Economic allocation: Examples and derived decision tree

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Abstract

Goal, Scope and Background

In the recently published (Dutch) Handbook on LCA, economic allocation is advised as baseline method for most allocation situations in a detailed LCA. Although the Handbook on LCA aimed to provide a ‘cookbook’ with operational guidelines for conducting each step of an LCA, this was not completely achieved for the allocation step. The guidelines for allocation largely remained at the level of principles. This restricted elaboration of economic allocation may hamper application in practice. Therefore, this paper elaborates some examples applying economic allocation.

Method

Two concepts are of particular importance when applying economic allocation: functional flow and multi-functional process. The definitions of these concepts are presented and discussed. The basic principle of economic allocation is that having determined the various functional flows of a multi-functional process, all other flows need to be allocated to these functional flows according to their shares in the total proceeds. Proceeds are based on prices and these are not always easy to determine for a process. A summary of possible solutions for different problems when determining prices is given.

Results and Discussion

The examples presented focus on co-production and various recycling situations. All examples are hypothetical in order to avoid discussions on the data. The examples show that the prices of the functional flows determine the allocation results. It is of importance to have correct information on the relative prices of the functional flows at stake, especially whether they are negative or positive. Learning from these examples, we establish a decision tree for economic allocation. The decision tree is meant for identifying and handling multi-functionality situations starting from a defined (product) system. This decision tree is with minor adaptations also applicable to other allocation methods and has a more general value than for the economic allocation method only.

Conclusions and perspective

The examples have helped us to establish a decision tree for handling the multi-functionality problem by economic allocation. The examples can be broadened to other materials and allocation situations. We would encourage others to provide other examples and experiences as we expect that these will help to further improve and refine the guidelines and decision tree for economic allocation in future.