The substitution method is synonymous with system expansion in Life Cycle Assessment methodology. This approach provides a way to handle multi-functional processes and by-products without resorting to allocation procedures, which can introduce arbitrary choices into LCA modelling.
System expansion, also known as the substitution method, is a procedure for eliminating by-products as activity outputs by including them instead as negative inputs to the system. This means that rather than artificially dividing the environmental burdens of a process amongst its various outputs through allocation, the method expands the system boundary to include the additional functions provided by the by-products. The approach then models the resulting changes and substitutions in the product system.
The core principle of the substitution method involves identifying what product would be displaced by the by-product on the market and then crediting the system with avoiding the environmental burdens of producing that displaced product. This is particularly important when by-products can displace determining products from other activities. The method includes modelling the reduction in supply of the same product from the marginal supplier to the market for the by-product.
ISO 14044 describes system expansion as one of the approaches for dealing with allocation, stating that "wherever possible, allocation should be avoided by dividing the unit process to be allocated into two or more sub-processes and collecting the input and output data related to these sub-processes" or "by expanding the product system to include the additional functions related to the co-products."
In input-output economics, this approach is sometimes referred to as the by-product technology model, reflecting the same underlying principle of accounting for the market consequences of by-product availability.
