Sustainability Analysis Guidance:

Transcription

1 Department of Defense Guidance Sustainability Analysis Guidance: Integrating Sustainability into Acquisition Using Life Cycle Assessment Version 5.0 Current Version December 2016 i

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3 Preface Weapon system managers and product support managers can require a Sustainability Analysis (SA) during any phase of the Defense Acquisition Management System to help compare the total life cycle costs and environmental footprint of design alternatives. The Sustainability Analysis includes traditional Department of Defense (DoD) internal costs, but also includes often overlooked external and contingent costs. This document provides guidance for combining Life Cycle Cost (LCC) estimating with Life Cycle Assessment (LCA) to conduct a Sustainability Analysis in accordance with section of the Defense Acquisition Guidebook. 1 To ensure transparency, this guidance provides a full description of the underlying Sustainability Analysis framework. It builds on existing LCC estimating and LCA standards and guidance, referenced throughout this document. Tools, example Sustainability Analyses, and other resources will be made available on the DoD environment, safety, and occupational health (ESOH) in Acquisition website. 2 All comments (recommendations, additions, and deletions) and any pertinent, beneficial document information may be addressed to Office of the Assistant Secretary of Defense (Energy, Installations and Environment), ESOH Directorate, via to osd.pentagon.ousd-atl.mbx.cmrmp@mail.mil. Revision History The current guidance is the latest in a sequence of documents that have been updated since revision 1.0 was released in October The table below provides descriptions of earlier versions of this document through the current version. Revision Number Date Title or Brief Description 1.0 Oct Mar Oct 2013 Streamlined Life Cycle Assessment Process for Evaluating Sustainability in DoD Acquisitions Streamlined Life Cycle Assessment Process for Evaluating Sustainability in DoD Acquisitions Streamlined Life Cycle Assessment Process for Evaluating Sustainability in DoD Acquisitions 2.0 May 2014 Integrating Sustainability into DoD Acquisitions 3.0 Mar 2015 Integrating Sustainability into DoD Acquisitions 4.0 Jul 2016 Integrating Sustainability into DoD Acquisitions 5.0 Dec 2016 Sustainability Analysis Guidance: iii

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5 Executive Summary This guidance document presents a standardized framework for conducting a Sustainability Analysis, an assessment of life cycle costs and impacts for Department of Defense (DoD) weapons systems, equipment, or platforms. The Sustainability Analysis combines life cycle cost (LCC) estimating and life cycle assessment (LCA). LCC estimating quantifies the cost to the government of a system over its useful life, including research and development, testing, production, operations, maintenance, and disposal. LCA quantifies resource requirements, environmental releases, and waste through each life cycle stage of a system, and estimates the associated impacts on the following: Resource Availability: Includes natural resource use (e.g., land, water, mineral, and fossil resources), potential impacts on resource quality and availability, and the associated marginal cost increases. Climate Change: Includes greenhouse gas emissions, their contribution to global warming, and the associated impacts, including changes in net agricultural productivity, human health, property damages from increased flood risk, and ecosystem services. Human Health: Includes environmental releases, water use, and noise emissions, and the associated impacts on human health and productivity. Ecosystem Quality: Includes environmental releases, land use, and water use, and the associated impacts on biodiversity and ecosystem services. Together LCC estimating and LCA are employed to reveal and estimate three types of sustainabilityrelated costs. Internal costs are realized by the DoD during the lifetime of the system. Such costs can be classified as direct or indirect. Direct costs are those costs that are traditionally considered in a life cycle costing exercise. Indirect costs are overhead costs that are typically tracked at a facility level and not allocated to a particular system. Decisions made in early acquisition phases, such as design decision or material and chemical selection, can impact sustainability-related costs realized in later acquisition phases. Examples include investments in personal protective equipment (PPE) and engineering controls, hazardous waste management, wastewater treatment, permitting, environmental or hazardous differential pay, and personnel medical monitoring. This guidance outlines a process for explicitly quantifying internal costs so they can be integrated into LCC estimates. External costs are realized by society or organizations outside of DoD. During a system s life cycle, resources are used, pollutants are released, and waste is generated. This degrades human health, ecosystem quality, and resource availability and contributes to climate change. This guidance outlines a process for estimating life cycle impacts to resource availability, climate change, human health, and ecosystem quality, and monetizing those impacts so that they can be considered in parallel with LCC estimates. Contingent costs occur in the future as a result of decisions made today or as a result of future events (e.g., litigation, site remediation, hospitalization, disability, increased cost, or unavailability of resources). If realized, these costs would result in additional internal costs to the DoD. For example, a hazardous material could be restricted due to future regulatory actions, resulting in additional costs to qualify and implement a replacement substance. This guidance outlines a process for uncovering contingent costs that may occur in the future in the absence of risk mitigation. v

6 The DoD Sustainability Analysis framework is founded on existing guidelines and standards, including the ISO LCA standards and existing DoD LCC guidance. It was tailored to integrate with existing DoDrequired analyses and leverages available LCA data and models to reduce data collection requirements, striking a balance between accuracy and level of effort. This guidance describes five steps that are incremental to, and in support of, existing cost and performance analyses. STEP 1: Define the Scope of the Analysis. The first step is to clearly define the objectives and range of the study. This includes a description of required performance, specific alternatives analyzed, and the life cycle stages included in the Sustainability Analysis. A well-defined scope ensures that all alternatives considered fulfill all performance requirements and are compared on an equivalent basis. STEP 2: Develop a Life Cycle Inventory. The second step is to identify and quantify all relevant system inputs (e.g., resources, procured items and services), outputs (e.g., environmental releases), and internal DoD costs that fall within the scope of the analysis, and to develop an initial life cycle cost estimate based on the internal DoD costs. STEP 3: Estimate Life Cycle Impacts. The third step is to translate the inventory of inputs and outputs into impacts on resource availability, climate change, human health, and ecosystem quality. This is accomplished using a set of peer-reviewed, publicly available, impact assessment models. STEP 4: Estimate Life Cycle Costs. The fourth step is to estimate internal costs incurred by the DoD, external costs to society, and contingent costs that may be incurred by the DoD from future events over the system s life cycle. STEP 5: Synthesize Results and Iterate. The fifth step is to analyze and interpret results to assess the level of confidence in the results, identify the life cycle activities that drive life cycle impacts and costs, and compare the performance of alternatives. The Sustainability Analysis is an overlay on performance it identifies the most sustainable alternative among those that meet performance requirements, as defined by the Initial Capabilities Document (ICD), the Capability Development Document (CDD), or performance specifications. It supports multiple government policies and initiatives, including DoD Directive , Executive Order (EO) 13693, DoD Instruction , Military Standard 882E, DoD Instruction , and the Better Buying Power Initiative. The results of a Sustainability Analysis can help acquisition officials, including weapon system managers and product support managers, make more informed design, logistics, and sustainment decisions towards meeting the goals put forth the above mentioned policies and initiatives. vi

7 Table of Contents Preface... iii Revision History... iii Executive Summary... v Acronyms and Abbreviations... ix 1.0 Introduction Purpose Requirements Applicability to Defense Acquisition Overview and Scope of Sustainability Analysis Life Cycle Assessment Life Cycle Assessment Standards Established LCA Methods and Models Life Cycle Cost Estimating DoD Life Cycle Cost Guidance Standardized Cost Element Structures by Acquisition Phase Sustainability-Related Cost Data Additional Life Cycle Cost Guidance Underlying Assumptions Framework Procedure for Conducting Sustainability Analyses Step 1 - Define the Scope of the Analysis Parameters Functional Unit System-Level Reference Flow Activity-Level Reference Flow System Boundaries Specify Allocation Procedures Step 2 Develop a Life Cycle Inventory Life Cycle Cost Estimating Approach for Developing a Life Cycle Inventory Data Collection Step 3 Estimate Life Cycle Impacts Cause-Effect Models Midpoint Categories Endpoint Categories: Approach for Estimating Life Cycle Impacts Step 4 Estimate Life Cycle Costs Internal Costs External Costs Contingent Costs vii

