CBAs and LCAs: Learning from Nordic best practice
Mette Skovgaard
The popular decision-support tools, life-cycle assessment (LCA) and cost–benefit analysis (CBA), can help to determine the best waste management option. New guidance from the Nordic Council of Ministers recommends how to carry out CBA for waste management
by Mette Skovgaard
European waste managers and policy-makers increasingly demand tools that can offer them science-based arguments to support their decisions. This article discusses the use of two of the most popular decision-support tools today: life-cycle assessment (LCA) and cost–benefit analysis (CBA). These tools make use of life-cycle concepts to compare waste management systems before policies and targets are set and considerable investment made.
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Meeting the challenge: a range of decision-support tools is needed to build an effective waste management strategy and avoid relying on landfill.
photo: pawel kazmierczyk
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Typical users of the results of LCA and CBA include policy-makers, public authorities, business confederations and non-governmental organizations (NGOs). LCA and CBA studies have answered some complex questions, such as:
- When diverting organic waste from landfills, should a local authority invest in a recycling plant, a composting plant, or an incinerator? (Both LCA and CBA)
- In which activities should a local authority concentrate its budget: A prevention campaign? An increase in capacity of the recycling centres? A modernization of the flue gas cleaning system of the local incineration plant? In which of these areas can the largest environmental improvement be achieved? In which of these areas is there most value for money, i.e. the largest environmental improvement per euro invested? (CBA)
- Which material has the largest environmental benefits through recycling? Is it paper, plastic, steel, aluminium, glass or another? (LCA)
Often policy-makers use both LCA and CBA to compare two or more alternative options for the treatment of a waste stream, such as the recycling, incineration with energy recovery, or disposal of organic waste. In addition, private companies use LCA in product development and to communicate the environmental properties of their products e.g. through product declarations. Examples of different applications of LCA analysis in the recycling sector are shown in Box 1.
What is an LCA?
An LCA – or life-cycle assessment – evaluates all the known environmental impacts of a product, material or service throughout its entire lifetime. It is an ambitious methodology as it covers all stages in the life-cycle of the products or systems investigated from the cradle (material extraction) to the grave (final disposal).
The LCA attempts to cover all the physical exchanges of a product with its surroundings during its the life-cycle be it inputs of auxiliary materials and energy consumption, or outputs of emissions, waste and usable energy. The results are collected in a so-called life-cycle inventory. For a 40 g sheet of paper, for example, this can be expressed as the consumption of 100 g of wood and of 0.25 kWh of energy, generation of 0.1 kWh of energy, emission of 64 g carbon dioxide (CO2) and 0.1 g sulphur dioxide (SO2) – along with a host of other inputs and outputs.
Once an inventory of all the system inputs and outputs has been made, the inputs and outputs are grouped into potential impact categories such as resource consumption, climate change or toxicity. They are then translated into environmental impacts according to scientific knowledge about their causes.
With respect to climate change, for instance, methane emissions are multiplied by a factor of 21 to convert them to CO2 equivalents. This is because the climate change impact potential of 1 kg of methane is 21 times that of a kilogram of carbon dioxide.
The environmental impacts may be grouped further and weighted against each other to derive a single impact-potential score such as ecopoints or an ecological footprint; a score is easier to communicate in a decision-making context. However, such aggregation inevitably carries with it a certain degree of subjectivity and requires decisions over which impact is more important in a policy context. For instance, is climate change more or less important to humans than toxicity?
What is a CBA?
A CBA – or cost–benefit analysis – evaluates the costs and benefits to society of a project, policy or programme such as the implementation of a particular waste policy or the construction of a waste treatment facility. If the net benefit is positive, the project should, as a general rule, be implemented. A clear advantage of CBA is that the result is expressed in a well-known measure – money.
Ideally, a CBA also starts with a description of the system, its inputs and outputs, and an inventory of these. A CBA includes all the effects related to the implementation of the project or policy, i.e. the same inputs and outputs as the LCA. But, in addition, it includes investments, manpower, employment and effects on human health and safety. Subsequently, a value is ascribed to all these effects to convert them into monetary units.
Because the various costs and benefits may occur at different times in the future, a so-called net present value is calculated to illustrate the aggregated value in today’s prices. This calculation uses an interest rate that reflects the degree to which society prefers to consume and gain benefits now rather than in the future. The higher the interest rate, the lower the weight assigned to future costs and benefits compared with the costs and benefits experienced today.
The coverage of both LCA and CBA is often not ideal. For example, in geographical terms, many CBAs cover activities and emissions inside the national or regional borders of interest; emissions and resulting impacts in other countries are usually ignored. This goes against the growing focus on global causality and effect in the current environmental debate.
Putting theory into practice
In Europe, CBA and LCA are two of the most popular decision-support tools used by waste managers and waste-policy makers today. The international standard, ISO 14040, has been developed to ensure that an LCA has a certain quality and transparency regarding the assumptions made in the assessment. No such international standard currently exists for the preparation of a CBA, though the establishment of a standard of some kind would enhance the reliability of CBA as a decision-support tool.
