Public Procurement Analysis

Net Zero Sum Game: Can procurement succeed where politics fails?

The UK government’s announcement that it is delaying key climate measures, such as the phasing out of fossil-fuel cars and boilers, has caused widespread dismay and even despair this week. From a political point of view, attempts to cash in on a perceived public backlash against green measures is hardly surprising, or unique to the UK. The depth of public anti-green sentiment will be tested in both European and UK elections next year, and in a number of other jurisdictions over the next two years. The backlash to the backlash, that is, the anger of voters who feel governments are failing to deliver on climate commitments, may yet prove stronger.

One of the roles of the commercial function of government, including public procurement, is to stay above the political fray. This includes balanced, long-term strategies to address the environmental impact of public contracts, which many public bodies have been implementing for 20 years or more. The past five years have seen considerable deepening and widening of these strategies, in particular to address climate change. At the recent Social Outcomes Conference at Oxford University, I had the chance to discuss this with a range of public bodies, academics, and private and third-sector participants. Two of the themes of the conference were systems change and innovation. Systems change in public procurement requires a mix of regulatory reform, capacity building and incentivisation. Innovation procurement can be achieved in individual contracts, but also needs a supportive ecosystem to achieve scale. Both are needed for procurement to deliver meaningful environmental and social impacts.

The question here is not just who pays for environmental innovation, but how do they pay? If government is going to contribute financially to the cost of the green transition (which almost everyone agrees it should), should this be in the form of subsidies, tax breaks or grants? And should these be paid to firms or to citizens directly? The answer is probably ‘all the above’ – with the decision as to which approach makes sense for each technology or behaviour being based on the growing body of international evidence regarding the effectiveness and cost of green policies. Given the size (£300 billion in the UK, €2 trillion across the EU, $11 trillion globally) of public procurement spending, it obviously has a role to play as part of the policy mix. But evidence regarding the efficacy of sustainable public procurement measures is still rather meagre, and the evidence we do have suggests impacts are not always aligned with effort.

One of the reasons for this, in my view, is that policy makers tend to focus on the size of public procurement, rather than its nature. They see it as a lever which can be pulled, when in reality it is an octopus with tentacles reaching across most areas of the economy. Not only are public contracts hugely diverse in their subject matter (from face masks to fighter jets, and care services to cloud computing), the customers do not speak with a unified voice: the needs and capacity of a primary school are very different to those of a government department when it comes to purchasing. All of this makes both designing and implementing effective sustainable public procurement (SPP) measures very challenging: I have spent the past 14 years working on both tasks and progress has sometimes felt painfully slow. The multiplicity of approaches, terminology, metrics and priorities has at times seemed counterproductive.

Against this background, it is not surprising that some governments, companies and consultants have reached for a simple organising concept: Net Zero. This approach was adopted as part of UK procurement policy in 2021 (PPN 06/21) – with bidders on large central government contracts required to submit a Carbon Reduction Plan showing their commitment and progress towards net zero emissions in their UK operations. This aligns well with the trend towards net zero commitments as part of Corporate Social Responsibility (CSR) policies. However, as Tom Hale pointed out in his conference contribution, while the quantity of net zero commitments has increased, their quality has remained more or less flat. My conference contribution focused on the legal limits on net zero under EU procurement law (due to the link to the subject-matter requirement, analysed here and here), but also on the reasons why a focus on net zero in public procurement is misplaced. In short, by focusing on company-wide metrics we miss the opportunity to evaluate and compare project-specific carbon reduction measures. In theory it might be nice to do both; in practice both public procurers and private bidders are limited in their capacity and resources.

Take a local authority which is evaluating tenders to build new social housing. Should it award the contract to the company which has the most ambitious (or perhaps the most realistic) plans to reach net zero for its overall operations? Or should it award the contract to the company which offers the lowest carbon solution for the housing being procured? From an evaluation perspective, most public bodies (and their advisors) will be in a better position to evaluate sustainability claims for the specific activities they are procuring. From the perspective of bidding companies, only the second option rewards innovation and investment which has a measurable impact for that specific contract. A project-specific approach is also better able to avoid reliance on offsets, which many corporate net zero commitments rely upon.

According to a report published by the World Economic Forum in 2022, up to three-quarters of emissions associated with public procurement stem from six industries: defence and security, transportation, waste management services, construction, industrial products, and utilities. The report also suggests that approximately 40% of all GHG emissions related to public procurement could be abated for less than $15 per tonne, raising procurement costs by just 3% to 6%. If this is true, there is a role for both legislation and policy to target these emissions and authorise the public spending needed to abate them. At the moment, both EU and UK legislation stops short of mandating environmental criteria in most tenders. Experience with mandatory approaches to SPP, and the potential to extend this approach, forms the subject of a new book edited by Roberto Caranta and Willem Janssen, to which I contributed a chapter on the transport sector. It is not a straightforward path, but the relative obscurity of public procurement may help to protect it from sharp changes in political headwinds.

(Photo by Scott Rodgerson on Unsplash)


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