8 3.5 Step 5 Synthesize Results and Iterate Reporting Requirements References List of Figures Figure 1. Key Elements of Sustainable Alternatives... 1 Figure 2. Sustainability Analysis... 2 Figure 3. Example Sustainability-Related Costs from Using Hazardous Materials in a System... 3 Figure 4. Use of LCA within the Defense Management Acquisition System... 5 Figure 5. Upstream and Downstream Components of an Example System Life Cycle... 7 Figure 6. Stages of a Life Cycle Assessment per ISO Figure 7. Overview of Sustainability Analysis Framework Figure 8. Five Steps of a Sustainability Analysis Figure 9. Sustainability Analysis of Defense Systems Using Hybrid Life Cycle Assessment Figure 10. General Data Requirements for an Activity Included in a Sustainability Analysis (Based on using Hybrid LCA and LCC estimating) Figure 11. Use of Cause-Effect Models in Life Cycle Impact Assessment Figure 12. Example Cause-Effect Chain for Estimating Impacts from Toxic Release to Air List of Tables Table 1. Examples of Potentially Hidden and Contingent Sustainability-Related Costs viii

9 Acronyms and Abbreviations AoA BCA CAPE CDD CO2 DAG DALY DIO DoD DoDD DoDI EEIO EMD EO ESOH GAO ICD I-O IPS ISO LCA LCC LCI LCIA LCSP MIL-STD NAICS O&S OMB OEM P&D PESHE PPE R&D SA SE TMRR TOC Analysis of Alternatives business case analysis Cost Assessment and Program Evaluation Capability Development Document Carbon Dioxide Defense Acquisition Guidebook Disability Adjusted Life Year Defense Input-Output U.S. Department of Defense Department of Defense Directive Department of Defense Instruction Environmentally Extended Input-Output Engineering and Manufacturing Development Executive Order Environment, Safety, and Occupational Health General Accountability Office Initial Capabilities Document Input Output Integrated Product Support International Organization for Standardization Life Cycle Assessment Life Cycle Cost Life Cycle Inventory Life Cycle Impact Assessment Life Cycle Sustainment Plan Military Standard North American Industry Classification System Operations and Support Office of Management and Budget Original Equipment Manufacturer Production & Deployment Programmatic Environment, Safety and Occupational Health Evaluation Personal Protective Equipment Research and Development Sustainability Analysis Systems Engineering Technology Maturation and Risk Reduction Total Ownership Cost ix

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11 1.0 Introduction Sustainability is the capacity to endure. Sustainable systems are durable, self-sufficient, and strike a balance between social, economic, and environmental factors. In the context of the Department of Defense (DoD) acquisition process, sustainability means wisely using resources to meet performance requirements while minimizing negative consequences on resource availability, climate change, human health, and ecosystem quality. Sustainability differs from sustainment in that it relates to the use of resources, and the associated impacts and costs over the system s life cycle. In contrast, sustainment is more concerned with the end user s ability to operate and maintain a system once it is in inventory and deployed. Acquisition and logistics professionals use the term sustainment to describe the support needed to operate and maintain a system over its lifetime. In contrast, sustainability requires consideration of all phases of a system s life cycle, including system design, development, production, operations, sustainment, and disposal. The U.S. Department of Defense (DoD) acquires weapons, equipment, and platforms (hereafter referred to as systems ) that have life cycles of 30 years or more. To reduce the life cycle cost (LCC) and life cycle environmental, safety and occupational health impacts of a system, acquisition personnel must fully understand costs and impacts that occur across each life cycle stage. Otherwise, they could inadvertently push downstream significant impacts and associated costs to the DoD operational, logistics, and installations management communities. As shown in Figure 1, a sustainable alternative for DoD meets all performance requirements outlined in the Initial Capabilities Document (ICD), the Capability Development Document (CDD), or component performance specifications; minimizes negative impacts to resource availability, climate change, human health, and ecosystem quality; and has a lower total ownership cost (TOC). Figure 1. Key Elements of Sustainable Alternatives The Defense Acquisition System is the management process by which the DoD provides effective, affordable, and timely systems to users. The acquisition process, described in DODI , five phases: material solution analysis (MSA), technology maturation and risk reduction (TMRR), engineering and manufacturing developmental (EMD), production and deployment (P&D), operations and sustainment, and disposal. Acquisition programs use life cycle cost (LCC) estimates, TOC estimates (DoDD ), and environment, safety, and occupational health (ESOH) analyses to identify program risks and inform system trade-off analyses and key milestone decisions. Decisions made across the acquisition process determine the resources (e.g., energy, water, chemicals, and materials) needed to manufacture, operate, and sustain systems, as well as the resulting environmental releases and waste generation. The direct financial costs associated with designing, producing, and deploying a system, including the financial costs associated with establishing operations and support (O&S) systems, are generally included in acquisition cost estimates. Indirect financial costs, such as overhead costs tracked at a facility level, are traditionally not allocated to a particular system s cost estimate. In addition, the impacts of a system s life cycle on resource availability, climate change, 1

12 human health, and ecosystem quality, and the associated costs to DoD and society are also generally overlooked. Without a full life cycle understanding, significant impacts and future costs may be unintentionally locked in during system development and design and later incurred by the operations, logistics, and sustainment communities. 1.1 Purpose Sustainability Analysis combines LCC estimating and life cycle assessment (LCA) to compare two or more systems that meet the same performance requirements. LCC estimating quantifies the financial costs incurred by the DoD over a system s useful life, including research and development, testing, production, operations, maintenance, and disposal. LCA quantifies natural resource requirements and environmental releases through each life cycle stage of a military system, and estimates the impacts and associated costs to society related to: Resource Availability: Includes natural resource use (e.g., land, water, mineral, and fossil resources), potential impacts on resource quality and availability, and the associated marginal cost increases. Climate Change: Includes greenhouse gas emissions, their contribution to global warming, and the associated impacts, including changes in net agricultural productivity, human health, property damages from increased flood risk, and ecosystem services. Human Health: Includes environmental releases, water use, and noise emissions, and the associated impacts on human health and productivity. At this time, occupational illnesses, injuries, and fatalities are not considered. Ecosystem Quality: Includes environmental releases, land use, and water use, and the associated impacts on biodiversity and ecosystem services. Integrating LCA with LCC estimating will relate sustainability impacts and associated costs to activities that cause them, thereby revealing traditionally hidden costs. Assessing the relative importance of sustainability impacts will highlight potential future risks, liabilities, and contingent costs. A Sustainability Analysis can reveal and estimate three types of sustainability-related costs: Sustainability Analysis evaluates the impact of design and sustainment decisions on climate change, resource availability, human health, environmental quality, and life cycle cost. Figure 2. Sustainability Analysis Internal costs are realized by the DoD during the lifetime of the system. Such costs can be classified as direct or indirect. Direct costs are those costs that are traditionally considered in a life cycle costing exercise. Indirect costs are overhead costs that are typically tracked at a facility level and not allocated to a particular system. Decisions made in early acquisition phases, such as design decision or material and chemical selection, can impact sustainability-related costs 2

