LCA Food 2012 in Saint Malo, France! - Manifestations et colloques ...

PARALLEL SESSION 1B: TOWARDS LIFE CYCLE SUSTAINABILITY ASSESSMENT 8 th Int. Conference on LCA in the
Agri-Food Sector, 1-4 Oct 2012
Life cycle costing of farm milk production – cost assessment of carbon
footprint mitigation strategies
Anne C. Asselin-Balençon * , Olivier Jolliet
School of Public Health (SPH), University of Michigan, 6622 SPH Tower, 1415 Washington Heights, Ann Arbor, Michigan 48109-
2029, United States
Corresponding author. E-mail: aasselin@umich.edu
ABSTRACT
One point of concern with the present Life Cycle Costing (LCC) approach is the arbitrary choice of the discount rate, which does not
differentiate between economic objectives and effective economic performance. Here, we propose an alternate methodology and
apply it to two examples. A multi-year method is used to simultaneously assess cumulated cost and impact variations. On the cost
aspect, our method assesses the net present value (NPV) of the investment, as well as its internal rate of return (IRR). We graphically
compare those values to the cumulated environmental impact over the same period. The case studies focus on two energy saving
alternatives on the farm and the installation of a digester. The internal rate of return is a synthetic metric of economic performance
that avoids the arbitrary choice of a discount rate; this indicator can be compared to an economic objective for decision making purposes.
Keywords: life cycle costing, discount rate, life cycle assessment
1. Introduction
Agriculture is a significant contributor to environmental impacts. A study by the University of Arkansas
showed that 70% of the carbon footprint of US milk occurs at or before the farm gate (Thoma et al. 2012).
Milk is also a significant contributor to water use and land use, as shown by an on-going comprehensive milk
life cycle study (University of Michigan, 2011).
For decision making, however, environmental impact assessment should be consistently complemented
by an economic assessment. Environmental Life Cycle Costing (LCC), as described in the introduction of
Ciroth et al. (2008), combines environmental and economic assessments over the life cycle of the product:
“Environmental life cycle costing summarizes all costs associated with the life cycle of a product that are
directly covered by one or more of the actors in that life cycle; these costs must relate to real money flows.
[…] A complementary life cycle assessment (LCA), with equivalent system boundaries and functional units,
is also required, Environmental LCC is performed on a basis analogous to that of LCA […].” One of the
most useful features of a combined LCA and LCC approach is in the assessment of a mitigation scenario
relative to a reference situation, enabling comparison of both costs and environmental impact between these
scenarios.
For products with a life time longer than a year, a multi-year assessment has to be performed. Regarding
the cost part, “the use of discounted cash flows for money flows occurring at different times within a product
life cycle is commonly applied” (Huppes et al., 2008) .
One point of concern of that approach is the arbitrary choice of the time value for money, also known as
the discount rate, which does not differentiate between economic objectives and effective economic performance.
On the other hand, the environmental performance (e.g. 20% CO2 saved) is clearly estimated and
reported independently from the environmental objective ( e.g. objective of 10% minimum impact reduction).
Huppes et al. (2008) acknowledges this fact and recommends sensitivity analysis and peer review.
In this paper, we propose an alternate methodology to avoid the use of discount rate, focusing on three
main objectives:
1. Elaborate a cost metric that is independent of any arbitrary discount rate,
2. Compare consistently environmental and cost performance cumulated over the lifetime of the
equipment
3. Apply the approach to two case studies to determine the carbon footprint and cost performances of
energy saving equipment and of an anaerobic digester.
2. Methods
2.1. LCC Actors and perspectives
Life cycle costing summarizes all the costs of the product. It can bear different points of view. If we consider
milk, consumers will be concerned with the product cost in the retail shop, and with the costs associated with
milk storage and preparation (e.g. refrigeration cost). The dairy farmer, on the other hand, will account for
the price of feed, dairy infrastructure, and equipment, trying to lower his milk production costs and maximize
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