Value added represents the economic contribution created by an Activity or group of activities, calculated as the value of the Product output (including subsidies) minus the costs of intermediate product inputs consumed by the same activity or group of activities. This measure can be related to a specified time period or Reference product.
In Life Cycle Assessment, value added serves as a fundamental economic measure that tracks how much value is created at each stage of production. Unlike gross output, which simply measures the total value of products produced, value added captures the actual economic contribution by excluding the value of inputs that were themselves outputs from other activities. This avoids double-counting and provides a clearer picture of the economic transformation occurring within each activity.
An important relationship exists between value added and Product systems. When value added is summed across all activities in a product system, the cumulative total equals the Life cycle costs. This equivalence demonstrates that the full cost of a product across its life cycle is simply the sum of value created at each stage, from raw material extraction through to final disposal.
Value added is typically disaggregated into several components that reflect different aspects of economic contribution. These components include labour costs (compensation for workers), net taxes (taxes paid minus subsidies received), net operating surplus (returns to capital and entrepreneurship), and rent (payments for the use of land and natural resources). This breakdown provides insight into how the economic value created by an activity is distributed amongst different factors of production.
The term net (economic) output is used synonymously with value added, emphasising that this measure represents the net contribution to economic output after accounting for intermediate consumption.
