Introduction

1.1 History

Life-cycle analysis and subsequent assessment are techniques that have their origin long before these names became used. In economic theory, everything not included in the analysis used to be called "externalities". Reasons for not including certain items in economic analyses were either that they did not lend themselves easily to the monetising considered necessary by the theoretical methodologies used in the past, or that they were inconvenient to include because of their indirect and often uncertain nature. However, at an early stage there were some such externalities that had to be considered in certain contexts, including the risk of severe accidents associated with a range of technological systems, or the supply security for resources physically available only at specific locations. Although the limitation of economic theory to direct costs led to the frequent omission of such "indirect economies", there were instances where they could not be neglected.

An early use of techniques later to become incorporated into the life-cycle analysis (LCA) methodology was in the field of risk analysis. Engineers have always included estimates of risk in their design procedures and at first dealt with such risks by adding safety margins in the design, e.g. by increasing the dimensions of structural beams by a heuristic "safety factor", often quite large. In a few cases it turned out that such safety factors did not avert the risk, because for some materials the thickness is not the proper factor to consider in order to avoid breakage. In other cases there were systemic considerations affecting the risk pattern that could not be dealt with by simple safety factors. Contemporary engineering designs are characterised by more holistic design strategies, but also by reducing costs by keeping safety margins small. Risk analysis is a peculiar business, as it deals with accidents which normally are quite rare, but which in some cases can have very large negative consequences. Average calculations are therefore insufficient, or more precisely, their role in risk assessment has to be discussed and compared to other approaches, such as "worst case" appraisal.

During the late 1960s it was pointed out, notably by Chauncey Starr (1969), that risk analysis could be expanded to include more factors of what we today call externalities. His view on risk assessment was the restrictive one that only average risk counted, that is the direct product of the probability of a given event and the damage it caused. This was a provocative proposition for societies that were accustomed to accepting daily car accidents, but less happy about large airplane accidents and not happy at all about catastrophic nuclear accidents that could make capitals and seats of administration deserted for years, even if the probability was exceedingly small. Indeed, the nuclear accident issue played an important role in the advancement of methodologies to be used in risk assessment [see overview by Sørensen (1979a) and references given therein].

An even more important initiating event for life-cycle analysis and assessment was the new approach to environmental management spurred by Rachel Carson's book "Silent Spring" (1962). It brought knowledge of the threat caused by persistent pesticides to the public, making up with the old approach of keeping "externality" problems away from general attention, to be dealt with by civil servants and expert advisors sworn to professional silence.

From economists came the suggestion that risks and their associated probability of damage should always be seen in relation to the benefits accomplished by the activity in question. The central analysis tool in this "rational" approach was therefore cost–benefit analysis. In principle, such calculations could be performed for impacts other than those expressed in the term of risk, ranging from the factors traditionally incorporated into economic analysis to some of the externalities influencing, for example, the impact of a technological change on society (Rowe, 1974; Pearce, 1974). One could even start to challenge the view that the future could be discounted away simply by applying any positive interest rate to a plan for postponing the clean-up of negative impacts to far into the future. This use of private investor discounting principles to decision making on a national or international scale, rather than distinguishing between commercial interest rates, social interest rates and intergenerational interest rates, was criticised as a "time-displaced irresponsibility" (Sørensen, 1974). Such issues were to occupy an important place in the subsequent theoretical discussion of ingredients to include in a life-cycle analysis and of the best way to deal with positive and negative impacts happening at different points in time.

The notion that damage costs had to be balanced with benefits (or that benefits were required to exceed damage by a specified amount) had been challenged already by Starr (1969). His observation was that people were willing to accept much higher voluntary risks than risks imposed upon them involuntarily, e.g. by a commercial airline or a power plant operator. This raises the important issue of perceived versus physical risk that was to play an important role in extending life-cycle analysis to socially orientated views of the full impacts of complex activities. It should be added that the peculiar risk-perception involved in the voluntary choice of risky activities such as mountain-climbing or motorcar racing for Starr was not an argument against using straight cost–benefit comparisons for purely technical issues such as choosing between two types of power plant. The mixture of objective and subjective factors in the political assessment of given activities is recognised by most recent accounts of risk analysis methodology (e.g. Sprent, 1988).

During the 1970s, components of what constituted the "indirect economics" were gradually identified. These included resource depletion, environmental impact, lifetime energy inputs, type of interest rate (see above) used in economic evaluations, economy of scale and degree of decentralisation, impact on foreign payments balance and on employment, and questions of global equity (Sørensen, 1979b). It became clear that such precursor life-cycle analyses could be made for individual products, for generic technologies and for entire regional systems such as energy supply chains. Lists of concerns to be investigated were produced and the first attempts at quantifying positive and negative impacts were made, leaving subjective estimations of suitable "indicators" as...