to differentiate the impacts of two comparable products:

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1 From: I. A Primer on Life Cycle Assessment Life cycle assessment (LCA) is a way to investigate, estimate, and evaluate the environmental burdens caused by a material, product, process, or service throughout its life span. Environmental burdens include the materials and energy resources required to create the product, as well as the wastes and emissions generated during the process. By examining the entire life cycle, one gets a more complete picture of the environmental impact created and the trade-offs in impact from one period of the life cycle to another. Results of LCAs can be useful for identifying areas with high environmental impact, and for evaluating and improving product designs. Defining a Product Life Cycle Typically, a product life cycle is defined as a linear progression: First, raw materials are extracted from the earth. Some examples are ore, water and oil. Second, raw materials are processed into finished materials. For example, bauxite ore is processed into aluminum and oil is processed into plastics. Third, the materials are manufactured or assembled into a final product. This stage can often be considered in two parts: first materials are manufactured into parts (for example, an aluminum sheet is manufactured into an automobile body panel). Then the parts are assembled into a final product (for example, the body panel along with the windows, engine, and many more parts are assembled into a car). Fourth is the use stage when a consumer has control of the product. Finally is the waste management stage or end-of-life stage when the product is broken down into component materials for remanufacturing or recycling, or is discarded. Some add a sixth stage of distribution as the materials and product are transported between stages During each of these stages, the activities that occur require material and energy resources, and generate wastes and emissions. Material and energy resources include items such as ores, catalysts, water, coal, natural gas, or electricity. Wastes include solid wastes (trash) or hazardous wastes. Emissions include pollutants released to the air, such as sulfur dioxide or carbon dioxide or soot, or to the water, such as sewage or solids. Life cycle assessment gathers information about the quantity of these resources and wastes at each life cycle stage. Why Use Life Cycle Assessment Life Cycle Assessment gives you a complete picture of a product s environmental impacts. It lets you see during which parts of its life cycle the product most negatively impacts the environment. For example, the life cycle of an automobile consumes much more energy during the use phase (through the gasoline used to operate the vehicle) than during the prior stages to create the materials and parts for the automobile. Likewise, an LCA helps to identify which impacts are the most significant across the life cycle. For example, pollutant emissions to water may not be the worst impact at any individual stage of a product life cycle, but when summed across all stages may in fact have the largest impact. Information from an LCA can be used: to differentiate the impacts of two comparable products: plastic versus paper versus glass cups. Each requires different raw materials inputs (petroleum, trees, or sand), and different types and amounts of energy to produce. Likewise, each production process produces different wastes and emissions. But the plastic or paper cups would likely be thrown away after one or maybe two uses,

2 adding burdens in a landfill. The glass cup would be reused, but would require water and detergents for cleaning. to assess design options for the same product: automobiles use a wide variety of materials in the various parts. Steel has typically been used, but plastics and composite materials have been replacing it. Steel is heavier than the plastics or composites, adding weight to the car that increases the fuel needed to operate the car. However, steel parts are easily recycled at the end of the vehicle s life. (See detailed example to follow.) to identify where in the life cycle an impact should be targeted for reduction: A package delivery company may be concerned about its carbon dioxide emissions. One option is to make changes to its delivery vehicles or routing to reduce fuel consumption and the related CO2 emission. However, examining the life cycle of the service might identify the company s building electrical usage as a greater contributor to those emissions, and thus reductions could be gained via energy conservation measures in offices or purchasing wind power. Examining the entire life cycle provides a broad perspective for an analysis and helps to avoid making decisions that in the end cause greater harm. II. Approaches to Life Cycle Assessment Assessing the environmental burdens of a product, process, or service can be a daunting task. An initial approach to completing a life cycle assessment is a process-based LCA method. In a process-based LCA, one itemizes the inputs (materials and energy resources) and the outputs (emissions and wastes to the environment) for a given step in producing a product. So, for a simple product, such as a disposable paper drinking cup, one might list the paper and glue for the materials, as well as electricity or natural gas for operating the machinery to form the cup for the inputs, and one might list scrap paper material, waste glue, and low quality cups that become waste for the outputs. However, for a broad life cycle perspective, this same task must be done across the entire life cycle of the materials for the cup and the use of the cup. So, one needs to identify the inputs, such as