LCC Flashcards
What is LCC?
Life cycle costing
cost oriented life cycle assessment
addresses relevant costs & revenues accounted by actors & participants in a products life cycle
investigates different cost factors (labour, material, energy,…)
provides input for decision making process of a product
What are the three types of LCC?
Conventional LCC
Environmental
Societal
Explain conventional LCC.
- economic evaluation
- “real” internal costs, associated with a product ́s life cycle
Explain environmental LCC.
–Includes external costs, which are likely to be internalised in the decision-relevant future (e.g. through a carbon price, taxes)
–System boundaries & functional unit equivalent to LCA
Explain societal LCC.
–All costs covered by anyone in the society, whether today or in the long-term
-done by including all external costs in a monetarized form
–Includes stakeholders not directly related to the product system (governments, society)
What needs to be considereed in the goal and scope of the LCC?
- Assessment of costs over the whole life cycle
- Conventional LCC? Environmental LCC? Societal LCC?
- For hotspot identification and/or comparisons?
- Conducting LCC alone or complementary to an LCA?
- Relation to Sustainability?
What are external costs?
•External costs are costs that are NOT included in what the business bases its price on
•Inclusion of the monetised effects of negative environmental and social impacts not directly billed to the firm (consumer, government, etc.) that is producing, using, or handling the product
–> it imposes costs on people who are “external” to the producer and consumer of the polluting product
- private (to an individual or an organization) or social (whole society)
–> Outside the economic system, but inside the natural and social system
–> e.g., cost of health problems caused by harmful materials
–> also called externalities
Give an example of a negative externality.
the pollution of a lake by a company that affects people living next to it: it affects their life expectancy, but also the value of their property negatively
Give an example of a positive externality.
a country reduces its greenhouse gas emissions, but also other countries profit by this countries greenhouse gas reductions
What are internal costs?
Payment for initiation, operation and EoL Costs by directly involved stakeholder
- Connection to business costs, and liability.
- Concern all costs and revenues within the economic system
What costs are considered in which type of LCC?
Conventional LCC:
- assesses internal costs
Environmental LCC:
- assesses to be internalised external costs (external environmental costs)
Societal LCC:
- assesses further external societal costs
Why LCC?
- Overview & improved awareness of total costs
- Evaluation of alternative options in regard to purchasing, operating, and maintenance cost strategies
- Identification of optimisation potential
What are the three types of cost in LCC?
initial costs:
- design
- investments
- installation
operation costs:
- maintenance
- labor
- energy
EoL costs:
- replacement
- recycling
- disposal
What is a problem of LCC?
- only a representation of the economic dimension,
- -> NOT sufficient as a stand-alone assessment for sustainability
- Currently, most LCC studies have a pure focus on money flows, but not on the impact pathways
- NO defined approach & consensus on whether LCC should remain limited to the cost level (sum up of costs) or if the scope should be broadened to assessing impacts..(e.g., GDP, economic prosperity)
Should LCC be included in LCSA?
Different positions:
yes because it is relevenat for decision making on company level
no because it misses a link to sustainable development and fails to capture the full dimension of economic sustainability
How can LCC be linked with sustainability assessment?
economic LCA (ecLCA)
- define relevant economic topics
- define relevant economic areas of protection (e.g., economic stability, wealth generation)
- define relevant impact categories (mid- & endpoint) & link them with an economic pathway
–> consider microeconomic effects on midpoint level (e.g., productivity, consumer satisfaction,..)
–> consider macroeconomic effects on endpoint level (e.g., economic prosperity & resilience)
What are the steps of a LCC?
goal and scope definition
inventory
interpretation
What are externalities?
- external costs
- cost or benefit caused by a producer who does not have to bear or receive them
- can be positive or negative
- come from either the production or consumption of a good or service
- private (to an individual or an organization) or social (whole society)
What are public goods?
externalities mostly affect public goods
product that an individual con consume without reducing its availability to others and of which no one is deprives
e.g., air we breathe, public parks, law enforcement
What does a public good have to be (e.g. atmosphere)?
-> non excludable ( If I protect the climate I cannot protect it for myself but all others also profit by it)
–> non rivalrous (f I enjoy a healthy atmosphere and a stable climate all others can also enjoy it)
What are these assessments related to?
Total economic value:
1) Use value (potential & actual use)
- direct use value (health, food provision)
- indirect “-“ (ecological functions)
- option “-“ (use of genetic potential for medical purposes)
2) non use value
- existence “-“ (protect the amazon)
- bequest “-“ ( you want to inheritate something to someone)
- atruistic “-“ (that other peoples can enjoy the amazon)
Why is equity weighting relevant for economic assessment?
- To balance out different perceptions related to money due to individual person’s income
- If we use Willingness-to-Pay-approaches, typically poorer people have a lower willingness to pay than richer people
- Germany & Madagascar lost a lot of money due to climate change
- -> should the economic values Germany lost be weighted less important?
What are the most common approaches to assess non marketed environmental goods?
If we dont have labels or standards..
Market based:
Revealed preference:
Stated preference
Abatement costs:
What is a CBA?
Cost benefit analysis
- -> pleasures = benefits
- -> pains = costs
analytical tool to compare different scenarios/option and their costs and benefits
–> to judge the economic advantages & disadvantages of an investment decision
