Environmental Assessment Framework for Policy Applications: Life Cycle Assessment, External Costs and Multi-criteria Analysis

Abstract

The paper presents a framework for the analysis of external costs of environmental burdens, namely an impact pathway analysis, often coupled with the inventory stage of life cycle assessment (LCA). The ground rule is: quantify as much as possible in terms of burdens (pollutant emissions, etc.), impacts, and their monetary equivalent, then use multi-criteria analysis (MCA) for any remaining impacts that are considered to be too uncertain or defy quantification through to monetization. Although MCA could be used directly on estimates of burdens or impacts, monetary valuation provides a mechanism for consistent weighting of impacts categories based on assessment of public preference. Further advantages of extending LCA through detailed impact assessment combined with monetary valuation are that it greatly simplifies MCA by combining a large number of different environmental impact categories, thereby avoiding an unmanageably large number of criteria, and also facilitates cost benefit analysis (CBA). The risks are noted of inappropriate use of the tools or interpretation/use of the results, and recommendations are made for improved practice. These points are illustrated with examples. The key messages are: (1) that policies should be targeted correctly to give a clear signal which source of a burden should be reduced by how much; (2) that analysts should take into account the needs of policy makers and the link between the analysis and possible policy applications; and (3) that current LCA practice gives limited guidance in both areas, largely through a lack of consideration of the relative and absolute importance of different types of impact. However, this is precisely the strength of external costs analysis, particularly when used with MCA.

Acknowledgements

This work has been funded in part by the ExternE project series and by the SusTools and MethodEx projects of the EC, DG Research. The authors wish to thank Mithra Moezzi for many helpful discussions and two anonymous referees for comments.

Notes

1 The present paper defines the socially optimal pollution tax in the narrow sense where it is equal to the marginal damage cost, but it is emphasized that the tax could be quite different with broader criteria, for example, a pollution tax might be set higher to bring in additional tax revenue (replacing less desirable taxes) or to bring about more rapid change of behaviour.

2 Sometimes the question of external benefits is raised. The benefits of the activities or goods themselves are internalized; for example, the driver of a car pays the (private) cost of driving because he/she receives the benefit. Certain activities can entail benefits that are not yet internalized, but they are rare, the most important example being agriculture, which can render a landscape more attractive if managed appropriately. Certain pollutants can provide minor benefits, for example NO_x emissions can provide fertilizer for agricultural crops; however, such benefits tend to be small compared to the overall harm of the respective pollutants.

3 The link between policy decision and analysis has frequently been overlooked. A typical example has been the reporting and use of external costs for electricity, when only a single aggregate number for cost per kWh (including all pollutants from the entire fuel chain) is cited or used. Such a number does not tell the operator of a power plant how much to reduce the emission of a particular pollutant, and it penalizes the power plant for pollutants emitted upstream or downstream.

4 Also known as dose-response function or, in the case of air pollutants, as concentration-response function.

5 With regard to the validation of EcoSense, the crucial elements are the calculations of atmospheric dispersion and chemistry; here comparisons with measured data have demonstrated sufficiently good agreement (see Section 4.4 of ExternE, 2000).

6 Such agreement is quite sufficient in view of the large overall uncertainties of any calculation of environmental external cots. The UWM is especially useful for a scoping analysis. In many cases sufficiently detailed data for an EcoSense calculation are not available.

7 Similar considerations hold for radon in buildings even though it is of natural origin and thus not an ‘external cost’ in the strict sense. Several different actors as well as the occupant could be asked to do something to reduce this risk, and in any case the occupant will ultimately bear the cost.