Allocation in LCA

Allocation in general is defined in this ISO as: partitioning the input and/or output flows of a process to the product system under study.
In the Handbook on LCA, see tab references, economic allocation is advised as baseline method for most allocation situations in a detailed LCA.
In practice, economic allocation plays a major role in service systems, since the characteristic of a service is that it is supported by many subsystems which are partly used by that service. The issue is than which part of the environmental burden of that subsystem (the so called 'indirect' eco-burden) is to be allocated to that service. In complex products, like houses, the 'indirect' eco-burden plays also an important role.

The basic methodology for (economic) allocation in LCAs is dealt with in ISO 14041:
" Where physical relationship (i.e. kg, m2, m3, etc.) cannot be established or used as the basis for allocation, the inputs should be allocated between the products and the functions in a way which reflects other relationships between them. For example, environmental input and output data might be allocated between co-products in proportion to the economic value of the products "

Economic allocation can be explained by an example: the indirect environmental impact of building an air plane, allocated to a single trip . The main parameters are:
- the value of a ticket for the single trip, W, of which a part of that value, X, is related to the depreciation (or leasing costs) of the plane
- the value of a plane, Y
- the eco- costs of a plane, Z (calculated from LCA data).

The question is now which part of the indirect environmental impact of building a plane, Z, has to be allocated to the trip. Applying economic allocation:

EI = ( X / Y ) x Z = "the economic proportion" x "Environmental Impact"

Where EI is the indirect environmental impact allocated to the ticket, which can be written as:

EI = ( Z / Y ) x X = EVR x "part of the value of the ticket related to the depreciation of the plane"

The equation shows how the EVR model can be used for economic allocation in a complex LCA, starting with a 'cost-breakdown structure' . Especially in cases when proportions of weight are not known directly, which is often the case for services, the EVR model is a powerful tool.

In the example, the equation is applied to an 'indirect' environmental impact. This type of equation can also be applied to situations of 'direct' impact (e.g. for allocation of the fuel to one passenger). In most of the situations of 'direct' impact, however, the physical relationship is known as well, in which cases the eco-costs might preferably be determined on that direct physical relationship, according to ISO 14041.
Although the authors of the ISO 14041 define economic allocation as a 'last option' (to be avoided, if possible) there is no need to avoid economic allocation in cases where the ratio between 'value' and 'kilograms' is fixed , since the ratio between eco-costs and value, the EVR, is fixed then as well.
So it is a prerequisite for economic allocation that a specific EVR has to be independent of the size (weight, volume, time, etc.) of the functional unit of the element in the LCA. Under this condition, the EVR can be used for direct impacts as well, instead of the eco-costs / weight ratio, which appears extremely practical in many cases.

Note: Since the EVR is a dimensionless number (€/€), price inflation has basically no influence on the calculation, and the EVR is basically the same in each currency (e.g. the British Pound)


Economic allocation is a very powerful method in the EVR model for allocation, not only for 'indirect' impacts, but also for 'direct' impacts (in cases where the kilograms are not yet known, e.g. in the early design stages).
However, it can only be applied when two specific criteria have been fulfilled:
- relatively stable prices in a transparent, free, and open market
- a linear relationship between market value (price) and mass, volume and/or time.

Literature: see under tab data, reference 1.0 and 1.3