Eco-efficiency is the ratio between the Value added of an Activity or Product and one or more of its Externalities. When applied to a product, it is typically expressed as the ratio of LCC/LCIA results, that is, the life cycle costs incurred per unit of life cycle impact.
The concept can be applied to any physical measure of environmental Impact and is often used to identify hotspots in a Product system where environmental impacts are high relative to the value added (low eco-efficiency). This supports improvements in value creation at a given level of impact, in line with resource efficiency objectives in ISO 14040/14044.
However, eco-efficiency is less suited to guiding overall cost reductions, since it mainly incentivises increasing private (internal) costs and reducing external costs. When environmental Costs and Benefits can be expressed in monetary units, the relevant quantity to minimise is total cost, that is, the sum of internal and external costs, rather than their ratio. In that case, eco-efficiency mainly measures the degree of Internalisation of costs and loses relevance as a tool for comparing alternative systems.
Sometimes eco-efficiency is defined as the inverse ratio, with environmental impacts divided by value added, which would imply that a low eco-efficiency is desirable. This inverse use is discouraged because it conflicts with the common interpretation of efficiency as "more value per unit of impact".
