Impact assessment with option of full monetarisation

Our impact assessment method “Stepwise2006” carries all impacts forward to a single score, either monetary units or QALYs while maintaining the option of providing results at midpoint categories or damage categories.

Scroll down to read more about stepwise or go directly to the Stepwise package of files.

Projects

• Mapping Business Impacts on the UN SDGs November 2022
  This project placed each of the 169 targets of the 17 UN Sustainable Development Goals (SDGs) into a comprehensive, quantified and operational impact pathway framework. This project is being continued in the LCSA project.
• E P&L on the Danish Apparel Consumption October 2014
  This project consisted of an industrial E P&L for the Danish apparel consumption conducted across three levels: industry, company/brand and product.  
• Monetary Valuation of Environmental Impacts in Life Cycle Assessment November 2013
  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.
• Assessment of the Effect of Agricultural Research December 2010
  The project aimed at assessing the effect of agricultural research. We improved the modelling of agricultural production in the Danish input-output model and applied the STEPWISE impact assessment method to monetarise the externalities.
• Environmental Improvement Potentials of Meat and Dairy Products November 2007
  This project applies several novel elements at the same time, such as hybrid LCA, consequential modelling, rebound effects, social impacts, life cycle costs, analysis of synergies and dysergies, impact assessment with full monetarisation, temporal discounting, and policy feasibility assessment.
• Life Cycle Based Cost-Benefit Assessment of Waste Management Options May 2006
  The study analysed municipal solid waste treatment scenarios and provided data, methodological improvements, results and strategy recommendations for the new EU member states. The recommendations were generally applicable to municipal solid waste treatment.
• Monetary Valuation
  In 2006 we developed our first life cycle impact assessment method with option for full monetarisation of all impact categories. Now we are updating it and offer everyone to join the further developments the field of monetary valuation in our Monetarisation Club.

A new approach to monetarisation

The Stepwise method applies a new approach to monetarisation that avoids some of the problems of earlier cost-benefit assessments that have been criticised of incompleteness and high uncertainty in relation to monetarisation of environmental impacts. The Stepwise method carries all impacts forward to a single score, either monetary units or QALYs (Quality Adjusted Life Years) while maintaining the option of providing results at midpoint categories (environmental themes) or damage categories (human well-being, biodiversity, and resource productivity).

The Stepwise2006 method combines the best characterisation models from two of the most recent impact assessment methods, the IMPACT2002+ v. 2.1 and the EDIP2003 methods. Both methods are second-generation methods, building on previous work (Ecoindicator1999 and EDIP1997, respectively).

The LCIA method “Ecoindicator99” was the first to provide impact pathways that ended at a physical score for each of the three damage categories humans, nature, economic production, although the latter only covered resources. We redefine these physical scores in units of QALY for impacts on human well-being, PDF*m2*years or Biodiversity Adjusted Hectare Years (BAHY) for impacts on nature, and monetary units for impacts on economic production.

The monetary value of a QALY has an upper limit defined by the budget constraint, i.e. the fact that the average annual income is the maximum that an average person can pay for an additional life year. Since a QALY by definition is a life-year lived at full well-being, the budget constraint can be determined as the potential average annual income at full well-being, which is equal to the potential annual economic production per capita. We determine the potential annual economic production per capita to be 74000 EUR2003 with an uncertainty estimate of 62000 to 84000 EUR2003. This monetary value of a QALY corresponds well to the willingness-to-pay estimate of the ExternE project. Differences to other estimates can be explained by inherent biases in their valuation approaches.

All physical impacts can be expressed in a single score by evaluating impacts on nature in terms of QALYs. This can be done in parallel to the health state evaluations that allow us to aggregate different impacts in human well-being into the common unit of QALYs, i.e. by using choice modelling. Currently, we apply a temporary proxy value of 1400 EUR/BAHY with an uncertainty range of 350-3500 EUR/BAHY.

Applying the Stepwise2006 method to different case studies, we have found that two impact categories that obtained less emphasis in previous LCIA methods, namely global warming and nature occupation (impacts of land use), obtain high importance in the results. This shows the importance of being able to express impacts on nature in the same units as impacts on human well-being.

Being based on the equivalence between QALYs and monetary units, the method can seamlessly integrate new impact categories, e.g. for social and economic impacts, thus allowing for continuous increases of coverage of the assessment.

The Stepwise2006 method is fully documented and available as a  zip-file containing the following publications: Using the budget constraint to monetarise impact assessment results and Environmental improvement potentials of meat and dairy products as well as a csv-file for direct import to the method library of the SimaPro LCA software. The method is compared to other methods in this poster presentation and described further in the publication: Comparing three life cycle impact assessment methods from an endpoint perspective.