pulp, water, and dyes to make the paper, the trees and machinery to make the pulp, and the forestry practices to grow and harvest the trees. Similarly, one needs to include inputs and outputs for packaging the cup for shipment to the store, the trip to the store to purchase the cups, and that result from throwing the cup in the trash and eventually being landfilled or incinerated. Even for a very simple product, this process-based LCA method can quickly spiral into an overwhelming number of inputs and outputs to include. Now, imagine doing this same process-based LCA for a product such as an automobile that has over 20,000 individual parts, or a process such as electricity generation. Two main issues arise with process-based LCA methods. One is defining the boundary of the analysis. An initial step of a process-based LCA is defining what will be included in the analysis, and what will be excluded and ignored. For the paper cup example, one might choose to exclude the impacts for making the steel and then manufacturing the processing equipment that makes the cups. Establishing the boundary limits the scope of the project and thus the time and effort needed to collect information on the inputs and outputs. While necessary to create a manageable LCA project, defining the boundary for the analysis automatically limits the results and creates an underestimate of the true life cycle impacts. The other main issue with process-based LCA methods is circularity effects. In our modern world, it takes a lot of the same "stuff" to make other "stuff." So, to make the paper cup requires steel machinery. But to make the steel machinery requires other machinery and tools made out of

3 steel. And to make the steel requires machinery, yes, made out of steel. Effectively, one must have completed a life cycle assessment of all materials and processes before one can complete a life cycle assessment of any material or process. Completing a broad, robust life cycle assessment thus requires many assumptions and decisions that make life cycle assessment a very complex and time consuming endeavor. This is where econonmic input-output LCA approaches enter and help simplify LCAs. Economic Input-Output Models Economic input-output (EIO) models represent the monetary transactions between industry sectors in mathematical form. EIO models indicate what goods or services (or output of an industry) are consumed by other industries (or used as input). As an example, consider the industry sector that produces automobiles. Inputs to the automobile manufacturing industry sector include the outputs from the industry sectors that produce sheet metal, plate glass windshields, tires, carpeting, as well as computers (for designing the cars), electricity (to operate the facilities), etc. In turn, the sheet metal, plate glass windshield tire, etc. industry sectors require inputs for their operations that are outputs of other sectors, and so on. Each of these requirements for goods or services between industry sectors is identified in an EIO model. EIO models are usually presented in matrix form where each row and each column represent a single industry sector, and the intersection of a row and column identifies the economic value of output from the row sector that is used as input to the column sector. In this form, EIO models have two helpful characteristics. First, EIO models indicate if output of an industry sector is required as input to the same industry sector (i.e., a value along the diagonal of the matrix is non-zero). For example the oil and gas extraction industry may produce the oil and gas to power its own facilities, or the computer design and manufacturing industry produces computers that are used to design the next generation of computers. Secondly, using some basic linear algebra techniques (described in the theory and method section), EIO models identify the direct, the indirect, and total effects of changes to the economy. Direct effects are the first-tier transactions, the transactions between one sector and the sectors that provide it output. Indirect effects are the second-tier, third-tier, etc. transactions, the transactions among all sectors as a result of the first-tier transactions. Total effects are the sum of direct and indirect effects. Economic input-output models are used to study changes in the demands or structure of the economy. For example, if demand increases for output from the electricity industry sector, the EIO model can identify which industry sectors in the supply chain of the electricity industry, such as coal mining, natural gas exploration, or wiring and cabling will also have an increase in demand and by how much. Over time, EIO models can identify when shifts in the economy have occurred, as outputs of industry sectors diminish and increase, such as the increase in output from service sectors in most developed countries. EIO models aid decision-makers in estimating ripple effects of economic changes, including drastic changes. For example, EIO models have been used to model growth in industry sectors that produce construction materials due to growth in industry sectors that provide construction services as a result of a major natural disaster such as Hurricane Katrina in the U.S. Gulf Coast region. Support for growth cannot just be provided to the construction service industry; it must also be given to industries that produce lumber and other wood products, plumbing supplies, etc., otherwise the construction service industry will not have sufficient input for its services. Most nations create economic input-output models of their economies to varying degrees of specificity and frequency. The U.S. EIO models (benchmark accounts) are created every five years and represent the transactions among some 400 industry sectors. The models are created based on survey data from a sample of all operating facilities from apple farms to zoos. Other nations have similar models, albeit on a smaller scale (e.g., fewer number of sectors, less frequent data collection). Combining Economic Input-Output Models and Life Cycle Assessment