This is one of the reasons why a new Guideline for cost–benefit Analysis in Waste Management was published by the Nordic Council of Ministers in 2007.1 The Danish Topic Centre on Waste and Resources was part of the team that prepared the Guideline (see Box 2). The Nordic Guideline proposes a state-of-the-art approach for cost–benefit analysis in the waste management sector and is intended to be a manual for anyone preparing a CBA.
The Nordic Guideline is structured according to the typical stages of a CBA. It describes the choices to be made at the different stages and, where possible, gives recommendations. Key recommendations include the need to:
- define the boundaries of the system
- ensure transparency
- incorporate environmental effects (i.e. bring life-cycle analysis methodology into CBA).
System boundaries
The Danish Topic Centre on Waste and Resources recommends that CBA practitioners and users pay special attention to the implications of the decision on system boundary, i.e. which life-cycle phases are included in the CBA. In defining the system boundary, the most important economic effects to consider are the collection and treatment of waste, and the valuation of time spent by consumers on separation of waste (if this is accounted for in the CBA). The valuation of environmental effects may also be important.
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When assessing where to site a new facility such as a landfill, it is important to consider the system boundaries and to ensure transparency in the decision-making process. photo: pawel kazmierczyk
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Making it global
Another aspect to consider is the geographical boundary. As mentioned above, the geographical boundary used in CBA is conventionally often the nation state. However, as more and more goods (including waste) are traded globally, the Nordic Guideline proposes that the conventional focus on the nation state in CBA should be extended, in particular with regard to environmental effects arising in other countries for the following two reasons.
- The impact relates to an issue where the effect in other countries has been acknowledged as being of joint interest and responsibility by means of an international treaty, international co-operation or EU legislation.
- There is an accepted ethical reason.
Ensuring transparency
In the debate on the reliability of CBA as a decision-support tool, some CBA studies have been criticized for a lack of transparency in various assumptions made in their design.
A CBA should strive for a maximum level of transparency so that decision makers can see the assumptions its results are based on – thus providing a sounder foundation for decision-making. This can include:
- involving stakeholders in defining the project’s objective and scope
- describing the baseline scenario in as much detail as possible, including accounts for conditions that are uncertain and assumptions that have been made in the baseline
- incorporating an inventory of effects into the CBA.
The inventory of effects is a list of all the resources necessary to implement a policy or project. The resources are divided into resource use (inputs to waste management, production, etc.) and the result of this resource use (products, environmental effects, health effects, etc.).
Ideally, the inventory should cover each year of the project’s time horizon as the effects will depend on changes in factors such as demographics and technology. Presenting the effects in a table like Table 1 provides an easy overview.
Environmental effects – bringing LCA methodology into CBA
Whereas a CBA assesses both the environmental and socio-economic effects of a policy, an LCA assesses only the environmental effects. Since the two methodologies answer different questions, LCA and CBA should not be considered as competing, but rather as complementary tools. This is why the Nordic Guideline proposes a means by which some key concepts from LCA methodology can be combined with CBA methodology.
LCA methodology helps to expand the perspective beyond waste management by including the environmental effects arising outside the waste management system to the extent that they are caused by it. This means that the LCA should include environmental effects caused by the production and transport of the electricity, fuel, materials and equipment that are used in the waste management system.
The LCA should also include the environmental effects that are avoided when energy and material from the waste management system reduce the need to produce energy and material elsewhere. As a consequence of this broader perspective, an ideal LCA model includes environmental data from a very large number of activities. In order to keep the task manageable, the general rule is to focus on obtaining good data on those activities considered most important for the final LCA results.
A CBA requires that most effects are expressed in the same unit, namely a monetary unit. The environmental effects identified in the LCA inventory should therefore be assigned a monetary value. The Nordic Guideline offers advice on methodologies that can be used for this purpose and whether new estimates should be calculated or earlier estimates relied on (so called benefit transfer).
Informed decisions
The strength of these decision-support tools is that they supply information about the alternative options for the management of waste – provided the studies have been conducted carefully and the results are presented in a transparent way. This information forms an important basis for discussion among policy-makers, waste companies and other stakeholders, and helps policy-makers take informed decisions. It may also ease the acceptability of decisions when detailed information about alternatives is available.
Finally, it should be stressed that CBA and LCA are decision-support tools and not decision-making tools; they assist in the learning process. Not all information can or will be captured in a CBA or LCA, and decision-makers may also have other political issues to consider. This means that CBA and LCA results do not represent ‘the final truth’.
Mette Skovgaard is senior consultant at the Danish Topic Centre on Waste and Resources.
e-mail: mskov@etc.mim.dk
web: www.wasteandresources.dk
References
1. Nordic Council of Ministers (2007). Nordic guideline for cost–benefit analysis in waste management. TemaNord 2007:574. Available from: See http://norden.org/pub/miljo/ekonomi/sk/TN2007574.pdf
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