:
Step 1: Describe the product by its properties.
Step 2: Determine the relevant market segment. Step 3: Determine the relevant product alternatives.
Step 4: Define and quantify the functional unit, in terms of the obligatory product properties required by the relevant market segment.
Step 5: Determine the reference flow for each of the product systems.
Table 3.1 gives an overview of the relations between the five steps in the procedure and the above three bullets, which reflect the purposes of the procedure. Figure 3.1 gives a graphical summary of the information flow between the 5 steps.
Click on the picture to see the html-version of: Table 3.1
Click on the picture to see the html-version of: Figure 3.1
Although the procedure is described in five consecutive steps, it should be noted that it may often be relevant to perform the procedure in an iterative or concurrent way: The product properties described in step 1 may be determined at the same time as, or even from, information on the market segmentation (step 2). The product or the product alternatives (step 3) may be given in advance, and thus contribute to the definition of the relevant product properties (step 1). And the functional unit can be defined (step 4) without having first determined the relevant product or the product alternatives (step 3).
The two first steps of the procedure, description of product properties and determination of market segments, are closely related, as already described in section 2.1.
In developing environmentally more preferable products, it is important to understand the relationship between the individual properties and the environmental impact. If the environmental impacts are particularly linked to specific properties, it is especially important to consider whether these ”environmentally costly” properties are obligatory properties that the product “must have” or only positioning properties that it is “nice to have”, and whether it is possible to influence the trade-off made by the customer between the properties in question and the environmental properties of the product, e.g. by environmental information to the customer.
Here, it may also be relevant to consider the concept of market niches (see section 2.3), since the distribution of product properties over the categories obligatory, positioning, and market-irrelevant, may be different for a product aimed at a specific niche than for a product aimed at the general market segment. As an example, an analysis of the US market for manufacturing energy (Doms 1993) show how some operations specifically require gaseous fuels that have the capacity of reaching high, precisely controlled flame temperatures, while other operations have less specific requirements and therefore may substitute between a diversity of sources. In targeting products for different niches, suppliers may utilise such differences in obligatory properties between niches.
Environmentally conscious consumers may give rise to new market niches. This challenge may be met with three strategies for product changes:
a) reducing environmental impact by reducing functionality,
b) reducing environmental impact while maintaining or moderately improving functionality,
c) maintaining or reducing the environmental impact per unit of function while improving functionality.
This is illustrated in figure 3.2.
Click on the picture to see the html-version of: Figure 3.2
The first strategy will appeal only to a narrow niche of very environmentally concerned customers, with high requirements for environmental properties and low requirements for functional properties. In this niche, the type and number of obligatory properties are reduced compared to the general requirements of the whole market segment. Thus, the functional unit for products aimed at this niche is different from the functional unit for products aimed at the whole market segment. The functionality that is reduced relate to properties that are not obligatory in this niche and therefore not part of the functional unit. For the “normal” market, reductions in functionality of obligatory properties are not allowed. Here, environmental improvements must be sought that does not compromise functionality. This type of solution may appeal to both the environmentally neutral customer and the environmental conscious customer.
The last strategy, where improvements in functionality are paired with a reduction in environmental impacts per functional unit, may at first sight be seen as an ideal solution implying no trade-offs. However, this strategy may meet some resistance among the more environmentally conscious, since the overall environmental impact may actually increase, if the increase in functionality leads to an increase in the demand for the function, which is a rather common phenomenon also known as the rebound effect. The rebound effect may in fact occur for any type of change, even when the functionality decreases, if the decrease in functionality leads to compensatory actions. Similarly, also the opposite of the rebound effect, a reduction in consumption, may occur as a result of improved functionality (“rather have one piece of high quality than two mediocre”), a parallel to the acceptance of less functionality in the “environmentalist niche.” These secondary effects must be taken into account either when defining the functional unit (by using a broader perspective including the behavioural responses, e.g. rather “average work-related personal transport behaviour during one year” than “30000 person-km”) or when determining the reference flows (there including the additional processes affected), as further explained below.
The identified market segment or niche may further delimit the products that may be involved in a product substitution, thus laying the ground for the further specification in step 3 of the product alternatives of what products shall be included in the study, depending on the goal of the study. For example, an enterprise internal study may be performed for a very specific purpose, which gives a large degree of freedom to define what is regarded as relevant alternatives, while public applications typically aim at influencing a predetermined market and therefore must relate to the products that are (expected to be) available on this market.
