A cost is the value spent to produce or obtain a specified amount of Product or production factor, related to a specified time period or output. Costs represent the negative expenditures or resource consumption required to enable economic activities, production processes, or the delivery of products and services. Understanding the full scope of costs is fundamental to comprehensive sustainability assessment and decision-making in Life Cycle Assessment.
Costs can be divided into two distinct categories. The first is Private cost, which represents the internal expenditure directly borne by the economic actor conducting the activity. This includes all costs that are reflected in market transactions and prices, such as raw materials, labour, energy, equipment, and other production inputs. Private costs are the direct financial burden that accrues to the producer or service provider.
The second category comprises External cost, which are negative externalities that create losses in human wellbeing for other economic actors or society at large without being captured in market transactions or prices. These costs arise from an activity of one economic actor but are experienced by another actor without this cost being part of the price of the good or service supplied. Examples of external costs include environmental degradation from pollution, health impacts from emissions, loss of ecosystem services, or depletion of natural resources that affect communities beyond the immediate economic transaction.
The sum of private cost and external cost constitutes the Social cost of an economic activity. Understanding the full scope of social costs is essential for comprehensive sustainability assessment and cost-benefit analysis, as it reveals the total burden imposed by activities beyond what is reflected in conventional economic accounting. This broader perspective supports more informed decision-making that accounts for both market and non-market impacts on human wellbeing and the environment, aligning with the principles of Life Cycle Sustainability Assessment.
