Allocation of impact across value chains

This page introduces how impact is attributed across value chains in the Upright net impact model.

Allocation of impact across the value chain

In the Upright net impact model, allocation is about attributing impact across value chains. This is necessary to account for indirect impacts in the upstream and downstream value chains of each product or service.

The retail of drugs at a pharmacy also contributes to drug research and manufacturing. Similarly, the manufacture and retail of smartphones indirectly support the mining of rare earth metals needed to build the phone. Conversely, mining rare earth metals support the consumer electronics industry and all the benefits that the Internet provides. If a government reduces the demand for alcoholic beverages by increasing their taxation, it also affects nightclubs, barley farming and even sheet metal manufacturing.

The information produced by the previous data processing steps of extraction and generalization of scientific information focuses on the direct impact of a given product. For example, the health benefits of retailing drugs in pharmacies that are captured in research primarily reflect how e.g., introducing a drug in a community pharmacy might reduce a particular disease in the community.

Upright attributes impact to companies across value chains in such a way that every impact counts only once (attribute-only-once). In the case of GHG emissions, for example, this means that the sum of all GHG emissions Upright attributes to companies sums up to the total GHG emissions caused by the private sector. This is different, for example, from the GHG Protocol (Scope 1/2/3) metrics customarily used for measuring GHG emissions. This article provides a concrete example of that means in practice.

Therefore it is necessary to follow the previous steps with a step that attributes the impacts along value chains. The following subsection provides an overview of how this is done.

Real-world value chains exhibit complex interactions including multiple paths from one product to another, as well as loops where products function as inputs to each other.

Principle of participating value-add

The Upright net impact model attributes impacts using the principle of participating value-add.

The basic idea is that when attributing impact to products that are upstream of product B, the share of product B’s impacts that will be allocated to product A is proportional to the share of added value product A contributes to product B. Attribution of impact downstream follows a symmetrical logic.

The idea is to capture how the value creation of a product depends on the impact of other products in its value chain, and consequently on the creation of its impact.

In the simplified example illustrated in Figure 1 below, fertilizer production would be completely dependent on apples, because there are no other downstream products fertilizer is used for. Therefore the production volume of apples directly influences the amount of fertilizer produced, which is reflected in the net impact model by apples fully participating in the impact of fertilizer, and subsequently inheriting much of the impacts of fertilizer.

On the other hand, in the example, apples can be either sold wholesale or used for the production of apple juice. Therefore producing more apple juice will likely increase the need to produce apples (and its related impacts), but apple production is not fully dependent on the production of apple juice, as apples are also sold wholesale. This weaker relationship is reflected in the net impact model by apple juice only partially participating in the impact of apples, and subsequently inheriting some of the impacts of apples.

A detailed example of quantifying participating value-add including a mathematical formulation is given in the section Allocation of impact across the value chain of the page Illustrative example of quantifying net impact in a simplified economy.

Impacts attributed from value chains can be non-obvious

Because global value chains are complex, attribution of impact across value chains often leads to surprising impacts. Below are some examples:

  • Passenger car manufacturers gain small positive impacts in the nutrition impact category because passenger cars are also used for food delivery. Because food deliveries tend to be less healthy than home-cooked meals, they also get some negative impacts in the disease category. Additionally, they get tiny positive disease-related impacts because they are also used for home care for the elderly.

  • Cargo handling machinery manufacturers get all kinds of small surprising impacts because they support online retail, which supports a large variety of (consumer) products.

  • Salad producers have tiny positive knowledge impacts because salad used is for school food.

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