13 realized in later acquisition phases. Examples include investments in personal protective equipment (PPE) and engineering controls, hazardous waste management, wastewater treatment, permitting, environmental or hazardous differential pay, and personnel medical monitoring. This guidance outlines a process for explicitly quantifying internal costs, both direct and indirect, so they can be integrated into LCC estimates. External costs are realized by society or organizations outside of DoD. During a system s life cycle, resources are used, pollutants are released, and waste is generated. This degrades human health, ecosystem quality, and resource availability and contributes to climate change. This guidance outlines a process for estimating external life cycle impacts to resource availability, climate change, human health, and ecosystem quality, and monetizing those impacts. Societal impacts are monetized to make them more intuitive. Contingent costs occur in the future as a result of decisions made today or as a result of future events (e.g., litigation, site remediation, hospitalization, disability, increased cost, or unavailability of resources). If realized, these costs would result in additional internal costs to the DoD. For example, a hazardous material could be restricted due to future regulatory actions, resulting in additional costs to qualify and implement a replacement substance. This guidance outlines a process for uncovering contingent costs that may occur in the future in the absence of risk mitigation. Figure 3 illustrates sustainability-related costs from using a hazardous material in a system. In addition to the costs associated with procuring and using the material in the system, internal costs may also include investments in PPE, hazardous waste management, and other internal risk management costs. External costs include damage to human health and ecosystem quality from exposure to hazardous materials released to the environment. Contingent costs may include cleanup of environmental pollution, medical cost for exposed DoD personnel, and substitute development and testing. Figure 3. Example Sustainability-Related Costs from Using Hazardous Materials in a System By looking at both internal costs to the DoD and external costs to society and the environment, acquisition decision-makers can make fully informed decisionsa Sustainability Analysis can be used to compare the overall sustainability of alternatives, including conceptual and design alternatives for new acquisition systems, block upgrades for legacy systems, and O&S alternatives for new and legacy systems. A Sustainability Analysis can identify tradeoffs between upfront investment in risk mitigation and contingent costs associated with future impacts. For example, upfront investments in PPE, control systems, or material substitutions can prevent potentially larger costs due to impacts on resource availability, climate change, human health, or ecosystem quality later in the life cycle. This will enable more robust trade-off 3

14 analyses and more informed trade-off decisions, ultimately resulting in more sustainable systems and lower life cycle costs, and better positioning of the DoD to achieve sustainability goals and avoid future related risks. 1.2 Requirements A Sustainability Analysis addresses the following DoD requirements: DoD Directive (DoDD) , The Defense Acquisition System, requires management of acquisition programs through a Systems Engineering (SE) approach that optimizes total system performance and minimizes TOC. It also requires identification of the major drivers of TOC. DoD Instruction (DoDI) , Operation of the Defense Acquisition System, requires that hazardous materials, wastes, and pollutants (e.g., discharges, emissions, noise) associated with a system be considered in ESOH analyses and documented in the Programmatic ESOH Evaluation (PESHE). A Sustainability Analysis can use information from the PESHE to inform risk mitigation strategies. Defense Acquisition Guidebook (DAG) section , Sustainability Analysis, identifies Sustainability Analysis as a tool for assisting the Systems Engineer in designing more sustainable systems, and identifies acquisition activities that Sustainability Analysis will help acquisition program managers: can be supported by a Sustainability Analysis, including analysis of alternatives (AoA), trade space analysis, business case analysis (BCA), preliminary design, supportability analysis, and detailed design. A Sustainability Analysis examines and compares various system attributes associated with energy, water, solid waste, chemicals, materials, and land use. Outputs include decision diagrams that compare alternatives according to their relative sustainability indicators and related costs. These diagrams can be used to develop system life-cycle cost estimates. Defense Acquisition Guidebook, Chapter Sustainability Analysis 1. Identify hidden sustainability-related internal costs 2. Evaluate life cycle impacts and external costs 3. Identify potential future risks, liabilities, and contingent costs 4. Reduce DoD s total ownership costs 5. Reduce external impacts and costs 6. Support achievement of DoD sustainability goals DAG section , Environment, Safety, and Occupational Health, requires use of sustainability analysis for informing ESOH hazard analyses. DAG section , Operational Energy, states that the results of the Sustainability Analysis can be used to inform energy analyses. The DoD Product Support BCA Guidebook provides a structure methodology for comparing alternatives by examining mission and business impacts (financial and non-financial), risks, and sensitivities. The guidebook identifies sustainability in both the benefits and risk sections, and states that the PM must consider whether the project can balance economics (i.e., profit), efficiency, environment, safety, and social responsibility (i.e., impact on local community) in the long term. 4

15 Executive Order (EO) 13693, Planning for Federal Sustainability in the Next Decade, establishes energy, water, waste, pollution, greenhouse gas, and sustainable acquisition and procurement goals for federal agencies. DoD s annual Strategic Sustainability Performance Plan (SSPP) reports progress towards achieving sustainability goals established by EO It also establishes a path for furthering DoD s sustainability goals, which includes lowering the TOC and acquiring more sustainable systems that use less energy, water, and toxic chemicals, and produce fewer emissions by considering life cycle impacts during acquisition. Military Standard (MIL-STD) 882E requires integration of a systematic approach for identifying, classifying, and mitigating hazards, including ESOH hazards during the acquisition SE process. DoDI , Cost Analysis Guidance and Procedures, requires realistic estimates of cost for DoD acquisition programs. A Sustainability Analysis can uncover heretofore hidden costs and inform required LCC estimates. The Better Buying Power initiative requires the acquisition community to control costs throughout the product lifecycle by understanding and controlling future costs from a program s inception. 1.3 Applicability to Defense Acquisition The Sustainability Analysis can be incorporated into all phases of Defense Acquisition Management System. Within this event-based system, acquisition programs proceed through a series of milestone reviews and other decision points to assess a program s readiness to proceed to the next acquisition phase and to make sound investment decisions. LCC cost estimates are required for milestone reviews and other decision points. While sustainability-related costs incurred by DoD (e.g., energy for sustainment activities, water consumption, personnel medical monitoring, waste management and disposal, etc.) are generally locked in during early acquisition phases, they are often not fully accounted for in these cost estimates. The Sustainability Analysis presented in this guidance fills this gap, allowing for more robust and informed acquisition programs. The Sustainability Analysis is consistent, without duplication, with other acquisition considerations such as operational energy, supportability, and ESOH. It can be applied to inform this process at each of the five (5) acquisition system phases, as illustrated in Figure 4 and detailed below. Figure 4. Use of LCA within the Defense Management Acquisition System I. The purpose of the Material Solution Analysis phase is to choose the concept for the system, define system-specific requirements, and develop a system acquisition strategy. Within this phase, a Sustainability Analysis can support an Analysis of Alternatives by identifying important sustainability impacts of conceptual alternatives. Sustainability impacts can be incorporated as trades in trade space analyses. Analysis of the impact of sustainability attributes on LCC, TOC, human health, and the environment can inform affordability analysis and risk analysis, as well as planning for risk mitigation. 5

16 II. III. IV. The purpose of TMRR phase is to reduce technology, engineering, integration, and LCC risk to enable execution of a contract for system EMD. The Sustainability Analysis can be used to provide a deeper analysis of the actual sustainability-related costs and risks associated with the preliminary design and its sustainment. Integrating sustainability-related costs into cost estimates can equip systems engineering trade-off analyses to more fully show how cost varies as a function of major design parameters. These costs should also be included when evaluating life cycle affordability as a factor in engineering and sustainment trades. During Pre-Systems Acquisition, a Sustainability Analysis can identify potential environmental impacts and resulting indirect costs that may impact supportability and inform supportability analysis. The purpose of the EMD phase is to develop, build, and test a system, and to support production and deployment decisions. A Sustainability Analysis can be used during system design and to identify potential sustainability concerns to inform design reviews and design iterations. For example, a Sustainability Analysis at this phase might identify materials that pose significant risk to human health and ecosystem quality, and can be designed out of the system. Information collected during developmental testing and evaluation can be used to update Sustainability Analysis assumptions. The Sustainability Analysis can also be used to identify potential manufacturing and sustainment risks related to environmental impact and the associated hidden cost. Sustainability Analysis can be used to inform specific design choices (e.g., material and component selection) and sustainment choices (e.g., selection of sustainment alternatives). Significant potential environmental impacts associated with sustainment should be documented in the product support package. During Systems Acquisition, Sustainability Analysis can be used to identify potential environmental impacts that may adversely impact deployed readiness and inform updated supportability analysis. For example, a Sustainability Analysis at this phase might identify need for PPE or other risk management requirements during system sustainment. The purpose of the P&D phase is to produce, deliver, and field systems, including initiation of all system sustainment and support activities. Significant potential environmental impacts and the associated costs should be considered during the Full-Rate Production Decision or the Full Deployment Decision. The Sustainability Analysis should inform Should Cost management efforts to identify opportunities for driving down sustainability-related risk and generating savings by reducing sustainability impact and associated costs. An example improvement might include investing in new materials that reduce out-year environmental impacts and environmental management costs. V. The purpose of the O&S phase is to execute the product support strategy, ensure materiel readiness, provide operational support, sustain the system over its life cycle, and dispose of the system (to include disposal). Significant potential environmental impact and opportunities for improvement should be included in the Life Cycle Sustainment Plan (LCSP). During O&S, system readiness will be monitored, efforts will be made to identify continuous improvement and cost reductions opportunities, and, when necessary, corrective actions will be implemented. Technological advances may introduce solutions for reducing significant potential environmental impact and associated costs. The Sustainability Analysis should be used to evaluate the potential environmental impacts and associated costs of alternatives (e.g., correction actions and new technologies), and inform Business Case Analysis of these alternatives. During sustainment, Sustainability Analysis should be used to evaluate the potential environmental impact and associated costs of adjustments to the sustainment program and inform updates to the Sustainability Analysis. 6

