Government spending could save the world - so what's holding it back?

Governments' purchasing decisions can have huge consequences for markets.

During the US Civil War, the Defense Department required clothiers to manufacture uniforms in small, medium, and large sizes, a new innovation in a world that knew only bespoke clothing and one-size-fits-all, and one which changed the way clothes are made and sold.

In the 20th century, US government contracts for energy-efficient appliances and computers led to more efficient machines, marked by the Energy Star label. Now in the 21st century, governments large and small are throwing their buying power behind efforts to transition to lower carbon, resource-efficient, greener economies.

“The state has a power to transform markets,” said Farid Yaker, the Paris-based program officer for sustainable public procurement at the United Nations Environment Programme (Unep).

The power of procurement

Sustainable public procurement (SPP) is where purchasers look for resource-efficient products that are made with fair trade labor practices, reduced impacts on ecosystems, limited pollution, and a responsible lifecycle, from extraction of raw materials to disposal of goods.

Developed countries spent about 13% of GDP on public procurement in 2011, while some developing nations spent 20%, according to the United Nations. The potential impact is trillions of dollars globally, said Achim Steiner, UN Under-Secretary-General and executive director of Unep.

Now the idea has gone truly international, via a new scheme, the Sustainable Public Procurement Programme. It was launched last month by three partners UNEP; ICLEI-Local Governments for Sustainability, a nonprofit organization based in Bonn, Germany, serving cities in 84 countries; and the Korea Environmental Industry and Technology Institute (Keiti). Their goal is to help governments around the world make this shift via education and support, offering access to experts and tools.

Unep credits SPP with the transformation of economic sectors and the emergence of more sustainable products, including recycled paper, sustainable timber, green building materials, electricity from renewable energy sources, sustainable agriculture, and greener electronics.

The new program is the first of a suite of initiatives to be rolled out under the UN’s 10-Year Framework of Programmes on Sustainable Consumption and Production (10YRP), a document that came out of the 2012 Rio+20 meeting. The SPP Programme will educate governments about the benefits of sustainable procurement and support them in implementing their own programs through access to experts and tools.

The rollout of this program has been in the works for more than a decade, said Yaker. “We were inspired by the Rio summit in 1992, and the 2002 Johannesburg summit really put the focus on changing patterns of production and consumption,” he said.

Barriers to sustainable procurement

Still, SPP remains an emerging effort, with lingering problems. A key criticism is that sustainable procurement costs more. But “you have to look at the lifecycle costs,” said Yaker. An LED bulb may cost more initially, but lower electricity costs and a longer lifespan means the total cost of ownership is lower than an incandescent bulb. The same is true for energy-efficient appliances, buildings, and cars, he said.

Procurers should also internalize externalities, said Yaker. For example, regions that have a price on carbon dioxide emissions can realize long-term benefits by investing more today in electric cars. “If you introduce that value in the procurement price, you can arbitrate in favor of goods that consume less,” said Yaker.

And while greener products might be more expensive initially, government procurement can drive economics of scale. A good example of this is South Korea. A dedicated sustainable procurement policy saw government spending on green products increase from $768m in 2005 to $1.68bn in 2012. During the same period, the number of green certified products rose from 2,721 to 9,140, and nationwide sales of those products increased ten-fold, from $3.3bn to $30.3bn. South Korea “started by procuring more expensive products,” but, according to Yaker, "demand increased and industry invested in facilities, which brought down prices.”

A lack of unity among key players in governments, including conflicting standards about what constitutes a sustainable product is also a key barrier to SPP.

In the US, where the federal government procures more than $500bn annually in goods and services, President Obama issued an executive order in 2009 that requires 95% of all new contracts to use products and services that are energy- and water-efficient, biobased, environmentally preferable, non-ozone depleting, contain recycled content, or are nontoxic or less toxic alternatives. His order was an update to several previous orders on the topic going back to 1993.

But there has been lingering confusion and lack of agreement about performance standards. A 2010 Congressional Research Service report said, “The federal approach to green procurement is arguably largely piecemeal and fragmented.”

Federal agencies continue to work on this problem, but it’s not solved yet. An updated CRS report from 2013 said, “Some members of congress sought to restrict the Department of Defense’s purchase of biofuels as part of the National Defense Authorization Act for FY2013, and some commentators have objected to GSA’s use of the Leadership in Energy and Environmental Design (Leed) rating system for buildings.”

The lack of consistent standards across government agencies has brought frustration for small and large businesses that are trying to compete for these lucrative markets.

In some cases, corporations are doing their own sustainable procurement, said Yaker, citing Walmart’s recent efforts to command markets by selling greener products. “Right now there are essentially two worlds: private companies doing things on their own and the world of governments,” he said. “One aim of the [Unep] program is to build a bridge between these two worlds to synergize their efforts.”

Europe and South Korea show the way

Other regions are seeing more unified goals and targets are paying off.

Europe has benefited from a close collaboration with ICLEI, a 20-year expert on sustainable procurement. In 2004 ICLEI launched the European-focused Procura+ campaign to create methodology to help European authorities to implement SPP in six product groups, including buses, cleaning products, green electricity, food, IT, and building construction, said Mark Hidson, the Freiburg, Germany-based director of ICLEI’s Global Sustainable Procurement Center. Thanks in part to ICLEI’s work, SPP in Europe now has agreed-upon criteria for 21 product and service groups.

A 2011 survey of 26 EU member states evaluated more than 230,000 contracts for approximately €117.5bn. Only 26% of contracts in the 2009-2010 study period included all SPP criteria, shy of the 50% target by that date. However, 55% included at least one SPP criterion, showing some green procurement on a large scale.

Halfway across the world, “South Korea is one of the best pupils in the class,” said Yaker. In the last eight years, since the passage of an act to encourage green purchasing, the public sector’s green procurement of 19 items – from printers and toilet paper, to aluminum window frames - reduced the country’s CO2 equivalent emissions by 3.71m tons and created 12,143 new jobs, according KEITI.

KEITI attributes the success to various factors, including an institutional agreement among key stakeholders, guidance and training for procurers (62,269 people attended training sessions between 2005 and 2013), and financial and reputational incentives. Institutions share case studies and best practices.

Moving forward, Unep and partners are also working with international donors and multilateral development banks, such as the World Bank, to get them on board. “It’s a tremendous opportunity because it’s huge sums of money lent to countries with conditions on how the governments spend these funds,” said Yaker. “For example, if they require governments to purchase only vehicles with limited emissions, tens of thousands of vehicles around the world would be emitting less.”

ICLEI is going even further, with its public procurement of innovation, launched in 2013. “It encourages innovation through procurement, bringing new products and services onto the market that meet the needs of users, public authorities, and societies,” Hidson said.

Erica Gies is an independent reporter who covers water and energy for The New York Times, The Economist, Scientific American and other publications.

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