The reference flows are the product flows specific to each of the product alternatives being compared. The reference flow is therefore a quantified quantity of the product(s), including parts of the product, necessary for a specific product system to provide the performance described by the functional unit. For a composite product, the reference flow will typically be identical to the parts list of the product, multiplied by a factor to adjust it to the functional unit. The purpose of reference flows is to translate the abstract functional unit into specific product flows for each of the compared systems, so that product alternatives are compared on an equivalent basis, reflecting the actual consequences of potential product substitution. Important aspects to address in relation to the reference flow for alternatives are:
- Differences in product system performance,
- Differences in price and consumption over time (rebound effect),
- Effects on overall societal productivity.
Reference flows must take into account all properties (whether mandatory, positioning or market irrelevant) that have been previously identified as part of a performance difference. It is not only the mandatory properties of the product that determine the amount of product replaced or the interaction with other product systems. Reference flows must include any differences involving additional processes in one or more analyzed product systems. It may be relevant at this stage to include complementary (or related) products used with the product, but which may not be part of the original product definition. An obvious complementary product is packaging, but the description should also include additional products needed for maintenance, replacements, waste treatment, or recycling of raw materials, whenever these processes are planned or deemed necessary. The idea of avoiding differences between compared systems is, in fact, parallel to the procedure of managing by-products by adding or subtracting processes until systems provide only the desired and comparable output. Changes in consumer behavior should be included in the reference flow.
Although rarely explicitly stated, an implicit boundary condition in most LCA studies is that overall societal productivity (annual GDP) and overall social growth rate are not influenced by the specific product. Without this boundary condition, the consequences of any specific decision could be endless – for example, if the benefits from an improvement in productivity were reinvested in further improvements and the effects of these further improvements were then included again. However, this boundary condition may represent an unreasonable constraint for some studies. An example is the analysis of activities aimed specifically at increasing overall societal productivity, particularly investments in education, research, and development related to social infrastructures. The consequences of such investments are by nature long-term and may occur at very different times and may constrain other decisions and thus have a cascading effect. Modeling their consequences requires greater use of forecasts and quasi-dynamic models than is normally done in LCA studies. For such decisions, it would be reasonable to also measure the influence on GDP over time, taking into account possible multiplier effects, and use an appropriate discount rate to compare the net present value of different options.
The "rebound" effect
If there is a price difference between different product alternatives at the consumer level, and you want to correctly model the environmental impacts of this situation, the reference flow of the cheaper alternatives must be adjusted to include the alternative spending of the saved money. This addition should ideally include marginal spending using information on which products increase their market volume as spending increases. The necessary information can be found in specific studies on cross-elasticities or, more generally, in national statistics on private consumption by different consumer groups.
Price rebound effects are generally only relevant for price differences at the end-consumer level, as at the business level price differences rarely have lasting effects due to the tendency of marginal profits and wages to equalize across all sectors. Formally, rebound effects are defined as changes in production and consumption when the implementation of an improvement frees or constrains a scarce factor of production or consumption, such as:
- Money (when the improvement is more or less costly than the current technology);
- Time (when the improvement requires more or less time than current technology);
- Space (when the improvement takes up more or less space than current technology).
For some products, it may be necessary to define the functional unit in terms of average customer behavior (such as "average transportation behavior in a year" for a study on different work-related transport modes or "average tissue use behavior" for a disposable product study) to avoid neglecting performance differences like those implied by the rebound effect. Ignoring rebound effects can lead to underestimations or overestimations of the effects of new technologies.
Next lesson - "By-Products" Lesson