17 2.0 Overview and Scope of Sustainability Analysis The scope of a Sustainability Analysis includes activities occurring throughout a system s life cycle (Figure 5). For the purpose of the Sustainability Analysis, these activities, as well as the associated impacts and costs, are specified as upstream or downstream. Assignment of activities as upstream and downstream depends on the perspective from which the Sustainability Analysis is being conducted, i.e., an organization s location in the supply chain. Upstream: Activities occurring prior to those conducted by the organization conducting the Sustainability Analysis. In general, upstream includes the organization s supply chain, i.e., the production of goods (e.g., components, parts, chemicals, materials,, electricity) and services (e.g., waste management) procured by the organization to complete its activities. Downstream: Includes activities conducted by the organization, as well as activities conducted in later life cycle stages. Depending on who is conducting the Sustainability Analysis, downstream may include the assembly, operation, sustainment, and disposal of the system. Downstream may also include procured goods and services. For example, waste management is a procured service that will likely occur during many downstream activities. Figure 5 illustrates the upstream and downstream activities for an original equipment manufacturer (OEM). In this case, it is assumed that the OEM procures components from their supply chain and assembles the larger system procured by the DoD, the DoD operates the system, a sustainment contractor maintains the system, and the DoD will dispose of the system at the end of its useful life. In this case, upstream includes activities related to extracting resources, processing materials, and producing materials and components used by the OEM to manufacture the system, the DoD to operate and dispose of the system, the sustainment contractor to maintain the system. A Sustainability Analysis supports existing cost and performance analyses, including LCC and TOC analyses. 2.1 Life Cycle Assessment Figure 5. Upstream and Downstream Components of an Example System Life Cycle LCA is a method for quantifying inputs (e.g., natural resources, materials, and chemicals) and outputs (e.g., environmental releases, waste) through each life cycle stage of a system, and estimating the impact of these flows on the environment and humans. 7

18 The results of an LCA are estimated relative to a functional unit, which quantifies the purpose and required performance of the system. Since LCA provides relative results, rather than absolute results, the results of two LCAs can be compared only if the functional units are identical. LCA evaluates potential impact from aggregate life cycle flows relative to a functional unit, rather than assessing specific risks across particular spatial and temporal scales. The results of an LCA and risk assessment are not comparable Life Cycle Assessment Standards The International Organization for Standardization (ISO), a worldwide federation of national standards bodies, has developed a set of LCA standards. The LCA component of the Sustainability Analysis must be consistent with ISO 14040, which describes the principles and framework for LCA, and ISO 14044, which specifies requirements and provides guidelines for performing an LCA. The stages of an LCA as described in the ISO LCA standards are illustrated in Figure 6 and described below. Goal and scope definition. Goals are defined to specify the intended application, reasons for conducting the study, intended Figure 6. Stages of a Life Cycle Assessment per audience, and how the results will be used. ISO Next, the scope, including the breadth, depth, and details of the study, is described to ensure achievement of stated goals. Inventory analysis. Data are collected and calculations are performed to quantify inputs and outputs relevant to the study goal and scope. From an LCA perspective, inputs include energy, chemicals and materials, natural resources, and other physical inputs required at each life cycle stage of the system under study. Outputs include products, co-products, waste, emissions to air, discharges to water and soil, and other environmental aspects that are generated at each life cycle stage of the system under study. The life cycle inventory (LCI) aggregates and reduces all inputs and outputs into elementary flows, i.e., basic materials and energy drawn from the environment (e.g., ore, coal, water) or released to the environment (e.g., carbon dioxide emissions to air, trichloroethylene releases to groundwater). Impact assessment. The significance of potential environmental impacts is evaluated using the LCI results and life cycle impact assessment (LCIA) models. First, the elementary flows identified in the LCI are assigned to environmental impact categories. An impact category represents an environmental issue of concern. For example, fossil energy use is an impact category for assessing the potential impacts from depleting fossil fuel resources. Climate change is an impact category for assessing the potential impacts from releases of greenhouse gases into the atmosphere and contributing to global warming. Next, the impact from the elementary flows are calculated for each impact category. LCA researchers and practitioners have developed characterization models to translate elementary flows to potential impact for each impact category. 8

19 Interpretation. The results of the inventory analysis and the impact assessment are considered together to draw conclusions and provide recommendations consistent with the goal and scope of the study. LCA is an iterative process. The stages of an LCA use results from the other stages. For example, the impact assessment directly uses the results of the inventory analysis to quantify potential environmental impact. In addition, findings from one stage may necessitate changes from other stages. For example, data limitations or additional information about life cycle activities identified in the inventory analysis may require revisions to the goal and scope of the study. The Sustainability Analysis procedures described in the next section are based on the stages detailed in the ISO standards, with one exception it integrates LCC estimating and LCA to provide a more comprehensive Sustainability Analysis Established LCA Methods and Models There are a number of methods and models for capturing input and output data, translating inputs and outputs into potential impact, and presenting and interpreting the inventory and impact assessment results. As detailed in the next section, a set of methods and models have been selected and integrated to streamline and ensure a consistent process for conducting Sustainability Analyses for the DoD. 2.2 Life Cycle Cost Estimating LCC estimating quantifies the cost to the government of a system over its useful life, including research and development, testing, production, operations, maintenance, and disposal. LCC estimates conducted as part of a Sustainability Analysis should adhere to established DoD and relevant federal cost estimating policies, instructions, and guidance. For better integration into existing analyses, sustainability-related costs should be assigned to standard DoD cost element structures customarily used in LCC estimation DoD Life Cycle Cost Guidance DoD M sets forth authoritative guidance on developing LCC estimates for DoD systems. The manual focuses on procedures that follow when preparing estimates to support milestone decision reviews. However, the cost structure described in that manual also applies to other analyses, such as those used to support AoAs, BCAs, Sustainability Analyses (SAs), and LCSPs. The Defense Acquisition Guidebook describes the boundary of an LCC analysis as consisting of all elements directly associated with the system (acquisition program) plus other indirect costs that are logically attributed to the program. In summary, this boundary should include the total cost to the taxpayer that can be traced to a system alternative being assessed when executing any life cycle costing analysis, regardless of agency, appropriation, or timing. As discussed in Section of the DoD Product Support BCA Guidebook, cost estimations compile and forecast the costs to perform the tasks associated with each Integrated Product Support (IPS) Element, for each alternative, during a specified time period of analysis (the life cycle). Cost considerations must be included in every decision relating to resource allocation. The appropriate cost-estimating method depends on the program being evaluated and the availability of data. At a minimum, the DoD Product Support BCA Guidebook states that work within the following guidelines (most of which are also addressed in DoD M and other cost analysis guides): Include all incremental, direct, and indirect costs to the taxpayer, which includes costs external to DoD and borne by society; 9