What remains in step 4 is mainly the quantification, which should as far as possible relate to the functions of the product rather than to the physical product. For example, rather “seating support for one person working at a computer for one year” than “one computer workstation chair”, rather “freezing capacity of 200 dm3 at -18° C” than “one 200 dm3 refrigerator”, rather “annual lighting of a work area of 10 square metres with 30 lux” than “bulbs providing 30000 lumen for one year”. In this way, it is ensured that all obligatory properties - as well as the duration of the product performance - are addressed.
As a reference unit, the size of the functional unit is - in principle - arbitrary. In general, it does not matter whether the office-chair study is normalised to seating support for 0.28 persons, 1 person, 1000 persons or 1.4 million persons. However, two concerns may be relevant when deciding on the size of the functional unit:
- the scale of the studied product substitution,
- the ease of comparison of the outcome of the study to other known quantities.
The studied product substitution may be small or large. A large substitution is defined as one, which affects the determining parameters for the overall technology development. Thereby, the studied substitution may in itself lead to new technologies being brought into focus. It can be a change so large that it affects the general trend in the market volume, e.g. from decreasing to increasing, whereby a new technology comes into play. It may also be a change so large that it overcomes a constraint which otherwise prevents the use of a specific technology. Further, a change may be so large that it affects the production costs of the involved technologies, e.g. through economies of scale. For such instances, it may be misleading if the functional unit is chosen independently of the actual scale of the studied substitution. When studying substitutions involving the entire market of a major product or process, e.g. studies dealing with the entire waste handling system of a region or studies dealing with legislation or standards for an entire sector, it is relevant to choose a functional unit of the same size as the affected market. In evaluating the size of the affected market, it may be relevant to take into account the existence of market niches that react differently to the studied product alternatives, with the aim of quantifying the importance of these niches. While this may affect the chosen size for the functional unit, it should not affect the nature of the functional unit (i.e. as defined by the obligatory properties common to the entire market segment studied). Only when studying substitutions in a specific niche, the nature of the functional unit will be affected compared to the functional unit for the entire segment.
Most often, however, life cycle studies deal with small substitutions, which do not affect the overall trends in market volumes, nor the constraints on and production costs of the involved technologies. Therefore, the consequences of the substitution can be assumed linearly related to the size of the substitution so that the precise size of the functional unit will have no importance for the interpretation of the results.
For such small substitutions, another concern may be relevant: When presenting the outcome of the study, it should be as easy as possible to compare the outcome to something well-known to the reader. For this reason, the environmental exchanges are typically normalised to the annual exchanges from a region, from an average person living in this region (person-equivalents as in the EDIP-method), or from the average monetary expenditure in this region. To ease this normalisation, and to present the results in an easily comprehensible way, it may be an advantage to set the size of the functional unit equal or close to the annual per capita consumption of the studied product on the studied market segment.
In some instances, two products may be so closely linked that the separation of some of the processes in their life cycle may lead to an increase in uncertainty. If all the analysed product systems provide the same amount of such linked products, this additional uncertainty may be avoided by including both products in the functional unit.
The final fifth step in the procedure is to determine the reference flow for each of the product systems. The reference flow is a quantified amount of the product(s), including product parts, necessary for a specific product system to deliver the performance described by the functional unit. For a composite product, the reference flow will typically be identical to the parts list of the product, multiplied by a factor to scale it to the functional unit. The purpose of the reference flows is to translate the abstract functional unit into specific product flows for each of the compared systems, so that product alternatives are compared on an equivalent basis, reflecting the actual consequences of the potential product substitution.
As noted in section 2.1, it is not just the obligatory product properties that determine the amount of substituted product or the interaction with other product systems. To ensure the equivalence between compared products, it is therefore necessary to analyse systematically all product properties and judge for each one whether it leads to differences in the amount of substituted product or in the interaction with other product systems. If several such additional properties can be identified, it is important to investigate whether one of the properties can be identified as the one determining the difference in performance.
Examples of determining12 properties12:
In comparing different alternatives for hand drying, the technical properties of the tissue paper such as mass, absorption-power and tensile strength, may all influence the number of tissue papers used. However, these properties may all turn out to be irrelevant if in practice it is the dispenser design that determines the amount of paper used. Similarly, technical specifications of electrical hand driers, such as the volume of air and its temperature, may be irrelevant for comparing relative performance, if the actual operating time and energy consumption of the devices are fixed by other factors, e.g. built-in timers that give a fixed time per hand-drying event to be multiplied with the effect of the device (kW/minute).
In comparing alternative types of walls in buildings, the property that determines the material consumption will often vary with the specific type of wall, depending on the chosen material or construction principle. This implies that it is not possible to identify a single
It should be noted that differences in performance between the compared alternatives often appear when choosing a (too) narrow product perspective, i.e. when studying intermediate products, components, or products that are otherwise very dependent on other products. Such performance differences, and the consequent need for adjustments, can often be avoided by choosing a broader function-based perspective, i.e. based on the needs fulfilled by the products (e.g. "lighting" and “cooling of food”) rather than based on the physical products themselves (e.g. "lamps" and “refrigerators”).