4 The traditional economic input-output model (matrix) indicating economic transactions between industries can be appended with information on emissions to the environment. In effect, this creates an additional column representing "the environment" sector, and the value in each row represents the pollutant "output" from an industry sector that is "input" to "the environment" sector. Just as one can model how increased demand for output from one sector influences the output of other sectors, with an appended model one can also model how increased demand for output from one sector influences the output of pollutants to the environment. This EIO-LCA approach eliminates the two major issues of boundary definition and circularity effects of process-based models. First, since transactions and emissions of all industry sectors among all other industry sectors is included, the boundary is very broad and inclusive. Even small transactions and emissions are included, such as those for producing the gasoline for the security truck of the contract security firm for the warehouse storing copper for the wiring in an automobile. Second, since the selfsector transactions are included, circularity effects are included in the analysis. To Continue from Here... The EIO-LCA theory and method page provides an explanation of the mathematical derivation of the general EIO modeling theory and the theory for appending EIO models with environmental information. It is not necessary to comprehend the mathematical derivation to understand and use the method, however. Feel free to move on to the limitations of the EIO-LCA method page next. III. Theory and Method behind EIO-LCA theory and method (pdf) numerical example (ppt) Combining life cycle assessment and economic input-output is based on the work of Wassily Leontief in the 1930s. Leontief developed the idea of input-output models of the U.S. economy and theorized about expanding them with non-economic data. But the computational power at the time limited uses of the Economic Input-Output method that required matrix algebra. From the Input-Output accounts a matrix or table A is created that represents the direct requirements of the intersectoral relationships. The rows of A indicate the amount of output from industry i required to produce one dollar of output from industry j. These are considered the direct requirements the output from first tier of suppliers directly to the industry of interest. Next, consider a vector of final demand, y, of goods in the economy. The sector in consideration must producei y units of output to meet this demand. At the same time A y units of output are produced in all other sectors. So, the result is more than demand for the initial sector, but also demand for its direct supplier sectors. The resulting output, x direct, from the entire economy can be written x direct =(I+A)y This relationship takes into account only one level of suppliers, however. The demand of output from the first-tier of suppliers creates a demand for output from their direct suppliers (i.e., the second-tier suppliers of the sector in consideration). For example, the demand for computers from the computer manufacturing sector results in a demand for semiconductors from the semiconductor manufacturing sector (first-tier). That in turn results in a demand for electricity from the electricity generation sector (second-tier) to operate the semiconductor manufacturing facilities. The second-tier supplier requirements are calculated by further multiplication of the direct requirements matrix by the final demand, or A A y. In many cases, third and fourth or more tiers of suppliers exist. The supplier requirements are calculated similarly with further multiplication of the direct requirements matrix by the final demand. To determine the total output then requires a summation of many of these factors calculated as:

5 X = (I + A + AA + AAA + )y where X (with no subscript) is a vector including all supplier outputs. The output demanded from these second-tier sectors and beyond is considered indirect output. So, X includes total output, both direct and indirect. The expression (I + A + AA + AAA + ) can be shown to be equivalent to (I - A) -1, which is called the total requirements matrix or the Leontief inverse. The relationship between final demand and total output can be expressed compactly as: X = (I - A) -1 y or X = (I - A) -1 y where the latter expression indicates that the EIO framework can be used to determine relative changes in total output based on an incremental change in final demand. Typically, the values in the matrices and vectors are expressed in dollar figures (i.e., in the direct requirements matrix, A, the dollar value of output from industry iused to produce one dollar of output from industry j). This puts all items in the economy, petroleum or electricity or pickles, into comparable units. The economic input-output analysis can then be augmented with additional, non-economic data. One can determine the total external outputs associated with each dollar of economic output by adding external information to the EIO framework. First, the total external output per dollar of output is calculated from: R i = total external output / X i where R i is used to denote the impact in sector i, and X i is the total dollar output for sector i. To determine the total (direct plus indirect) impact throughout the