20 Support the comparative analysis process by fully documenting the status quo (existing system) and providing its cost estimate; Include all relevant anticipated direct and indirect costs associated with each feasible alternative over the life of the program; Show all resources including natural resources such as water and land required to achieve the stated objective; Estimate all future costs from the start of the earliest alternative (other than the status quo) through implementation, operation, and disposal for a program or project; In the disposal phase, include the cost of disposal, and/or residual value for the old unit; Ensure that cost estimates are consistent with the assumptions, ground rules, and objectives of the product support strategy; Estimate all relevant future costs from inception through implementation, operation, and disposal for the program or project, bearing in mind that all cost elements do not necessarily deserve the same weighted importance. If a cost associated with a certain element is very small and not significant to the program, spend an appropriate amount of time estimating this element; Devote the appropriate time to the more significant cost driving elements, which discusses the concept of using a Life Cycle Cost Profile to identify cost drivers and cost clusters. The cost of an alternative includes the cost of operating the status quo programs until the chosen alternative is fully implemented; Do not include sunk costs as part of the evaluation, analysis, or recommendation; and Disclose confidence levels per the Weapon System Acquisition Reform Act (WSARA) of Standardized Cost Element Structures by Acquisition Phase As DoD M indicates, LCC should be captured under the following four high-level categories: Research and Development (R&D). This category consists of development costs incurred from the beginning of the materiel solutions analysis phase through the end of the engineering and manufacturing development phase and potentially into low rate initial production. Major elements of R&D costs include: development engineering; prototype manufacturing; system test and evaluation; and systems engineering and program management. Investment. This category includes production and deployment costs incurred from the beginning of low-rate initial production through completion of deployment. Include military construction costs in this category. Major elements of investment costs include: non-recurring production; recurring production; engineering changes; system test and evaluation; training devices and simulators; and program management. Each military department has developed slightly different cost element structures for the Investment phase. Operations and Support (O&S). This category includes costs incurred from the initial system deployment through the end of system operations. It includes all costs of operating, maintaining, and supporting a fielded system. Specifically, this category consists of direct or indirect costs incurred by the government and contractors for personnel, equipment, supplies, software, and services associated with operating, modifying, maintaining, supplying, training, and supporting a system in the DoD inventory. Analysts can find additional, detailed guidance for estimating O&S 10

21 costs in the latest edition of the DoD OSD Cost Assessment and Program Evaluation (CAPE) O&S Cost Estimating Guide. The guide calls for an O&S cost element structure divided into six (6) major categories, as follows: unit-level manpower; unit operations; maintenance; sustaining support; continuing system improvements; and indirect support. Disposal. This category consists of costs associated with the demilitarization and disposal of a military system at the end of its useful life. Demilitarization and disposal costs of a system can be significant. DoD M does not provide specific guidance on the estimation of these costs. Therefore, system-specific factors and other information should be used when developing these estimates. These costs should include any natural resource requirements and environmentalcompliance-related costs. As an example, deactivation of some weapons platforms requires the use of land for long-term storage of the deactivated systems Each military department has developed a cost element structure that varies slightly. The cost element structure for the department making the acquisition should be used and referenced in the Sustainability Analysis Sustainability-Related Cost Data Traditionally, sustainability-related internal costs (direct, indirect, and contingent) are not systematically collected or are hidden in aggregated cost data. Table 1 provides DoD-specific examples for these types of costs. Non- Recurring Recurring Table 1. Examples of Potentially Hidden and Contingent Sustainability-Related Costs Potentially Hidden Support costs for the system Environmental-related R&D NEPA studies Equipment Controls Personal protective equipment (PPE) Industrial staging areas Training Storage Conservation Pollution prevention Permitting Compliance administration Waste (solid and hazmat) management Medical surveillance Training Additional Life Cycle Cost Guidance Contingent Increased price of system inputs Medical costs for active DoD personnel Environmental clean-up (e.g., remediation, reclamation, restoration) Additional training Changes in regulation and additional compliance Legal expenses Damage payments Penalties and fines Future audits R&D to mitigate hazard Future land restrictions In addition to DoD M and the DoD Product Support BCA Guide, other cost-estimating methods can be used such as the Government Accountability Office s (GAO s) Cost Estimating and Assessment Guide; the Army s Cost Benefit Analysis Guide, the Office of Management and Budget (OMB) Circular A-94; and other best-practice publications. 11

22 2.3 Underlying Assumptions As with LCC and TOC estimates, a Sustainability Analysis should generally reflect peacetime conditions. DoD considers the incremental costs due to a contingency or emergency operation 3 to be part of the cost of the operation, not part of acquisition costs. Therefore, the Sustainability Analysis should represent a baseline based on peacetime or business as usual conditions. 2.4 Framework Figure 7 provides an overview of the DoD Sustainability Analysis framework, which utilizes LCC estimating for evaluating internal costs and LCA for evaluating potential impact and external cost. 1. Life cycle inventory (input and output) data are collected and used to create an initial internal LCC estimate and a life cycle inventory of elementary flows. 2. Midpoint Impacts are translated from the elementary flows in the life cycle inventory through use of characterization factors from a life cycle impact assessment model. Midpoint impacts are indicators of potential impact at some point along the cause-effect chain. 3. Endpoint Impacts are calculated through use of characterization factors. Endpoint impacts represent the potential damage caused to resource availability, climate change, human health, and ecosystem quality. 4. External cost (or externalities) are estimated through use of external cost factors associated with the endpoint impacts. These costs represent the tangible and intangible costs borne by non-dod government agencies or society at large. 5. Internal costs to DoD not identified in the initial LCC estimate (i.e., hidden costs) may be revealed through assessment of impacts and external costs. Hidden costs are aggregated into the life cycle cost estimate and reported as internal cost. 6. Contingent costs result from possible future events that result in additional internal costs to DoD. External, internal, and contingent costs should not be aggregated, rather they should be reported and considered in parallel to better understand the costs and risks to both DoD and society. Further reporting requirements are found in Section Includes combat operations as well as or military operations other than war (MOOTW) 12

23 Figure 7. Overview of Sustainability Analysis Framework 13

24 3.0 Procedure for Conducting Sustainability Analyses The five steps, illustrated in Figure 8, are used to conduct a Sustainability Analysis. To complete these steps, the scope of the analysis is first defined (Step 1). Then, cost data is collected for upstream (i.e., supply chain) activities; input, output, and cost data are collected for downstream activities, which may include OEM, DoD, and sustainment contractor activities; and these data are aggregated to generate a life cycle inventory (Step 2). Next, existing characterization Figure 8. Five Steps of a Sustainability Analysis models are used to translate inputs and outputs into potential environmental impact (Step 3). These potential impacts are translated into external cost and established LCC estimating guidelines and best practices are used to develop a LCC estimate (Step 4). Finally, the results are evaluated and updated as necessary to develop a robust understanding of life cycle impacts and costs (Step 5). Sustainability Analysis using DIO Dataset The DoD developed the Defense Input-Output (DIO) dataset to support the DoD acquisition community implement Sustainability Analysis. The DIO dataset can be used to streamline the Sustainability Analysis process. Specifically, DIO facilitates completion of Steps 2-4 described in Figure 8. The DIO dataset: Augments collected data and enables a more complete LCI. Relies on publicly available data to estimate upstream (i.e., supply chain) inputs and outputs from purchased goods and services and some DoD activities. 4 Uses publicly available and peer-reviewed methods for translating life cycle inputs and outputs into life cycle impacts and external costs. Achieves a balance between accuracy and level of effort. Enables a consistent approach for conducting Sustainability Analyses across the DoD. Supports the completion of Sustainability Analyses by non-lca experts. 4 The first version of the DIO method included procured goods and services, energy use, and transportation. Future release may include additional DoD activities. 14