Goedkoop et al. (1998) even suggest that it may be necessary to define the functional unit in terms of average customer behaviour (such as “average transport behaviour during one year” for a study of different work-related transport modes or “average diapering behaviour” for a study of disposable versus reusable diapers) to avoid neglecting differences in performance such as that implied by the “rebound effect.”
For each of the properties identified as having a determining influence on the amount of product necessary, a relative measure must be determined of the extent to which the studied products are expected to substitute each other.
Examples:
In a comparison of lighting alternatives, 3 bulbs of 3000 lumen may be substituted by 2 bulbs of 4500 lumen if the bulbs can be placed so that the distribution of light is equal (or so that the difference is acceptable to the user). If the bulbs have different lifetimes, the comparison must be further adjusted to take this into account, resulting in reference flows of e.g.
- 5 times 3 bulbs of 3000 lumen with a lifetime of 10000 hours each, equal to
- 10 times 2 bulbs of 4500 lumen with a lifetime of 5000 hours each.
When comparing paints with the same obligatory product properties (e.g. minimum 98% opacity and minimum 5 years durability), differences
In comparing different alternatives for hand drying, the dispenser design may determine the size of the reference flow of tissue paper.
In comparing 0.5-litres one-way bottles with 0.4-litres returnable bottles, the amount of bottles needed to fulfil the same function of protecting a certain amount of beverage is determined by two properties: the volume and the return rate of the returnable bottles (with a return rate of 90%, a reference flow of 125 returnable bottles would protect the same amount of beverage as the reference flow of 1000 one-way bottles). For each of the properties identified as leading to differences in the way that the compared systems interact with other systems, the system boundaries must be modified to avoid this difference. This is parallel to the procedure for handling co-products, which also lead to a need for modifying the system boundaries to include the processes affected by the differences in amounts of co-products from the analysed systems (see chapter 5). What is important in this step, is the description of the difference between the analysed products and a general description of the system modifications necessary to avoid this difference. The description must include any difference, which leads to additional processes in one or more of the analysed product systems. Also future processes, such as additional needs for maintenance, replacements, waste treatment, or recycling of raw materials must be included in the description, whenever these processes are planned or can be foreseen to be necessary.
Examples: As already noted, the behaviour of the customer may be affected differently by the different product alternatives. This is especially relevant when studying consumer products and may often significantly affect the outcome of the study. Thus, it is necessary to include the entire change in consumer behaviour in the reference flow, if this was not already done in the definition of the functional unit.
Examples:
In the comparison of 0.5-litres one-way bottles with 0.4-litres returnable bottles, it may - as mentioned in section 3.2 - be necessary to If there is a large price difference between different product alternatives at the end consumer level, and you wish to model the environmental impacts of this situation correctly, the reference flow of the cheaper alternatives may have to be adjusted to include the alternative spending of the money saved. This addition should ideally model the marginal spending by utilising information on what products increase their market volume when the spending increases, as presented in figure 3.2. Note that this is generally only relevant for price differences at the end consumers, since at enterprises the price differences seldom have any lasting effects due to the tendency of marginal profits and wages to level out across all industries (Hardwick et al. 1990). A similar adjustment may be required if the there is a large difference between the product alternatives in terms of time consumption at the end consumer level. In this case, the timesaving alternatives may have to be adjusted to include the changes in overall behaviour as a result of the additional time available in these alternatives. To determine exactly what additional processes are to be included as a result of differences between the analysed systems often requires more detailed investigation. This investigation, which follows the same procedure as for determining the system expansions related to co-products (see chapter 5), does not have to be finalised as part of the procedure described here. Similarly, the detailed description of the additional processes may be referred to the general description of what is included in and excluded from the analysed systems. For the final reporting, it is appropriate to report all system expansions in one place, both those relating to product properties and those related to co-products. In order to avoid misunderstandings as to the extent of the systems described by the functional unit, the appropriate place for reporting all system expansions (including those from handling of co-products) is in close conjunction with the description of the functional unit. Also, it is recommended that in the presentation of the outcome of the study (inventory tables etc.), the influences of system expansions should be presented separately. ____________________________________________________________ 
Click on the picture to see the html-version of: Figure 3.2
12 Several of the examples provided in this chapter can also be found in ISO TR 14049, since they were provided as an input to the ISO TC 207/SC5/WG3 by the author.