In the battle against climate change, government procurement spending is a powerful tool

From surging ocean tides in the north to out-of-control wildfires in the west, climate change is forcing society-wide adaptations, and governments are racing to keep pace. Across the globe, local administrators are scrambling to protect their constituencies, investing billions in state-of-the-art infrastructure upgrades to increase resiliency and mitigate climate impact.

Likewise, steps are being taken to reduce the carbon footprint of public buildings and streamline management practices. Solar is quickly become a primary energy source for municipal buildings, and all-electric fleets are replacing their gas-powered predecessors. But amid these necessary and sweeping resiliency initiatives, it might be easy for administrators to miss a more mundane aspect of government that’s a major driver in greenhouse gas emissions: procurement.

“Government spending power is often overlooked in discussions of paths to net zero,” says Joerg Hildebrandt, managing director and senior partner of Boston Consulting Group.

An analysis by the nonprofit organization the Sierra Club estimates the United States spends almost $2 trillion annually in local, state and federal procurement, representing nearly 10 percent of the nation’s gross domestic product. Adapting procurement procedures to include clean energy practices is a tangible step that government administrators representing communities of all sizes can take—and one that has a big impact.

“The gold standard is for a government to say they will procure net-zero buildings, at the agreed required green premium, for the next 30 years,” Hildebrandt says. This, in turn, would “provide the demand stability and investment rationale for suppliers to invest in net-zero carbon technologies.”

Hildebrandt co-authored “Green Public Procurement: Catalyzing the Net-Zero Economy,” a new report for the World Economic Forum, a Geneva, Switzerland-based NGO. The report estimates that public sector procurement activities are either directly or indirectly responsible for 15 percent of the world’s greenhouse gas emissions. Governments currently spend $11 trillion on procurement annually, producing 7.5 billion tons of direct or indirect emissions—seven times the tonnage emitted by the global aviation industry.

While this is a striking statistic, there’s reason for optimism.

Within the public procurement sector, six industries account for three-quarters of procurement-related emissions: defense and security, transportation, waste management services, construction, industrial products and utilities. Government contracts drive spending in most of these sectors. For example, Hildebrandt estimates “public procurement accounts for 25 percent of the construction industry revenues.”

If enough administrators chose to pursue greener procurement practices, they’d have the fiscal leverage to force real and lasting change, Hildebrandt says. Collaboratively, “Public procurement’s sheer scale and spending power can exert considerable influence in combating global warming.”

At the moment, high associated costs are a primary factor that’s discouraging governments from going all-in on green procurement practices. The report estimates that a global shift by governments toward net-zero emissions would increase procurement costs by about 3 to 6 percent.

“There is a short-term green premium for governments when transitioning to more sustainable products and services,” Hildebrandt says. “The increased cost will decline over time, however, as new technologies are scaled up, making the production of net-zero products more efficient.”

When thinking about procurement, Borge Brende, president of the World Economic Forum, says choosing greener procurement practices “shouldn’t be perceived as a cost burden for industries and the public sector, but rather as something that creates long-term sustainable economic growth.”

There’s also an economic incentive. Besides benefiting the natural environment, abating emissions could lead “to an estimated $4 trillion boost to the green economy, create around 3 million net new jobs and considerably reduce the social cost of carbon,” the report says.

Adopting a green procurement process

To that end, there are a number of concrete steps that can be taken by administrators to modify their community’s procurement practices. According to Hildebrandt, a green process involves a government first setting and communicating a standard for carbon emissions, then setting a reduction target. This goal can be reached by incentivizing low-carbon performance from vendors—such as by offering a price discount if a contractor exceeds a specific emissions mark—and ensuring carbon reduction is tracked.

“Local governments must first understand their emissions baselines—where are emissions coming from and which are the biggest ticket items to address? They must then optimize for carbon within their operations, for example switching to zero-emission vehicles,” Hildebrandt says. “In other procurement categories where solutions are less obvious, local governments should then include carbon reduction as part of supplier contract performance requirements.”

He notes that approaching procurement in this way represents “quite a change for procurement officials, who typically focus on price, technical criteria and delivery schedule today.”