25 Three options are available for completing a Sustainability Analysis: Scoring factors. The scoring factors support manual completion of a Sustainability Analysis. The potential impact and external cost for a unit of each procured good or service, activity, and elementary flow included in the DIO dataset was calculated. The results, called scoring factors, are provided in a Microsoft Excel spreadsheet. When conducting a Sustainability Analysis, the analyst can complete Steps 1 and 2 to calculate all inputs and outputs. The total quantity of the inputs and outputs are then multiplied by the associated scoring factor to calculate potential environmental impact and external cost (Steps 3 and 4). The analyst must calculate internal costs separately using established LCC estimating guidelines and best practices. Web-based tool. A web-based tool has been developed specifically for conducting a DoD Sustainability Analysis. It uses a user-friendly interface to guide the user through the 5-step process using DoD acquisition language. It completes the LCA and LCC estimate simultaneously. Potential environmental impact and external costs are calculated using the DIO method. Internal costs are calculated in accordance with established LCC estimating guidelines and best practices. LCA Software. The data behind the DIO method is available for organizations that use commercial off-the-shelf (COTS), open source, or proprietary LCA software. This allows LCA experts to integrate the DIO method with their LCA data to conduct more detailed and accurate Sustainability Analyses consistent with the DoD Sustainability Analysis framework. The five steps for performing the Sustainability Analysis are detailed in Figure 8. More information about accessing and using each of these resources is available on the Defense Environmental Network and Information Exchange (DENIX) ESOH in Acquisition website Step 1 - Define the Scope of the Analysis The first step of the Sustainability Analysis is to define the goals and scope of the analysis, including the following: Reasons for conducting the Sustainability Analysis Description of the systems to be analyzed Functions of the system that will be used to define system performance Functional unit for quantifying required performance Reference flow for establishing equivalence between alternatives System boundaries that identify aspects of the system life cycle included in the analysis Impacts and costs that will be analyzed Use of DIO can streamline completion of a Sustainability Analysis. The DIO dataset is available for use in any of the options presented in Section

26 3.1.1 Parameters The assumptions and parameters used to define the scope of the analysis and specify how economic comparisons will be made should be clearly defined. These include: Reference year. A reference year should be selected to enable comparison of internal and external costs for all alternatives in constant dollars. Generally, the reference year is set as the current year, the beginning of the study period, or the baseline year for the program. Study period. The number of years the Sustainability Analysis is based on must be established. The study period should be based on the "economic life" of the project, i.e., the period of time for which the costs and benefits will be evaluated. This will not necessarily be the same as the anticipated service life of the alternatives. Inflation Rates. Costs specified for years occurring before the reference must be inflated to the reference year. Industry-specific and economy-wide inflation factors can be derived using the Producer Price Index (PPI), produced by the Bureau of Labor Statistics (BLS). 6 Real Discount Rate. Throughout a Sustainability Analysis costs should be specified in constantdollars, generally normalized (i.e., inflated or discounted) to the reference year. To account for the time value of money, discounted (net present value) financial cost estimates should be derived using the real discount rate Appendix C of OMB Circular A-94. This includes both internal and contingent cost estimates. Social Discount Rate. To account for revealed time preferences and opportunity costs (i.e., placing more value on benefits or costs incurred now than those incurred in the future), a social discount rate should be used to derive a discounted (present value) external cost estimate. OMB Circular A-4 suggests a discount rate between 3% and 7% except in the case of important intergenerational benefits or costs, where discount rates between 1% and 3% may be more appropriate. A 3% discount rate is a reasonable starting point for calculating present value external cost estimates Functional Unit A Sustainability Analysis should be conducted relative to a functional unit, which quantifies the required performance of the system. The functional unit should be defined by the minimal performance requirements needed to properly meet the stated capability, as outlined in the ICD, the CDD, or a specific component performance requirement or specification. The functional unit should be the same for all evaluated alternatives. A few illustrative examples include: Performance requirements, e.g., comparing aircraft wing designs based on one or more common performance parameters, such as wing span limits, payload, or other requirements as specified in the ICD or CDD. Sustainment requirements, e.g., comparing the incumbent and alternative coatings for maintaining weapon system landing gear based on one or more common performance parameters, such as required coating adhesion, corrosion protection, tensile strength, and hardness System-Level Reference Flow

27 Once the functional unit is defined, a reference flow must be defined for each alternative. The reference flow specifies the amount of each alterative required to fulfil the function defined by the functional unit. Reference flows ensure comparability of LCA results for each alternative analyzed. A few illustrative examples include: Number required to perform a mission, e.g., comparing two small helicopters to one large helicopter, which can satisfy the same mission. Amount needed for sustainment, e.g., comparing two layers of coating X to one layer of coating Y, which can satisfy the same corrosion protection over a specified area and period of time. Number required to fulfil required service life, e.g., comparing two alternatives that must meet a capability over a 50 year period. The first alternative has a life span of 25 years, and the second alternative has a life span of 50 years. Two units of the first alternative would be required, whereas one of the second alternative would be required Activity-Level Reference Flow Once the reference flow is defined for the system, it can be used to determine activity-level reference flows. At the activity-level, reference flows are used to ensure that the inputs and outputs are quantified relative to the system reference flow and, therefore, fulfill the system s functional unit. Reference flows are typically expressed in physical units (e.g., mass, volume, area), but can also be expressed in monetary units (e.g., dollars) when representing a procured item or service for which the physical unit is unknown System Boundaries The system boundaries defines which life cycle stages and associated activities will be included in the Sustainability Analysis. All stages of the system s life cycle (i.e., production, operation, sustainment, and disposal) should be considered when defining the system boundaries. Activities outside of a system s life cycle, but impacted by the alternatives being considered, should also be included in the system boundaries. For example, alternative component designs for a weapon system that have a difference in weight may cause a weapon system to consume more fuel. This difference in the weapon system s fuel consumption should be included in the system boundaries. In contrast, life cycle stages or specific activities that are likely immaterial or identical between the alternatives can be excluded. Such exclusions can reduce the level of effort to complete a Sustainability Analysis, while still providing an equivalent comparison between alternative and informing specific acquisition decisions. However, these exclusions result in a truncated Sustainability Analysis. Therefore, all exclusions must be explicitly identified. For each alternative, the system boundaries should be defined consistently with the study goals, scope, and functional unit as well as the specific alternative s reference flow. Process flow diagrams are generally used to portray the system boundaries for each alternative. 17

28 Notional Noncombat Ship Superstructure Sustainability Analysis Scope and System Boundaries The figures below illustrate hypothetical system boundaries for comparing two material alternatives for a noncombat ship s superstructure. The superstructure includes the parts of a ship that project above the ship s main deck and provide shelter to passengers. Two material alternatives are considered steel and a composite. The steel superstructure consists of a recycled steel support with recycled aluminum outer facing. A corrosion resistant coating system is applied to the steel superstructure. Mineral wool insulation is applied to the superstructure to provide fire, thermal, and acoustic insulation. During sustainment, this coating must be removed and the steel superstructure recoated. The composite superstructure is a sandwich composite construction that consists of two (2) glass fiber-reinforced polymer laminate on each side of a core of lightweight polyvinyl chloride foam with steel support. A corrosion resistant coating is applied to the composite superstructure during manufacturing. During sustainment, the composite superstructure must be power washed. Since the mass of the superstructure will differ between the two (2) alternatives, it is necessary to consider fuel consumption. During operation, Residual Fuel Oil (No. 6) is heated and burned to power the ship. Steel Alternative Composite Alternative Illustrative System Boundaries for Notional Superstructure Comparison 18

29 Notional Noncombat Ship Superstructure Sustainability Analysis Process Flow Diagram The illustrations in the previous example provide a high level overview of the system boundaries, facilitating a general understanding of the systems and enabling comparison of the two alternatives side-by-side. To facilitate a more complete understanding and robust modeling of each alternative, it is necessary to develop detailed process flow diagrams. A process flow diagram uses a tiered approach to show the sequence by which activities occur across the life cycle as well as the interdependencies between activities. The illustration below provides a partial diagram for the composite superstructure alternative. When creating a process flow diagram, the connecting lines between activities and life cycle stages represent the reference flow for each activity (i.e., the amount required to satisfy the functional unit). Illustrative Partial Process Flow Diagram for the Composite Ship Superstructure Specify Allocation Procedures Inputs and outputs are quantified and assigned to a system on a functional unit basis. Several scenarios arise where inputs and outputs are distributed across multiple systems or multiple life cycles for the same systems. To ensure system equivalency between the alternatives under consideration, it is necessary to partition inputs and outputs on a functional unit basis. There following situations generally require use of allocation. Multi-functional systems. The system may provide more than one function. Likewise, activities occurring within the system s life cycle may provide more than one product the product used in the system s life cycle and one or more co-products used for other systems. If possible, allocation should be avoided by subdividing activities, through system expansion, or through substitution. 19

