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Could procurement the most effective lever for US climate action?

© Shutterstock / lumerbPost Thumbnail

The Biden administration’s Climate Smart Buildings Initiative has the potential to mobilise $8 billion in private-public partnerships (PPPs), adding to the president’s executive order to invest $2.3 billion in building climate resilient infrastructure.

US federal government is to leverage $8 billion in private investment through an order to reduce emissions from federal buildings. Federal use of ESPCs alone is expected to increase from $250 million in 2021 to $1.2 billion in 2030.

The order shows how procurement can affect market demand, bringing new players into the market, lower the cost of technologies and set emissions reductions goals.

This shows how governments, and corporates, can change markets through procurement plans.

While the landmark $369 billion climate and tax act is now working its way through Congress, it has appeared for some time that executive orders were going to be the only way to enact legislation addressing climate change.

President Biden has taken advantage of this and recognised the enormous influence federal procurement can have on the market. Given that 10% of the US budget ($6.8 trillion in total) is allocated to federal contracts, the impact on the market of in climate smart investment would be transformational.

The power of federal procurement

While the full power of federal spending is not yet aligned, the US government’s new programme to modernise its stock of 300,000 federal buildings could significantly contribute to the federal net-zero target. The initiative could spur $8 billion in PPP investment, by government estimates, and achieve 2.8 million tons of GHG reductions annually by 2030.

This order builds on federal government targets that have already been set and is part of Biden’s Federal Sustainability Plan. The federal government has set a net zero target of 2050 overall. Its near term targets are for its building portfolio to be net zero by 2045, with a near term target of 50% decarbonisation by 2030.

The majority (75%) of the emissions associated with public procurement come from six industries: defence and security, transportation, waste management services, construction, industrial products, and utilities. The green procurement framework designed by the World Economic Forum (WEF) and BCG Consulting could help governments accelerate their path to net-zero.

According to the framework this can be achieved through a few short steps:

  • Create transparency in baselines and targets
  • Optimise products for greenhouse gas abatement across their life cycle
  • Define product and supplier standards and work with suppliers
  • Develop the wider ecosystem and create buying groups
  • Transform the procurement organization and align across agencies

Investment opportunities and job creation, all at a reasonable cost

It has been estimated that the private investment and new jobs triggered by greener public procurement, in aggregate, could boost global GDP by around $6 trillion through 2050 – a significant proportion of the green economy’s total GDP of $70 trillion. At the same time, a lot of the GHG emissions associated with public procurement could be mitigated for a reasonable price.

In January 2022 WEF estimated that ‘approximately 40% of all emissions related to public procurement can be abated for less than $15 per tonne of GHG emissions, raising procurement costs by just 3% to 6%.’ And that’s not taking into consideration the cost curve of such technologies. In the last decade the cost of solar and wind technologies have fallen 90% and 80% respectively. A market-wide shift to climate smart technologies could see costs fall rapidly.

Climate action through executive order

President Biden’s efforts to enact legislative action on climate change has faced opposition from both sides of aisle, leading the administration to act through executive order.

Executive orders have become de rigueur in for the executive branch to overcome opposition in enacting climate change policy. Through a series of executive orders, the Biden administration has sought to reverse the course of climate action undoing perpetrated by the Trump years. Yet to meet its COP26 commitments and net zero targets, the US needs the scale of change that can seemingly only be achieved via legislative action.

Why legislative action is difficult in the US

The $369 billion climate and tax package announced by Senator Schumer (NY) and Senator Manchin (WV) in July 2022 raises hopes the US may meet is 2050 goals, but caution over its passage in congress is warranted. Besides the supreme court decision to strike down the EPA’s clean power plan (West Virginia v. Environmental Protection Agency), the deal includes a number of provisions on fossil fuel that Manchin secured from Shumer and Pelosi, which are sure to find opposition among activists, and in turn provide fodder for the opposition to fight, delay or even kill the package.

“I wasn’t budging from making sure we had a robust energy portfolio,” Mr. Manchin told a West Virginia radio show following the agreement. He talked about holding firm against unrealistic plans by some Democrats to “get rid of all fossil fuels, get rid of all coal, get rid of all oil, everything. Yeah, and we’ll go to hell in a handbasket.”

The introduction of the landmark package may well take the remainder of Biden’s presidency to pass Congress, with members of the opposition well versed in delay taxes. The latter could be driven by hopes of a Republican presidency in the next term, which may undo some or all of the work done by the Democratic administration  towards addressing climate change.

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