Monetary Valuation of Environmental Impacts in Life Cycle Assessment

A literature review and benchmarking of monetary valuation methods and their applications in LCA, and a web-based survey of the extent of use and opinions on monetary valuation methods among LCA practitioners.

The client


Our role

2.-0 LCA consultants performed the project including the reviews, surveys and outreach activities. Project completed November 2013.

Benchmarking of monetary valuation methods in LCA

Monetarisation is the practice of converting social and biophysical impacts into monetary units so that they can be compared against each other and against the costs and benefits already expressed in monetary units.

Monetarisation is a common and essential practice in Cost Benefit Analysis (CBA) of public and private projects with economic, environmental and social impacts. Monetarisation allows for the overall assessment of a project. The various methods stem from the utilitarian paradigm of welfare economics inherent to both neoclassical and ecological economics. Monetarisation is strictly related to the concept of externalities in welfare economics. Externalities have been defined as the unaccounted costs and benefits arising from economic activities of one actor which impact on another.

A key issue is then the quantification of the externalities, and this is where monetarisation is relevant. Several methodologies for monetarisation of non-market goods have been developed in the last 40-50 years. The following monetarisation methods was included in our review and critical analysis:

  • Abatement costs method
  • Revealed preferences methods (incl. hedonic price approach, travel cost approaches and protective cost approach)
  • Stated preferences methods (incl. contingent valuation and choice modelling / conjoint analysis)
  • Budget constraint method

The study aimed to evaluate the different methods for monetarisation for their relevance in the context of Life Cycle Assessment (LCA) and provide practical guidance for their use in LCA. The results are published in the report: The Use of Monetary Valuation of Environmental Impacts in Life Cycle Assessment: State of the art, strengths and weaknesses. Some of the results from the project have also been published in Journal of Cleaner Production.