30 When subdividing the activities, the multi-product activity is divided into sub-activities such that the inputs, outputs, and costs are assigned directly to the product of interest and its co-products. When using system expansion, the system boundaries for all alternatives are changed to include the extra functions or co-products. Substitution, which is a form of system expansion, can be used when the co-product is normally produces in another manner. In this approach, it is assumed that production of the co-product offsets the need to produce it in the normal manner. The system boundary is expanded to include the co-product, but subtracts the inputs, outputs, and costs from the avoided activities that would have been required to produce the co-product in the normal manner. When it cannot be avoided, allocation can be used to partition inputs, outputs, and costs to the product and co-products in proportion to a defined criterion, such as product mass, energy content, or monetary value. Regardless of which method is used (i.e., subdividing activities, system expansion, substitution, or allocation), the goal is to provide system equivalence by including only the inputs, outputs, and costs associated with functional unit for each alternative. Recycled or reused products. Reused or recycled system components and waste streams (hereafter referred to as material) result in hidden value. The activity generating the reusable or recyclable material should be given a credit to offset the inputs, outputs, and costs associated with using the material. Reusing and recycling material alleviates the need to harvest virgin material or purchase material altogether, thus displacing the impacts and costs associated with raw material extraction and processing. Modeling the benefits of reuse and recycling is susceptible to double-counting, e.g., when a credit is given to both the original system containing recyclable material as well as the second system using the recycled material. For a Sustainability Analysis, a combination of substitution and allocation based on monetary value should be used to partition the benefits between the two systems. When materials used in a system will be recycled, the system should receive a credit equal to the residual value of the waste materials. Residual value is quantified as the value of the material in a secondary market. The credit is calculated by multiplying the inputs, outputs, and costs by the ratio of secondary market value of the material to the original purchase price of the material. System life extends beyond the defined study period. Alternatives within a study often have different life spans. Ideally, the functional unit will represent the lowest common denominator for the life spans across all alternatives. However, it is not always possible to find a lowest common denominator for all alternatives. Some systems life spans will exceed the study period. For a Sustainability Analysis, a combination of substitution and allocation based on monetary value should be used to credit an alternative with a life span that exceeds the study period. The additional useful life displaces the need to purchase a new system, and therefore offsets the impacts and costs associated with producing a new system. The residual value of the system will be used to calculate the allocation partitioning factor. In this context, the term residual value refers to the terminal value of the system, i.e., the remaining value of the asset after depreciation at the end of the study period, not the salvage value of the asset at the end of its useful life. When the appropriate depreciation method is unknown, use the Straight Line Depreciation method to approximate the residual value. Impacts are allocated and displaced according to the allocation partitioning factor, which is calculated by dividing the residual value by the system s initial value. For costing purposes, the resulting impacts and associated costs should be recorded in the final year of the analysis and discounted back to the reference year. 20

31 3.2 Step 2 Develop a Life Cycle Inventory Life cycle inventory data are collected and used to calculate the inputs and outputs associated with every activity included in the system boundaries. From an LCA perspective, inputs include energy, chemicals and materials, land, water, and other resources used. Outputs include environmental discharges, waste, noise, and other releases to the environment. From a LCC estimating perspective, inputs include the financial costs incurred by DoD for all activities included in the system boundaries. For the purpose of the sustainability analysis, the life cycle inventory shall include all inputs, outputs, and financial costs. They shall be quantified in relation to the functional unit defined in the scope of the Sustainability Analysis. To complete an LCA, all inputs and outputs are reduced to their elementary flows and aggregated together 7. Elementary inputs come directly from the environment (e.g., crude oil, minerals, land, and water). Elementary outputs go directly to the environment (e.g., air emissions, water releases, noise). For a Sustainability Analysis, the life cycle inventory also includes internal financial costs, which are used to generate a LCC estimate. Sustainability Analysis consists of an integrated-hybrid approach that combines two existing methodologies to calculate elementary flows: Process-based LCA is a bottom-up approach in which LCI data are collected for every activity within the system boundaries. Data are collected and processed to estimate all of the inputs (i.e., include energy, chemicals and materials, land, water, and other resources) and outputs (i.e., environmental discharges, waste, noise, and other releases to the environment). Data sources include process engineers, environmental health and safety professionals, operators, product manufacturers, industry experts, available literature, and existing life cycle inventory datasets. In general, process-based LCA should be used to analyze DoD, prime OEM, and sustainment contractor activities. Process-based LCA results in detailed and actionable results that can be used, for example, to inform design decisions, compare specific alternatives, or identify specific process changes for reducing significant impacts. However, it is generally not practical to collect life cycle inventory data for the entire supply chain. This results in an incomplete model of the system and leads to truncation error, i.e., omission of resource inputs and environmental outputs from the system s supply chain. Environmentally Extended Input-Output (EEIO) analysis relate economic activity from economic input output (I-O) models, which quantify the interdependencies and associated financial transactions between industrial sectors in an economy, to resource consumption and environmental releases for each sector to estimate supply chain impacts from purchased goods and services. Several EEIO models have been built for the U.S. and other economies. The user enters the cost of a purchased good or service, and the model estimates the amount of resources consumed (i.e., inputs) and environmental releases (i.e., outputs) across the economy. This approach follows the flow of money through the economy, from direct transactions with first tier suppliers through the associated indirect transactions from all other sectors throughout the supply chain. In general, EEIO analysis can be used as a screening-level analysis to assess the 7 The Global Guidance Principles for Life Cycle Assessment Databases (also known as Shonan Guidance Principles ) prepared by the United Nations Environment Programme provides guidance for systematically developing life cycle inventory data and aggregating them at the system level. 21

32 relative importance of supply chain impacts and identify supply chain activities that may have large impacts (sometimes called a hotspot analysis). To inform specific acquisition decisions, it may be necessary to assess supply chain activities with large potential impacts more thoroughly using process-based LCA. In general, EEIO analysis should be used to analyze the impacts associated with purchased goods and services used by the DoD, Prime OEMs, and sustainment contractors. Since EEIO analysis utilizes established EEIO models, it requires minimal original data collection (i.e., the cost of the purchased good or service). It provides a consistent framework for generating rapid estimates of supply chain resource requirements and environmental releases. However, there are several important limitations associated with relying solely on EEIO analysis. It reflects average conditions within a sector, does not distinguish between products within a sector, assumes linear proportionality between economic activity and environmental burdens, does not distinguish between domestically produced goods and imports, and is very sensitive to price fluctuations. The hybrid life cycle assessment methodology used to conduct a DoD Sustainability Analysis connects process-based LCA and EEIO analysis. It reduces truncation error by including extended supply chain impacts. Hybrid LCA is used to achieve a balance between accuracy and level of effort. Figure 9. Sustainability Analysis of Defense Systems Using Hybrid Life Cycle Assessment Life Cycle Cost Estimating The term life cycle inventory is not typically used for LCC estimating. However, since the Sustainability Analysis integrates LCA and LCC estimating, life cycle inventory data also includes cost data for all activities within the system boundaries. The cost element structure for the LCC estimate should be defined in accordance with existing LCC estimating guidance, including DoD Manual (DoDM) M, the Defense Acquisition Guidebook, and the DoD Product Support Business Case Analysis Guidebook. 22

