⌛ At a Glance
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The Importance of Allocation in LCA
Allocation divides environmental impacts among a process's multiple outputs, providing crucial insights for effective Life Cycle Assessments. -
Physical Allocation Explained
Distributes impacts based on each product’s physical quantity—ensuring proportional, straightforward allocation. -
Economic Allocation Overview
Assigns impact according to each output’s economic value, linking environmental responsibility to demand but adding complexity. -
Weighing the Pros and Cons
Physical allocation is simple but might miss underlying motivations, while economic allocation depends on market factors and can lead to biases. -
Current Guidelines from Key Standards
Standards like ISO and PEF prioritise physical allocation, though economic methods are allowed in certain cases to ensure relevance.
🔎 Full article
What is Allocation in LCA, and Why Does it Matter?
Anyone creating or reading Life Cycle Assessment (LCA) studies will eventually encounter the concept of allocation. Put simply, allocation is about dividing the environmental impacts of a process between its multiple outputs.
Let’s break this down with an example: imagine an orange processing facility that produces two main outputs—orange juice and leftovers / peel and pulp . They are sold to a neighbouring company for uses like pectin production.
Because the facility produces two outputs, we need to distribute the environmental impacts of orange production, such as water used for irrigation, diesel for machinery, and land for growing oranges, between the juice and the pulp. The same applies to impacts from the processing facility prior to the point where they split paths, like the electricity used in pressing.
The simplest approach to allocation would be to split the impacts equally between each output. For instance, if there are two outputs, each would receive half of the impact; with three, each would get a third, and so on. However, this uniform allocation approach doesn’t account for the actual quantity or significance of each output, so it’s not typically used in LCA studies. So, what other options are there?
Physical Allocation: Measuring Impact by Production Output
In Life Cycle Assessment (LCA), environmental impacts are usually scaled based on physical properties. For instance, the impact of building and dismantling a power plant is spread across its total expected lifetime energy output. Similarly, an apple farm’s annual diesel use is divided by the total kilograms of apples produced to calculate the impact per kilogram.
Accordingly, physical allocation distributes impacts according to the physical production amount of each output. In our example of the orange processing facility, that means allocating impacts proportionally to the mass of the two outputs (orange juice and pulp).
This means that the environmental impact—represented by arrows in the Sankey diagram below—“flows” in proportion to the mass of each output. These arrows illustrate abstracted impacts rather than the actual material mass as in the previous diagram.
As shown, the impact flows split according to the physical distribution of each product, aligning with the quantity of each output produced.
Economic Allocation: Impact Allocation Based on Value
So far, this physical allocation method makes intuitive sense. However, some argue that it doesn’t reflect the social responsibility tied to the demand for a product. The idea here is that if an output is more valuable than another one, it should bear a larger share of the environmental impact, as its higher value suggests it is the larger driver for producing the goods in the first place.
In the case of orange juice and its co-products, let’s consider example prices: orange juice at $1,500 per ton and usable leftovers at $100 per ton. Since orange juice is worth 15 times more (i.e. 15/16 of the total), this approach would allocate the majority of the environmental impact to the juice rather than the lower-value co-products.
As shown in the diagram, most of the impact is assigned to the orange juice, while the co-products (and any resulting products like pectin) carry a much smaller portion of the impact. This value-based allocation results in a significantly reduced environmental impact associated with the peel and pulp co-product.
Pros and Cons of Physical vs. Economic Allocation
Both physical and economic allocation methods offer useful perspectives but come with distinct limitations. Physical allocation, while straightforward, doesn't capture the motivations behind a process—why it’s carried out in the first place—and becomes challenging when outputs have different physical units, like a factory producing goods but selling excess heat to nearby customers.
Economic allocation, though it incorporates value and motivation, faces its own hurdles. It depends on prices, which are not always readily available. For example, if a co-product is used internally rather than sold, or if it’s something not commonly traded, price determination becomes tricky. Guinée et al., in Table 1 of their paper, outline these issues and offer various approaches, though some solutions—like using “public sources” when prices are unknown—may not yield reliable (or any) results. In particular for specific co-products that are only used internally, not publicly traded and thus don’t have an actual market value.
Moreover, economic allocation can introduce unintended bias. Factors like fluctuating prices, distortions from subsidies, and non-existent markets for new products add complexity and risk, sometimes allowing for manipulation of impact assessment results if prices are estimated or set arbitrarily.
Guidelines from ISO, PEF, and GHG Protocol
ISO, as a globally recognised standard-setting body, outlines in its LCA requirements and guidelines (ISO 14044:2006) that physical allocation should be the primary approach when allocation is unavoidable, with economic allocation only as a fallback when physical allocation isn’t applicable. The EU’s Product Environmental Footprint (PEF) similarly prioritises physical allocation, requiring justification when non-physical allocation methods, like economic allocation, are used. However, certain PEF Category Rules do specify economic allocation for particular cases (e.g. for allocation between animal products and the manure as a co-product from animal husbandry). The GHG Protocol is somewhat broader, recommending physical allocation when available and most reflective of the causal relationship between outputs and emissions, but also allowing economic or alternative allocation methods if the physical properties do not capture the causal relationship adequately.
Sustained’s Perspective on Allocation in LCA
At Sustained, we believe that enabling companies to conduct LCAs effectively and at scale hinges on adhering to agreed standards, and we advocate for a unified approach across frameworks. The leading standards show a strong preference for physical allocation, which aligns with our own perspective. While challenging the status quo is essential to scientific progress—and there are valid cases for economic allocation—we believe that physical allocation currently provides the most robust basis for consistent and reliable impact assessments.
Frequently Asked Question's (FAQ's)
What is allocation in Life Cycle Assessment (LCA)?
Allocation in LCA is the process of dividing the environmental impacts of a production process among multiple outputs. This division is crucial for accurate impact assessments and can be based on factors like physical production quantities or economic value.
What’s the difference between physical allocation and economic allocation in LCA?
Physical allocation distributes impacts based on measurable output quantities (e.g., weight or volume), while economic allocation assigns impacts according to the market value of each output. Both methods have pros and cons, and the choice can affect the LCA results.
Why is physical allocation often preferred in environmental impact assessments?
Physical allocation is widely recommended by standards like ISO and PEF because it offers a consistent, proportional approach to impact distribution. It avoids some of the complexities and potential biases associated with economic allocation, making it more reliable for large-scale, standardised LCAs.
