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
his margin on milk sales. The feed producer will be concerned with the cost of land, production inputs, and
the possible cost of irrigation, with his goal being to lower his feed production costs.
The scope of this paper focuses on the perspective of the person that implements the mitigation scenario, in
this case the dairy farmer. We also aim at looking at reduction in costs and impacts associated to mitigation
measures, assessing the relative change rather than the absolute values. Applying and comparing the different
economic assessment methods and metrics described below, we thus get an initial estimate of the costs or
savings that can be expected from the mitigation scenario.
2.2. Cost assessment approaches and metrics
Two cost assessment approaches were used:
a) The “Net present value (NPV)” approach: in this case, the producer has to initially invest for the
scenario; during operations, the producer may get cost reductions or additional revenues. Using the
method of discounted cash flows, we compute the NPV of the alternate scenario’s costs or savings
as:
i LT CFi
Cost NPV (r)
i
i0
( 1
r)
where LT = lifetime of investment
r = discount rate
CFi= total cash flows of year i
Eq.1
b) The “internal rate of return (IRR)” approach: this method is complementary to the cost NPV method.
The IRR corresponds to the discount rate that makes the NPV equal to zero.
IRR that makes Cost NPV (IRR) 0
where
Cost
NPV (IRR)
i LT
i 0
CFi
(1
IRR)
i
0
Eq. 2.
The higher the IRR of a scenario, the more profitable it is. The IRR is directly comparable to the minimum
target rate of profitability for the scenario. If it is higher than the target, then it will be acceptable according
to the standards of the farmer. If it is lower, then it will not be acceptable according to the same
standards. The advantage of the IRR is that it is independent of the chosen discount rate as well as the interest
rate. It can be compared to the interest rate (e.g. 6%) that represents a break-even situation or to a higher
minimum profitability objective (e.g. 10%). A similar approach can be defined for the environmental assessment,
clearly separating performance and objectives for the reduction of environmental impacts.
2.3. Cumulated cost and impact assessment approach
The cost assessment approach is compared to the environmental impact assessment, keeping the two metrics
separate and reporting a) the change in environmental performance from year 0 to the end of life of the
equipment as a function of b) the corresponding cumulated costs, discounted at the interest rate.
a) The total environmental impact is computed differentially over the lifetime between the reference
situation and the alternate situation. It is equal to the sum of the yearly impact differential. Environmental
impacts are not discounted; we assume that a change in impacts in year n has the same
value as a change in impact in year zero. Only the carbon footprint impact is studied in this paper.
To ensure consistency, externalities due to reduction in GHG emissions are not accounted for in the
cost computations, as they are computed and reported separately as environmental impact.
b) The total discounted costs are computed over the lifetime of the investment with the cost NPV formula
(Eq. 1), with a discount rate, r, equal to a representative long-term loan rate that the farmer
could obtain on the market.
The internal rate of return (IRR) computation (Eq.2) is also computed and reported separately on the graph.
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