Incorporating price responsiveness into environmental life cycle assessment framework

Life cycle assessment (LCA) is a technique which is becoming in-creasingly important in the discussion of energy and environmental policies. Calculations of indicators like net energy value, net carbon offset etc. which are now often used to compare biofuels with fossil fuels rely heavily on this technique. There exist two broad types of LCA models today, namely, Economic Input Output LCA (EIOLCA) and Process LCA. Both these approaches have their strengths and weaknesses. The principal improvement we suggest with our alter-native model is to equip LCA with an ability to predict the impact of change in factor prices on LCA indicators. Our contention is that changes in the price of a factor like energy will lead to changes in factor intensities in production through fuel switching, substitution between capital, energy and labor etc. These adjustments while occur at several levels in the production chain thereby affecting the life cycle indicators. Current LCA models are able to predict changes in envi-ronmental performance only through explicit modification of the factor intensities used by the model. In reality factor intensities change in response to change in factor prices. We present one approach through which changes in environmental indicators can be related directly to changes in factor prices rather than physical factor intensities. W