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

Abstract

AbstractAlthough 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.