Stepwise impact assessment: 
Full monetarisation in LCA

The Stepwise method ("Stepwise2006") is a impact assessment method that carries all impacts forward to a single score, either monetary units or Quality Adjusted Life Years (QALYs), while keeping the option to present results at midpoint categories or damage categories.

A new approach to monetarisation

The Stepwise method applies a new approach to monetarisation that avoids some of the problems of earlier cost-benefit assessments, which have been criticised for incompleteness and high uncertainty when monetarising environmental impacts. The method carries all impacts forward to a single score, either monetary units or QALYs, while maintaining the option to provide results at midpoint categories (environmental themes) or damage categories (human well-being, biodiversity, and resource productivity). These three damage categories mirror the safeguard subjects used across life cycle impact assessment (humans, ecosystems, and resources), which map naturally onto the People, Planet, Profit framing already familiar from ESG reporting.

How the method combines existing models

The Stepwise2006 method combines the best characterisation models from two of the most established impact assessment methods, IMPACT2002+ v. 2.1 and EDIP2003. Both are second-generation methods that build on earlier work (Ecoindicator99 and EDIP1997, respectively).

Ecoindicator99 was the first method to provide impact pathways ending at a physical score for each of three damage categories: humans, nature, and economic production, although the latter only covered resources. Stepwise redefines these physical scores as QALYs for impacts on human well-being, PDFm²years or Biodiversity Adjusted Hectare Years (BAHY) for impacts on nature, and monetary units for impacts on economic production.

Impact categories covered

At midpoint, Stepwise2006 characterises at least 14 environmental impact categories, including global warming, nature occupation (land use), acidification, aquatic and terrestrial eutrophication, photochemical ozone formation, respiratory effects, human toxicity, ecotoxicity, ozone layer depletion, and non-renewable energy use. Later versions extend this further to cover injuries, ionising radiation, and mineral extraction. Every one of these midpoints is carried through to the same monetary or QALY endpoint, so results stay comparable across categories instead of being reported as a scattered list of units.

Setting the value of a QALY

The monetary value of a QALY has an upper limit defined by the budget constraint: the average annual income is the maximum an average person can pay for an additional life year. Since a QALY is by definition a life year lived at full well-being, the budget constraint can be set at the potential average annual income at full well-being, equal to the potential annual economic production per capita.

We determine this value at EUR 74,000 (2003 price level), with an uncertainty range of EUR 62,000 to 84,000. This corresponds well with the willingness-to-pay estimate of the ExternE project; differences to other estimates can be explained by inherent biases in their valuation approaches.

Expressing impacts on nature

All physical impacts can be expressed in a single score by evaluating impacts on nature in QALYs. This runs in parallel to the health-state evaluations that let us aggregate different impacts on human well-being into the common QALY unit, using choice modelling. We currently apply a temporary proxy value of EUR 1,400 per BAHY, with an uncertainty range of EUR 350 to 3,500 per BAHY. Put in relative terms, roughly 53 BAHY correspond to one QALY, giving decision-makers a direct way to weigh a hectare-year of ecosystem impact against a life-year of human well-being on the same scale.

What this reveals in practice

Applying Stepwise2006 across different case studies, we consistently find that two impact categories given less emphasis in earlier LCIA methods, global warming and nature occupation (land use impacts), gain high importance in the results. This shows why it matters to express impacts on nature in the same units as impacts on human well-being.

Because the method is built on the equivalence between QALYs and monetary units, it can seamlessly incorporate new impact categories, for example social and economic impacts, allowing continuous expansion of what the assessment covers.

Two versions for different modelling approaches

Because elementary flow lists differ between LCI approaches, Stepwise2006 is provided in two versions:

• Standard version — for use with standard SimaPro/ecoinvent elementary flows.
• iLUC version — for use with system models that include "preponed CO2" (where anticipated land-transformation emissions are attributed to current production ahead of the transformation itself). In this version, the characterisation factor for "CO2 from land transformation" is set to zero for global warming, so the land-use-driven CO2 is not counted twice.

Use the version that matches how your LCI model accounts for land-use change and CO2 emissions.

Documentation and downloads

The Stepwise2006 method is fully documented and available as a zip file (update link) containing

Both the standard and iLUC versions are available as csv files (update link) for direct import into the method library of SimaPro LCA software (update link).

The method is compared with other methods in this poster presentation (update link) and described further in Comparing three life cycle impact assessment methods from an endpoint perspective (update link).

Want to apply full monetarisation to your results?

Get in touch and we will help you assess whether the Stepwise method's monetary or QALY approach fits your decision.