Discounting and life cycle assessment: a distorting measure in assessments, a reasonable instrument for decisions

S Lueddeckens,E Guenther,P Saling

doi:10.1007/s13762-021-03426-8

Abstract

Although the weighting of environmental impacts against each other is well established in life cycle assessment practice, the weighting of impacts occurring at different points in time is still controversial. This temporal weighting is also known as discounting, which due to its potential to offend principles of intergenerational equity, is often rejected or regarded as unethical. In our literature review, we found multiple disputes regarding the comprehension of discounting. We structured those controversial issues and compared them to the original discounted utility model on which discounting is based. We explain the original theory as an intertemporal decision instrument based on future utility. We conclude that intertemporal equity controversies can be solved if discounting is applied as an individual decision instrument, rather than as an information instrument, which could underestimate environmental damages handed to future generations. Each choice related to discounting—including whether or not to discount, or to discount at a rate of zero—should be well-founded. We illustrate environmental decision-related problems as a multidimensional issue, with at least three dimensions including the type of impact and spatial and temporal distributions. Through discounting framed as a decision instrument, these dimensions can be condensed into an explicit result, from which we can draw analogies to both weighting in life cycle assessment and financial decision instruments. We suggest avoiding discounting in environmental information instruments, such as single-product life cycle assessments, footprints, or labels. However, if alternatives have to be compared, discounting should be applied to support intertemporal decisions and generate meaningful results.

Highlights

In environmental decisions, there are often trade-offs made between alternatives with immediate environmental impacts or impacts which are experienced in a more delayed fashion
We suggest not to discount in a single-product life cycle assessment (LCA), in product footprints, in assessments that are meant for environmental labels, and so on
Using two examples from the literature, we showed that discounting can be very decisive for the outcome of environmental decisions

Summary

Introduction

There are often trade-offs made between alternatives with immediate environmental impacts or impacts which are experienced in a more delayed fashion. Hellweg et al (2003) provided an overview of the scientific discussion around the reasons for and effects of discounting in LCA They provided a key publication for discounting in LCA which is still considered the most extensive in the field. They recognized that an anthropocentric view of the environment is necessary to be able to assess the temporal dimension of LCA. After a thorough review of the LCA literature, seven observations about the perception of discounting could be made: According to Fearnside (2002b), in the early days of LCA, it was discussed whether to apply a discounting function or a fixed time horizon in the assessment of global warming potentials to express the constraint to only a foreseeable future. For Hellweg et al (2003), time horizons, i.e. temporal cut-offs, are a special case of discounting with a zero rate before the time horizon’s end and an infinite rate after the time horizon

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