LCC

Question 1

What is LCC?

Answer 1

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

Question 2

What are the three types of LCC?

Answer 2

Conventional LCC

Environmental

Societal

Question 3

Explain conventional LCC.

Answer 3

• economic evaluation

- “real” internal costs, associated with a product ́s life cycle

Question 4

Explain environmental LCC.

Answer 4

–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

Question 5

Explain societal LCC.

Answer 5

–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)

Question 6

What needs to be considereed in the goal and scope of the LCC?

Answer 6

• 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?

Question 7

What are external costs?

Answer 7

•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

Question 8

Give an example of a negative externality.

Answer 8

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

Question 9

Give an example of a positive externality.

Answer 9

a country reduces its greenhouse gas emissions, but also other countries profit by this countries greenhouse gas reductions

Question 10

What are internal costs?

Answer 10

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

Question 11

What costs are considered in which type of LCC?

Answer 11

Conventional LCC:
- assesses internal costs

Environmental LCC:
- assesses to be internalised external costs (external environmental costs)

Societal LCC:
- assesses further external societal costs

Question 12

Why LCC?

Answer 12

• Overview & improved awareness of total costs
• Evaluation of alternative options in regard to purchasing, operating, and maintenance cost strategies
• Identification of optimisation potential

Question 13

What are the three types of cost in LCC?

Answer 13

initial costs:

• design
• investments
• installation

operation costs:

• maintenance
• labor
• energy

EoL costs:

• replacement
• recycling
• disposal

Question 14

What is a problem of LCC?

Answer 14

• 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)

Question 15

Should LCC be included in LCSA?

Answer 15

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

Question 16

How can LCC be linked with sustainability assessment?

Answer 16

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)

Question 17

What are the steps of a LCC?

Answer 17

goal and scope definition
inventory
interpretation

Question 18

What are externalities?

Answer 18

• 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)

Question 19

What are public goods?

Answer 19

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

Question 20

What does a public good have to be (e.g. atmosphere)?

Answer 20

-> 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)

Question 21

What are these assessments related to?

Answer 21

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)

Question 22

Why is equity weighting relevant for economic assessment?

Answer 22

• 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?

Question 23

What are the most common approaches to assess non marketed environmental goods?
If we dont have labels or standards..

Answer 23

Market based:

Revealed preference:

Stated preference

Abatement costs:

Question 24

What is a CBA?

Answer 24

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

Question 25

Explain market based valuation.

Answer 25

- valuation works via supply and demand on the market - value of a forest is determined by the price of wood - real demand is used - easy to source data - only the use value (not existence value for example) can be asssessed - limited applicability (not all goods can be assessed by this method)

Question 26

Explain the revealed preference valuation.

Answer 26

- hedonic pricing allows for housing prices to be estimated by using more than one variable, for example, the property’s features, the location features, and the environmental characteristics. - price difference between house next to clean lake and house next to dirty lake travel cost method: - value that someone is ready to pay to travel an expensive plane to the amazon

Question 27

Explain the stated preference valuation.

Answer 27

- Ask people directly what they are WTP to for example avoid pollution in their neighbourhood - Ask people directly what they want to get paid to WTA to accept noisy street

Question 28

Explain abatement costs.

Answer 28

- related to goals: "how much does it cost to avoid GHG to reach paris agreement?" - Can be easily used for nearly all environmental goods - Can be used for environmental emissions (no cause-effect modelling necessary to derive a damage) - doesn’t really value the value of an environmental good, but how much it costs to protect it or to avoid an emission political target is necessary to derive the emission level up to which the abatement is necessary (only limited geographic validity)