Page 144 - Materials Chemistry, Second Edition

9 Life Cycle Inventory Analysis 129

Step 2: Identify constraints in the market
If we increase (or decrease) our demand for X, the market will, according to
standard economic theory, respond by increasing (or decreasing) the supply of X.In
many cases, at least on a short term, there will not be a one-to-one relationship
between increases in demand and supply. The reason is that an increase in demand
will often result in an increase in price, implying that some users may stop using the
product and potentially find a cheaper substitute product. Hereby, the supply and
demand will reach a new steady state, which will often not entirely correspond to
the initial demand plus the increase. Despite that these thoughts about price elas-
ticity have been introduced in LCA literature, for simplicity, the default assumption
here will be that the increase (or decrease) in demand will spur an equally large
increase (or decrease) in supply, which is also the most common assumption in
consequential LCI.
However, in many cases markets face various constraints and other market
imperfections. An increase (or decrease) in demand will therefore not always lead to
an increase (or decrease) in supply. Market limitations may be of a legal, eco-
nomical, technical or physical nature. For example, straw used for co-firing in
power plants is, due to the transport cost to value ratio, not transported far from the
production site. Moreover, as there is limited production capacity of straw in a
given area, an increase in demand within this area will in many cases not result in
an increase in supply. Another example may be the demand for recycled metals,
which are often constrained by the amount of waste input to recycling processes, in
which case an increase in demand will not result in an increase in supply of recycled
metals. Other constraints may be due to legally set boundaries for how much of a
certain good may be produced. If the production already fills the boundaries, a small
increase or decrease in demand will also not have any effect on supply.
There are thus a number of situations where the default assumption—that an
increase or decrease in demand results in an increase or decrease in supply—may
not hold true. In these situations, the market is constrained, and a central task will
be to identify how existing or potential users will handle the increase or decrease in
demand. In the example above with an increased demand for recycled metal, a
reasonable assumption may be that existing users of the recycled metal will use
virgin metal instead. In other words, an increase in the demand for a product already
produced at maximum will not lead to an increase in supply, but more likely make
existing users find a substitute. A guideline for identification of which products can
substitute which is provided under Step 3.
The assessed decision may also lead to a decrease in the demand for a product,
which is only produced to a certain amount. If this product is already fully utilised,
a reasonable assumption may be that a decrease in demand for the product in
question will not lead to a decrease in the supply of this product, as other users will
use up the freed supply. In the metal example above, this could imply that the freed
supply of recycled metal will be used up by a user of virgin metal, in total lowering
the demand of virgin metal, while keeping the utilisation of recycled metal at the
same level.