economy, the direct impact value is used with the EIO model. A vector of the total external outputs, Bi, can be obtained by multiplying the total economic output at each stage by the impact: B i = R i X = Ri(I - A) -1 y where R i is a matrix with the elements of the vector R i along the diagonal and zeros elsewhere, and X is the vector of relative change in total output based on an incremental change in final demand. A variety of impacts can be included in the calculation resource inputs such as energy, electricity, or water; or environmental burdens such as criteria air pollutants, global warming gases, or hazardous wastes. IV. Assumptions Assumptions, Uncertainty, and other Considerations with the EIO- LCA Method The EIO-LCA method is a linear model. Thus, the results of a $1,000 change in demand or level of economic activity will be 10 times the results of a $100 change in demand. The results represent impacts through the production of output by the sector with increased demand. For the most part then, the use phase and end-of-life phases are not directly included in the results. However, additional analyses using the EIO-LCA method can model these life cycle stages. For example, modeling a $1 million increase of demand from the industry sector that produces automobiles represents the impacts from materials extraction, materials manufacturing, parts

6 manufacturing, assembly, transport of good between these stages, as well as product design and testing of vehicle models - all activities prior to the final vehicle from the assembly line getting driven out the manufacturing facility gates. That analyses of $1 million in the automobile manufacturing sector does not include impacts from the fuel used to drive the car during its useful life or the impacts of salvaging parts or landfilling materials from an end-of-life vehicle. One could estimate the upstream impacts from the fuel consumption with the EIO-LCA method by doing an analysis for an increase in demand from the petroleum manufacturing sector. Emissions from the use phase would need to be estimated using other methods. Many assumptions go into creating the impact vectors (the values for the environmental effects and materials consumption). Most data that we use are categorized by industry sectors using the North American Industry Classification System (NAICS) or other generic categories (e.g., the USDA categorizes farms by crop type). These data do not directly map onto the IO sectors in the economic models. We allocate values using weighted averages, or information from data sources or other publications. See the documentation associated with the model of interest for information on specific assumptions made in creating the impact vectors. The IO models used for the various EIO-LCA models represent economies of a single nation. Imports and exports, though, are a major part of any economy's transactions. Imports are implicitly assumed to have the same production characteristics as comparable products made in the country of interest. Thus, if a truck is imported and used by a U.S. company, the environmental effect of the production of the truck is expected to be comparable to those made in the U.S. To the extent that overseas production is regarded as more or less of an environmental concern, then the results from the EIO-LCA model should be modified by adding additional transportation and logistics (e.g., for overseas delivery) as well as possibly adjustment for different production processes. Uncertainty We are uncertain as to all the uncertainty in the EIO-LCA models available on the site. Here are some of the most important: Old Data: The data associated with each model are representative of the year of the model. Thus, data for the 1997 U.S. Benchmark model are from 1997, including the economic input-output matrix and the associated environmental data. Care should be taken in using a model to replicate current conditions. The changes in these data over time vary widely. Economic input-output coefficients for stable industries (e.g., steel making, which has had similar processes for years) may be similar to past coefficients; however EIO coefficients for rapidly changing industries (e.g., computer manufacturing, which has rapid development of products and processes) may be very different over time. Similarly, environmental data can change over time due to changes in process efficiency, regulations for pollutants, or production levels. Uncertainty Inherent in Original Data: All data incorporated into an EIO-LCA model is originally compiled from surveys and forms submitted by industries to governments for national statistical purposes. The uncertainty in sampling, response rate, missing/incomplete data, estimations to complete forms, etc. from the original data remain as underlying uncertainty in the EIO-LCA models. See the model documentation for references to the original data sources and refer to the documentation provided with the original data source for more information of uncertainty within a given data source. Incomplete Original Data: Related to the uncertainty in the original data sources, some data used in the EIO-LCA models are incomplete, in that they underestimate the true values. A good example of this is toxic release data. In the U.S., only facilities which emit above a certain threshold of toxics or which fall into certain industry classifications are required to report their toxic emissions. So, the actual value of toxic emissions reported is known to be lower than the actual level of emissions. See the model documentation for references to the original data sources and refer to the documentation provided with the original data source for more information of uncertainty within a given data source.