Delving into the details of the process, the report explains that administrators should identify “levers” within their procurement processes, or specific stages of a project. For example, the levers associated with a building project could be broken down into design and development; materials to be used; energy consumption and end-of-life-reuse all materials; transportation of materials; the construction process itself; and the completed building’s maintenance. These aspects can be considered and modified to reduce the amount of emissions generated by the project as a whole.

One important part of the green procurement process, as highlighted by the report, is that of defining clear standards so everyone is on the same page. This could look like a local government enacting a green building code, which “have been essential in bringing our attention to energy efficiencies of buildings, hence improving what we call operational carbon—the carbon related to electricity, heating, and cooling that buildings use,” Hildebrandt says. “Embodied carbon, which is carbon related to building materials used in buildings, is, however, often overlooked, where embodied carbon criteria in building codes is they exist are often voluntary. They can help in bringing about greener procurement practices if whole-project and whole life carbon emissions of buildings are considered.”

Working with suppliers and vendors to help them meet the new standards is another important step.

“The key to a successful engagement involves establishing clear guidelines on accountability for compliance and incentives and an agreed understanding of the consequences of non-compliance,” the report says.

A third key aspect centers around collaborating with other cities and counties. Once a green procurement process has been put into place in one community, collaborative buying groups can be created with adjacent or similar governments, increasing demand, buying power and the ability to impact the environment for good.

“Achieving net zero will require collaboration between governments and companies,” Brende says. “Importantly, this report shows that the transition to green public procurement benefits all stakeholders.”

An opportunity for a cleaner future

With the federal government taking steps to shore up American infrastructure—such as through the still under-debate Build Back Better Act and the Infrastructure Investment and Jobs Act, which is poised to invest $1.2 trillion in coming years—government spending power stands at an unprecedented precipice. It’s a prime opportunity for the federal government to implement real change, says Sasha Stashwick, senior advocate of The Natural Resources Defense Council’s climate and clean energy program.

“Procurement power is absolutely massive,” Stashwick says. “If we’re going to be making this big, generational investment in American infrastructure, at least some of that money should go toward pulling in more carbon-cleaner materials.”

While it’s a good thing if local governments take action to try to reduce their climate footprint, the real opportunity rests in the hands of the federal government. Manufacturers don’t want to face “a patchwork of different requirements,” Stashwick says. “They should be able to coalesce around high-quality pro-climate specifications. The federal government has a unique role around that.”

Standardized procurement requirements created by the federal governments—like the system described in the World Economic Forum’s report—could bring everyone onto the same page.

Many manufacturers of products such as concrete and steel already have climate-friendly alternatives ready to go at a reasonable cost, Stashwick continues. Successful contracts carried out in the private sector have given researchers real-world data that prove the effectiveness and efficiency of these green products.

“In many instances, emissions reductions of 10, 20, 40 and even 50 percent are readily available to manufacturers. They just haven’t had a reason to do it. They haven’t had a signal,” Stashwick says. “The government can use its purchasing power not just to reduce the emissions of any one particular project they’re working on, but (to) create early markets for these new materials.”

Notably, the Build Back Better Act has a number of provisions built into it that would help bring green building materials to the forefront of public use.

“A lot of the pieces that would support the low-carbon materials are in the Build Back Better (Act),” Stashwick continues. “There’s an opportunity for the federal government to step in and play a critical role in creating a foundation for procurement. … Marrying those things up is a huge opportunity, and it would be a huge missed opportunity—for the climate, for equity, for jobs—if this doesn’t happen.”

Beyond fixing crumbling roads and building new broadband connections, implementing green practices would impact society long after federal funding has dried up. Influencing suppliers to adopt cleaner manufacturing processes through public procurement would fundamentally change products and processes across industries. Manufacturers working with the government on massive projects would, in turn, sell their products to buyers in the private market, changing public expectations and social attitudes toward climate change.

In the global push toward a greener future, Hildebrandt says, “The impact of public procurement can be huge. But we know making this shift is not easy, since public procurement is de-central across federal, states, and agencies. A concerted effort, however, with the passing of green procurement-related legislatures, like the Buy Clean California Act, for example, can go a long way in making this shift, and as we highlighted in our report, lead the way in the transition to the net-zero economy with long-term sustainable economic growth.”

This article originally appeared in the Q1 2022 issue of Government Procurement.