Effects of Using Heterogeneous Prices on the Allocation of Impacts from Electricity Use: A Mixed‐Unit Input‐Output Approach

Summary Economic input-output life cycle assessment (IO-LCA) models allow for quick estimation of economy-wide greenhouse gas (GHG) emissions associated with goods and services. IO-LCA models are usually built using economic accounts and differ from most process-based models in their use of economic transactions, rather than physical flows, as the drivers of supply-chain GHG emissions. GHG emissions estimates associated with input supply chains are influenced by the price paid by consumers when the relative prices between individual consumers are different. We investigate the significance of the allocation of GHG emissions based on monetary versus physical units by carrying out a case study of the U.S. electricity sector. We create parallel monetary and mixed-unit IO-LCA models using the 2007 Benchmark Accounts of the U.S. economy and sector specific prices for different end users of electricity. This approach is well suited for electricity generation because electricity consumption contributes a significant share of emissions for most processes, and the range of prices paid by electricity consumers allows us to explore the effects of price on allocation of emissions. We find that, in general, monetary input-output models assign fewer emissions per kilowatt to electricity used by industrial sectors than to electricity used by households and service sectors, attributable to the relatively higher prices paid by households and service sectors. This fact introduces a challenging question of what is the best basis for allocating the emissions from electricity generation given the different uses of electricity by consumers and the wide variability of electricity pricing.