7 Aggregated Original Data: As mentioned above, most data are categorized in a way that does not directly correspond to the economic input-output sectors used in the IO matrix. For example, electricity use for commercial buildings is aggregated by the type of building (e.g., office space, retail space, etc.), not by sector (e.g., engineering consulting offices, accounting, etc.). We make assumptions to allocate aggregated data to the most appropriate sector. See the model documentation for more information about how aggregated data is allocated. Aggregation of Sectors: The results of an EIO-LCA analysis represent the impacts from a change in demand for an industry sector. Depending on the model chosen, an industry sector represents an collection of several industry types, and this aggregation leads to uncertainty in how well a specific industry is modeled. For example, in the U.S. models, one sector represents Power Generation and Supply, which would include coal-fired plants with high levels of CO2 and particulate emissions as well as hydropower plants with virtually no CO2 or particulate emissions. The results for impacts from the Power Generation and Supply sector thus represent the "average" impacts for generating electricity. (Yet, we like to point out that the U.S. models designate one sector entirely for Tortilla Manufacturing, so the impacts for making tortillas are well-represented.) Non-U.S. models are more aggregated, with up to only 100 sectors representing all industries. See the model information for the number of sectors represented in the economy of a given model. Other Issues and Considerations As an LCA tool, the EIO-LCA models are incomplete as only a limited number of environmental effects are included. The EIO-LCA models use as the basis for data only those data which are publicly available (i.e., no proprietary data is included, all data sources are provided). While industry specific data is available for a number of environmental effects, we do not have data for impacts such as habitat destruction, non-hazardous solids wastes, or non-toxic pollutants to water. Some data used in earlier models (e.g., fertilizers) are no longer collected at the national level due to efforts to minimize reporting burden of companies. Other sources and LCA methods will need to be consulted to account for a full range of environmental impacts. The EIO-LCA method, models, and results represent the inventory stage of the LCA. The results estimate the environmental emissions or resource consumption associated with the life cycle of an industry sector, but do not estimate the actual environmental or human health impacts that these emissions or consumption patterns cause. For example, the U.S. models estimate the emissions of particulates to the air, but do not estimate the increased number of hospitalizations or deaths due to these emissions. Each EIO-LCA model uses economic data as the user-defined parameter of analysis. Each model uses the currency of the country of origin (i.e., U.S. models should have $US as input, Germany model should have as input, etc.). Similarly, the monetary values represent the value of the currency in the year of the model. So, the 1997 U.S. Benchmark model is based on 1997 U.S. dollar values. If current prices are used, they should first be converted to the model year with an appropriate economic index. The Statistical Abstract of the United States provides historical price indexes for the U.S. for the overall economy and for major commodity groups such as food, energy, and transportation. For example, if you found prices for hospitalization for 2006 but wanted to use the 2002 U.S. Benchmark model, you would need to convert the prices. The Statistical Abstract of the United States lists the consumer price index for medical care in 2006 as and in 2002 as Dividing the 2002 medical CPI by the 2006 medical CPI results in a ratio of All 2006 prices should be multiplied by 0.85 for use in the model. Another consideration is the correct use of producer versus purchaser prices. Most of the economic input-output models that form the basis for the EIO-LCA models represent the producer prices - the price a producer receives for goods and services (plus taxes, minus subsidies), or the cost of buying all the materials, running facilities, paying workers, etc. The purchaser price includes the producer

8 price plus the transportation costs of shipping product to the point of sale, and the wholesale and retail trade margins (the profit these industries take for marketing and selling the product). For many goods, the producer prices can be far less than what a final consumer would pay (e.g., the producer price for leather goods in U.S. is approximately 35% of the final purchaser price). For many services, where no goods are transported and wholesale/retail trade is limited, the producer price and purchaser price are often the same (e.g., barber shops and childcare).