System expansion is a procedure for avoiding Co-product allocation by eliminating By-products as activity outputs, instead including them as negative inputs. This approach thereby includes the additional functions related to the by-products and models the resulting changes (substitutions) in the Product system.
The fundamental principle of system expansion is to expand the functional scope of the product system being studied to include the functions provided by by-products, rather than artificially dividing the environmental burdens amongst multiple product outputs through allocation. This makes system expansion particularly valuable in consequential Life Cycle Assessment, where the goal is to model the actual changes that occur in the broader economic system as a result of changes in demand for a product.
When system expansion is applied, by-products are removed from the activity's output inventory and instead modelled as negative inputs. This mathematical treatment reflects the displacement effect: when a by-product is produced, it can substitute for (displace) a determining product from another activity that would otherwise need to be produced. The environmental burdens that would have been associated with producing that displaced product are then credited to the original system, effectively appearing as negative environmental impacts.
For example, if an activity produces both a main product and a by-product that can displace electricity from the grid, system expansion would remove the by-product from the outputs and instead subtract the environmental burdens of displaced grid electricity production from the system. This models the consequential reality that producing the by-product reduces the need for separate electricity generation elsewhere in the economy.
ISO 14044 recommends system expansion as the preferred approach when dealing with multi-functional processes, as it avoids the need for arbitrary allocation decisions and better reflects the causal relationships within product systems. The approach is particularly important in consequential LCA modelling, where understanding substitution effects is essential for accurately assessing the environmental consequences of changes in production and consumption patterns.
The terms By-product elimination by substitution and By-product technology model (the latter used in input-output economics) are synonymous with system expansion, reflecting the same underlying methodological principle across different fields and traditions.
