By definition, a consequential model must include only activities that change as a result of specific demand changes implied by the decision under study. For a given activity, it is therefore important to know which changes in demand result in changes in its production volume.
A determining product of an activity is defined as a product for which a change in demand will impact the production volume of the activity itself. It is sometimes also referred to as a “reference product”. A product for which a demand change does not affect the production volume is called a dependent by-product or subproduct. The production volume of a dependent by-product is constrained by the demand for the determining by-product. Since only certain products can cause a change in the production volume of an activity, dependent co-products cannot be inputs for a consumption mix in a consequential system model. This also means that when the product of interest is a subproduct, a demand change for that product will not result in a change in the co-production activity, but will instead lead to a change in consumption for non-constrained suppliers of the product.
It should be clear from the above that it is important to be able to distinguish between determining and dependent products. There are two types of co-production situations, namely combined production and joint production:
- In combined production, the quantities of co-products can be varied independently, and therefore all products are determining products, independent of each other. This modeling of physical causality is done in the same way in attributive and consequential modeling and therefore is not the main focus of this course.
- In joint production, the quantities of co-products cannot be varied independently (i.e., the proportions are fixed). When we change the demand for only one co-product and not for the others, this change cannot be met by the co-production activity alone. This will therefore result in changes (substitution) in other activities as well. How the co-production activity will react and which other activities will be affected depends on whether the demand change relates to a determining or dependent product of joint production. It becomes important to uniquely identify whether a specific common product is a determining or dependent co-product.
Below is a step-by-step procedure for identifying the determining product(s) in a joint production. The procedure covers different scenarios, depending on the existence of alternative production paths for the co-products:
First, we exclude co-products for which additional production provides no additional revenue (i.e., products sent for treatment or storage or sold at a cost equal to or lower than the sales preparation cost; often labeled as "waste"), as these obviously cannot influence the production volume and therefore cannot be determining products. For the remaining joint products, we have three possible situations:
- If there is only one co-product without an alternative production path, this product will be the determining product ⇒ Type 1 situation (see In-depth Reading).
- If all co-products have alternative production paths, only one of these co-products can be the determining one. Data on marginal production costs, revenues, and standardized market trends are used to identify the Type 2 situation(see In-depth Reading).
- If more than one co-product does not have an alternative production path, all of these will determine the products ⇒ Type 3 situation.
Next lesson - In-depth Reading "Type 1 Situation"
