From an economic perspective, tools of environmental management must be eco‒efficient, i.e. they have to be economically efficient and they must lead to ecologically sound decisions. Life cycle assessment (LCA) is regarded as one of the most important environmental management tools today. It attempts to record and assess all the environmental impacts of the whole life cycle of a product. The potential benefits of LCA have been discussed extensively. However, the costs and the effects actually achieved have been vastly neglected. Economic analysis shows that the present approach of LCA is economically inefficient compared with site‒specific environmental management, and that it is likely to result in ecologically wrong decisions. © 1997 by John Wiley & Sons, Ltd and ERP Environment.