33 3.2.2 Approach for Developing a Life Cycle Inventory This section provided general guidance for developing a life cycle inventory. LCI data are collected at the activity level and aggregated to create a life cycle inventory, which includes an inventory of elementary flows and an initial life cycle cost estimate. The aggregated results should be normalized to the reference flow of the functional unit, as defined by the scope of the Sustainability Analysis. The type of data required varies based the scope of the Sustainability Analysis, LCA approach used (process-based LCA, EEIO analysis, or hybrid LCA), and availability of appropriate LCI data. The following steps are based on using the DIO dataset. Specify the reference flow for each activity (i.e., the amount required to fulfil the functional unit). The inputs and outputs for each activity will be quantified relative to this reference flow. Identify inputs required for each activity included in the system boundary. Inputs include procured goods (e.g., chemicals and materials, equipment, permits, personal protective equipment), procured services (e.g., waste management, construction), and direct resource use (e.g., energy, water, land) required throughout the system s life cycle. When identifying system inputs, support systems or risk mitigation associated with those activities should be considered. For example, an alternative that requires the use of hazardous materials may require supporting systems and services (e.g., facility controls, PPE, waste management services) to mitigate healthand environmental-related risks. Quantify inputs. Each input should be recorded in the same physical units (e.g., megajoules, kilograms, flight-hours) or monetary units (i.e., U.S. Dollars) specified in the DIO dataset. For inputs specified in physical units in the DIO dataset, monetary units should also be recorded to complete the internal cost estimate. The DIO dataset classifies purchased goods and services by industry sector using the North American Industry Classification System (NAICS) code. Therefore the NAICS code for these inputs must be specified. The scoring factors and web-based tool provide guidance for assigning inputs to a NAICS sector. Additional guidance can be obtained from the U.S. Census Bureau. 8 The cost for each input should be recorded in constant dollars, and the year in which it occurs should be specified. Normalize costs to both the reference year of the DIO tool being used (i.e., the scoring factors, the web-based tool, or the DIO dataset) and the reference year of the Sustainability Analysis using the appropriate discount factors and inflation factors. Convert purchaser prices to producer prices if necessary. EEIO models, like that used in the DIO dataset, can be based on producer price (i.e., the cost to make the good or provide the service) or the purchaser price (i.e., the cost of the good or service to the consumer). The difference between the two is that purchaser price includes transportation, wholesale, and retail margins. The DIO model is based on producer price. If the cost specified for a purchased good or service represents producer price, a conversion is not necessary. If the cost represents purchaser price, it must be converted to producer price. This can be done by subtracting the transportation, wholesale, and retail margins from the purchaser price or using industry specific producer/purchaser price ratios A producer/purchaser price transformation matrix will be made available on DENIX. 23

34 Identify outputs resulting from the activities included in the system boundary. Outputs include products, air emissions, water releases, land releases, solid waste, hazardous waste, wastewater, and noise. Quantify outputs. All outputs should be quantified relative the amount of activity required to fulfil the functional unit. In general, physical units (e.g., kilograms, gallons) are used to quantify outputs. However, if an output generates procurement actions (e.g., waste treatment) or other internal costs, cost data should be collected as described above for the inputs. Releases to the environment should be quantified based on the released prior to any controls or treatment, the receiving environmental compartment should be identified (e.g., releases to air, soil, and water), and the population characteristics (urban, rural, indoor, or unspecified) at the release site should be specified. In general, managed waste is modeled as a procured service. Therefore, it is not necessary to specify specific chemicals and materials contained in the waste. If one or more coproducts exist for an activity, including recycled/reused content, appropriate co-product accounting methods should be used to properly partition outputs to the system. All data collection methods, data sources, calculations, and allocation procedures should be clearly documented. Allocate inputs and outputs as necessary. If one or more co-products exist for an activity or for the system, appropriate co-product accounting methods should be used to properly partition inputs and outputs to the activity or system. As an interim step in estimating impacts and external costs, the DIO tools convert all inputs and outputs into elementary flows. Therefore, it is not necessary to perform the step of translating input and output data into LCI data (i.e., elementary flows) Data Collection A Sustainability Analyses requires two types of data for every activity included in the system boundary, as illustrated in Figure 10 and detailed below. Data Sources may include purchase records from similar existing systems and legacy systems, sustainment data for operation and maintenance of similar existing systems and legacy systems, an estimated bill of materials informed by initial designs or technology development activities, information from initial technology development testing, engineering or parametric estimates, existing life cycle inventory datasets, published Figure 10. General Data Requirements for an Activity Included in a Sustainability Analysis (Based on using Hybrid LCA and LCC estimating) literature, estimates from technical experts, and on-site measurements. The basis for the data should be clearly recorded, e.g., system-specific information, proxy systems (e.g., a similar existing or legacy system), 24

35 calculated estimates, or expert judgement. All underlying assumption, any adjustments made to collected data, and any data limitations should be clearly documented. Notional Noncombat Ship Superstructure Sustainability Analysis Inputs and Outputs The inputs and outputs highlighted in gray represent procured goods and services. The associated elementary flows would be estimated using the DIO dataset. The inputs and outputs highlighted in white represent elementary flows directly attributed to an OEM, DoD, or a DoD sustainment contractor. Steel Superstructure Composite Superstructure Illustrative Inputs and Outputs for Hypothetical Superstructure Comparison 25

36 3.3 Step 3 Estimate Life Cycle Impacts Once LCI has been created, the next step is to estimate the potential impacts to resource availability, climate change, human health, and ecosystem quality. Within LCA, a process called life cycle impact assessment (LCIA) uses characterization models to estimate the contribution of each inventory flow on each impact category considered Cause-Effect Models Several LCIA methods are available in the public domain. These LCIA methods assess the potential impact from using resources or releasing substances to the environment at different points of the cause-effect chain as illustrated in Figure 11. Figure 11. Use of Cause-Effect Models in Life Cycle Impact Assessment 1. An activity uses inputs and generates outputs. 2. The LCI aggregates these inputs and outputs to generate an inventory of elementary flows (i.e., resources used from the environment and releases to the environment). 3. Midpoint characterization factors are used to estimate midpoint impacts, which are indicators of potential impact. Each midpoint impact category is measured in equivalence of a reference substance, resulting in disparate units that cannot be combined for an overall assessment. Midpoint impacts enable identification of specific tradeoffs between alternatives, however interpretation requires knowledge of diverse environmental issues and it can be difficult to prioritize the tradeoffs. 4. Endpoint characterization factors are used to estimate endpoints impacts, which represent potential impact (or damage) to resource availability, climate change, human health, and ecosystem quality. Results are expressed in units of damage, which are easier to interpret and can be aggregated. This makes it easier to understand the relative importance of impacts and compare alternatives. 5. Weighting factors are used to aggregate impacts into a single score expressed in the same unit. The DIO method performs weighting using monetary valuation, which converts potential environmental impacts into monetary units based on the associated external cost to society. 26

37 Moving from left to right on the cause-effect chain, the results are aggregated into fewer impact categories, it is easier to make comparisons between alternatives, and the relevance of the impacts are easier to understand. However, uncertainty and subjectivity increase. Due to this uncertainty and subjectivity, the ISO LCA standards require that weighting results only be considered in combination with endpoint, midpoint, or inventory results. Midpoint and endpoint impacts are calculated as part of this step. Valuation is performed in the next step. Figure 12 provides an example cause-effect chain for estimating impacts from toxic release to air. Midpoint characterization factors are used to quantify the inventory of toxic releases in comparative toxic units and indicator of increased morbidity in humans due to increased exposure to toxic chemicals. Endpoint characterization factors are used to quantify the potential damage to humans in disability-adjusted life years from exposure to the toxic chemicals. Monetary valuation is used to weight the impacts by assigning monetary value to the human health degradation (i.e., life years lost). Figure 12. Example Cause-Effect Chain for Estimating Impacts from Toxic Release to Air Midpoint Categories When performing a Sustainability Analysis, the following impact categories should be used: Climate change. When released into the atmosphere, greenhouse gases (GHGs) absorb and reemit radiation, causing heat to be retained in the atmosphere, and thereby contributing to an increase in the global average temperature and the associated changes in global climate patterns. This impact category serves as an indicator of impacts from greenhouse gas emission. In general, the potency of greenhouse gases are assessed relative to that of carbon dioxide (CO2) and are reported as CO2 equivalents, also referred to as global warming potentials (GWPs). 27