Environmental Life Cycle Costing (LCC) is an assessment methodology that quantifies all Costs associated with the Life cycle of a product that are directly covered by one or more actors within the Product life cycle. This assessment also includes Externalities that are anticipated to be Internalised in the decision-relevant future.
The scope of Environmental Life Cycle Costing distinguishes it from other costing approaches by covering internal or private costs, whilst external costs and benefits are addressed separately through monetarised Life Cycle Impact Assessment (LCIA) results. This division reflects a fundamental principle: LCC focuses on costs that are directly borne by economic actors in the product system, whilst environmental and social externalities that remain outside market transactions are quantified through environmental assessment methods.
The LCC methodology accounts for value added in each Unit process throughout the product life cycle. When these values are cumulated across all life cycle stages, the result equals the price of the product, provided that all costs occurring during use and disposal phases are included. This comprehensive approach ensures that decision-makers can see the full economic picture from raw material extraction through production, use, and end-of-life treatment.
The adjective "environmental" in Environmental Life Cycle Costing serves an important clarifying function. It indicates that the costing analysis is performed using system boundaries consistent with those prescribed by the ISO 14040 series of standards for environmental Life Cycle Assessment. This alignment ensures that economic and environmental analyses can be integrated coherently, supporting comprehensive sustainability assessment whilst avoiding the pitfalls of inconsistent scope definition between cost and impact evaluation.
This approach provides essential economic context for environmental decision-making, enabling organisations to understand not only the environmental consequences of their choices but also the financial implications distributed across the entire product life cycle and among different economic actors.
