There are three major ways to allocate. The first is based on prices, the second on physical categories, such as weight or energy, and the third on subtracting avoided processes (also called substitution). We will look at these in turn. The first way to allocate is on the basis of price (market values). The idea behind this type of allocation is that prices drive production (Weidema 1993). This method is, however, not without problems. Firstly, market prices are not constants. So, if, for example, ethanol prices go up, whereas the prices of other outputs do not, the emissions and cumulative fossil energy demand allocated to this transport fuel increase. The same happens when by-products go down in price, but the transport biofuel price remains constant (or increases). A good example of the latter is the tenfold price decrease of glycerol between 2004 and 2006 (Yazdani and Gonzalez 2007).

A second problem is that currently, much transport biofuel production is not driven by market value but by market value plus subsidy. This leads to the question of whether, for instance, in the case of ethanol production from cornstarch, alloca­tion should be on the basis of the market value of cornstarch or on the basis of the subsidized value. Another problem arises when wastes are considered. These may well have negative prices (being a cost to the producer). For instance, the producer of the waste may have to pay a price for the incineration or treatment of his waste. If so, allocation on the basis of price may mean that the waste, because of its negative price, is apparently associated with a negative cumulative energy demand (Reijnders and Huijbregts 2005). Usually, this has been felt unsatisfactory by proponents of al­location based on prices, and this often leads to the decision the give a zero price to wastes. However, this seems inconsistent. An implication of a zero price is that the life cycle leading to the generation of wastes has no impact on the environmental evaluation of such biofuels. The problem may also arise as to whether something is a waste or a by-product. An example thereof is sawdust. This may be used for firing industrial installations or power plants, and then may be categorized as by-product (with a positive monetary value), but sawdust may also be left in the woods and may then be categorized as a waste (with zero monetary value). Decisions regarding such categorizations may be far from easy and may have a substantial impact on the greenhouse gas emissions calculated.

Alternatively, one may allocate on the basis of physical categories such as ‘en­ergy content’ (heating value) or weight. For instance, the European Union in its 2008 draft Renewables Directive has proposed to allocate on the basis of energy (Eickhout et al. 2008). This type of allocation has the advantage of stable outcomes, unaffected by movements of prices. However, there are curious consequences, too. For instance, in this allocation system, there is an obvious way to improve the en­vironmental performance of a transport biofuel, and that is to produce more waste. To evade this problem, there is a tendency to restrict allocation to product outputs. Matters related to quality may also emerge. If one, for instance, allocates to the out­puts of electricity and low temperature heat on the basis of ‘energy content’, one may be criticized for neglecting the quality of these outputs and be advised to use exergy instead of energy. Thus, allocation on the basis of physical categories may encounter criticism if the physical property chosen is at variance with the perceived value of the co-products.

Another way to deal with a multi-output process is to ‘correct the system’. In the case of biofuels, one may consider biofuel to be the only output and correct for the other outputs by subtracting ‘avoided processes’ which such outputs can substitute (Ekvall and Finnveden 2001). This approach has also been called substi­tution. For instance, in the case of ethanol production from corn or wheat, it has been argued that by-products such as dried distillers grains (DDG) or dried distillers grains with solubles (DDGS) may be a substitute of soybean meal in cattle feed (Kim and Dale 2005). Thus, producing DDG(S) may be valued on the basis of the avoided process of producing soybean meal. However, soybean meal and DDG(S) are not identical. This then raises the question of the basis for conversion: should it be on the basis of price, or protein content, or metabolizable joules (energy)? Moreover, DDG(S) is not a straightforward substitute of soybean meal, as its com­position is relatively variable, and its consumption by animals may be linked to increased mycotoxicosis risk and increased intakes of mycotoxins (Taylor-Pickard 2008). This has led to a more limited recommended use of DDG(S) in animal feed than in the case of soybean meal (Taylor-Pickard 2008). Then there is the mat­ter of applications other than animal feed. For instance, soybean meal may also be used to generate vegetarian alternatives to meat, and DDG(S) may be used to produce protease and peptones (Romero et al. 2007), methane (Murphy and Power 2008) or ethanol. Such alternative applications may have environmental impacts that are very different from the use as an ingredient of animal feed. Suppose, fi­nally, that DDG(S) is indeed valued on the basis of avoiding soybean meal; the problem is that soybean meal is a co-product, just as DDG(S) is. This may be argued to imply that substitution in this case means plugging one hole with an­other.

So, each way to allocate has its weak points, and there is no agreement on the best way to allocate. In this book, we will not make a choice in favour of a specific way to allocate but rather will explicitly indicate what type of allocation has been used in arriving at specific results.