The implications of empirical and 1:1 substitution ratios for consequential LCA: using a 1 % tax on whole milk as an illustrative example
This blog-post is written by FCRN member Neil Chalmers who is studying a PhD titled “Demand for low carbon food products” at the University of Edinburgh. Neil was educated at the University of Stirling where he received a BA (Hons) in Economics. He then moved to Denmark and received an MSc in Agricultural Economics from the University of Copenhagen. His main interests are the economics of consumer behaviour and carbon policy and modelling the likely effects of agricultural and environmental policy. Neil has also completed an internship with the Scottish Agricultural College focussing on modelling policy implications for Scotland.
This post discusses a recent paper Neil has co-authored together with Matthew Brander (University of Edinburgh Business School) and Cesar Revoredo-Giha (Scotland’s Rural College (SRUC) published in The International Journal of Life Cycle Assessment.
What is the difference between the carbon footprint of whole milk (3.5 % fat) and low fat milk (1 % fat)? The initial expectation might be “Not much”, especially given that all milk goes through a skimming process, and then both whole and low fat milk have fat added back in. Most existing LCA studies of milk don’t consider the effects of different amounts of fat, and so there may be an expectation that the difference isn’t very significant. However, the choice of life cycle assessment (LCA) adopted will in fact give rise to different answers. There are two kinds of LCA: An attributional LCA (ALCA) estimates the greenhouse gas (GHG) emissions associated with the processes used in the life cycle of a product. Consequential LCA (CLCA) estimates the consequence of decisions such as increasing the price of whole milk and how this affects GHG emissions due to consumer substitutions with low fat milk.
This study adopted a CLCA approach and we found that the greenhouse gas emissions associated with consuming whole milk could in fact be up to 120% higher than low fat milk. The reason is that the fat co-product from low fat milk can be used as a substitute palm oil for other foods (e.g. processed foods), - and as palm oil production can generate very high emissions due to its role in deforestation and cultivation on peatlands. Our study therefore concluded that switching from whole to low fat milk could, by displacing palm oil production potentially create a large reduction in emissions. Note that we only consider these two milk products and a future study could incorporate other milk based foods. This is something of a (milk) shake-up for existing life cycle studies on milk, which haven’t previously considered this effect.
A further shake-up for existing CLCA practice comes if we explore the effects of a hypothetical tax on whole milk, aimed at reducing greenhouse gas emissions. Let’s milk this example further, since taxing food products for health reasons is not a new concept- recent examples include the Mexican and French soft drinks tax. We don’t consider how realistic the imposition of such a milk tax might be from a policy making perspective – we only use it for exploring the consequences for emissions arising from a change in demand.
Traditionally LCA assumes a one-to-one substitution ratio between alternative product options. For example, if the tax causes a switch to low fat milk, then it is assumed that for every 1 litre of whole milk reduced an extra 1 litre of low fat milk is produced. While this may seem simplistic, this kind of 1:1 substitution ratio relationship is often considered as standard practice for both ALCA and CLCA. The 1:1 substitution ratio allows the effect of the tax to be estimated by subtracting the emissions associated with whole milk from the emissions associated with the functionally equivalent quantity of low fat milk.
However, using an econometric model (a linear approximated almost ideal demand system, or LA-AIDS) and data for Scottish household purchasing behaviour, we found that the substitution ratio between whole and low fat milk is approximately one-to-half rather than one-to-one (this is derived from the price elasticities). Depending on the emission values assumed for palm oil, using a one-to-one substitution ratio could underestimate the greenhouse gas reductions caused by the tax by over 400%. This illustrates the importance of estimating the actual substitution effects from interventions, such as a tax, and not using the traditional LCA convention of a one-to-one ratio. If consequential LCA is to fulfil its purpose of estimating the actual change in emissions caused by specific decisions or actions then it seems the existing guidance and standards (e.g. ISO 14044 and the ILCD Handbook) should be amended, with the 1:1 substitution ratio treated as a rule-of-thumb or default value, and not a methodological principle.
The citation for the paper is as follows:
Chalmers, N. G., Brander, M. & Revoredo-Giha, C. (2015). The implications of empirical and 1:1 substitution ratios for consequential LCA: using a 1% tax on whole milk as an illustrative example. The International Journal of Life Cycle Assessment, 20(9): pp.1268-1276.
To read the full paper, please go to:
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 More information on the AIDS which was developed by the recent Nobel prize winner (Angus Deaton) can be found on Wikipedia: https://en.wikipedia.org/wiki/Almost_ideal_demand_system
 Price elasticities measure the responsiveness of a change in quantity demanded to a change in price. The substitution ratio is obtained by first calculating the change in consumption (induced through a 1% price increase of whole milk) of the two milk products by applying the price elasticities to the volume of milk purchased in Scotland. Then the ratio is obtained by dividing the change in low fat milk consumption by the change in whole milk consumption which equals 0.52.