The White House is reviewing two rules that could push the federal government to spend billions each year on climate-friendly products and services, potentially sending reverberations across the economy.
Federal agencies spend an estimated $630 billion a year on goods that range from the mundane, like notebooks, to the extraordinary, such as warships. If guided by new regulations that prioritize products with lower carbon footprints, the government could accelerate the uptake of goods like electric vehicles, efficient heating and cooling units, and cement that emits fewer greenhouse gases.
“The federal government is such a large purchaser of so many items that when they start to look at something or encourage it, it can spread to the private sector, not as a mandate, but on a voluntary basis,” said Steven Rothstein, managing director of Ceres’ Accelerator for Sustainable Capital Markets program. He noted that the federal government pays for half of all cement purchased in the U.S.
President Joe Biden signed an executive order in December 2021 setting the government on a path to use net-zero carbon power by 2030. It also commits federal buildings to be net zero by 2045, with agencies buying only zero-emissions vehicles by 2035. And the order’s “Buy Clean” initiative supports lower-carbon construction materials in federal procurement and grants to state and local governments.
White House Chief Sustainability Officer Andrew Mayock said in a statement to E&E News that the administration had spent more than $4 billion through that initiative on “American-made clean construction materials, such as concrete, glass, and steel, and federal facilities in 16 states have already entered into agreements with utilities to reach 100 percent carbon pollution-free electricity by 2030.”
“These initiatives and others will help transform markets and catalyze technologies to reach our nation’s climate goals,” he said.
Now, as the clock ticks down to the end of Biden’s first term, the administration is preparing to use the Federal Acquisition Regulation (FAR) — which governs how federal agencies spend their massive budgets — to add another boost to lower-carbon goods and services.
The White House’s Office of Management and Budget is vetting two FAR Council rules that could move that needle. The first, which is due to be finalized in April, would build on an existing advantage for products that participate in eco-labeling programs like WaterSense, an EPA water efficiency program, and Energy Star, an energy efficiency certification program that EPA administers with the Department of Energy. The White House began reviewing the rule Monday.
The second rule is still a proposal that has been under review at OMB since September, so it probably won’t be finalized before Biden’s term ends. But its impact on how federal dollars are spent if Biden wins a second term would be far-reaching.
That’s because the rule — dubbed “Minimizing the Risk of Climate Change in Federal Acquisitions” — would build considerations about climate change into all aspects of government procurement.
“This is one that has gone under the radar for a lot of people, and I think it’s going to be really impactful,” said Tom Daley, an attorney at DLA Piper.
The rule will probably ask agencies to use the social cost of greenhouse gases to tally climate damages when weighing a purchase. The White House has already started to lay the groundwork for using the metrics — which have long been a regulatory tool — in government procurement. Last year, it issued a memo that asked agencies to look for “large, durable, energy-consuming products and systems” to act as pilots for incorporating the social cost values into purchasing decisions.
The White House budget office told E&E News in an email that it was “working with agencies’ procurement offices to educate staff about using the [social cost of greenhouse gases] in procurement, identify appropriate opportunities to do so, and forecast future agency requirements that the [social cost of greenhouse gases] is likely to affect.”
The metrics seek to monetize the societal and economic impact of each ton of carbon, methane or nitrous oxide pollution that enters the atmosphere. The Biden administration has used two versions: 2021 “interim” figures that valued carbon at $51 per ton and last year’s EPA revision that priced carbon at $190 a ton.
The Office of Management and Budget said a White House working group had already instructed agencies to use their own “professional judgment” in choosing which social cost figures to employ. OMB noted that the same December memo outlined “developments in the scientific literature” since the lower interim values were released and then were incorporated into EPA’s higher estimates.
‘Direct impact’
The FAR Council is composed of the General Services Administration — effectively the government’s landlord — the Department of Defense and NASA. The three agencies and the White House Office of Federal Procurement Policy set government procurement policy.
In October 2021, those agencies asked the public to weigh in on how the social cost of greenhouse gas metrics could “best be qualitatively and quantitatively considered in federal procurement decisions.”
They received more than 35,000 comments. But economists say applying the social cost of greenhouse gases to procurement is fairly straightforward.
“It is about the most direct use of the social cost that government can muster that actually involves direct impact on the real world,” said Gernot Wagner, a Columbia Business School climate economist who served on the peer-review panel for EPA’s social cost metrics.
The FAR Council is advancing a separate rule on greenhouse gas disclosure, which is only expected to be finalized if Biden wins a second term.
Agencies could simply multiply a supplier’s emissions by the social cost of greenhouse gases and consider those costs, along with a purchase price, fuel, maintenance and other expenses, in projecting the cost of products to the government over their lifetime.
Steven Schooner, a George Washington University Law School professor who served in the White House procurement office in the 1990s, said this was consistent with the government’s current best practices on procurement.
“Life-cycle thinking or life-cycle cost analysis is the process of not just focusing on purchase price, but instead focusing on the total cost of ownership,” he said.
The social cost of greenhouse gases metrics have rarely been the deciding factor in a government decision. But procurement could be an exception. That’s because options that are less damaging to the climate might now show lower life-cycle costs compared with competitors. Agencies can choose costlier options, but they generally need to have a good reason for it.
Schooner said it was in the government’s interest to pay a premium to minimize its own exposure to climate risks — like the cost of infrastructure repair after storms or the military response to warming-fueled global instability.
“The reason we have climate change is nobody’s had to pay the real cost of fossil fuels. No customer bears the unpriced externality more than the government,” he said. “So the government should be far more willing than any other customer to pay a price premium to avoid bad outcomes in the future.”
The FAR Council’s proposal on the social cost of carbon hasn’t received much attention yet from Republican lawmakers. But GOP members of the House Science, Space and Technology Committee did publish a memo last month decrying the separate but related proposal for greenhouse gas disclosure.
That rule, which the FAR Council proposed in 2022, would require government vendors and contractors that do at least $7.5 million a year in business with the government to disclose their greenhouse gas emissions. Major vendors with contracts topping $50 million a year would be responsible for disclosing their suppliers’ emissions.
They are also required to produce an emissions target that aligns with the temperature goals of the Paris climate agreement and have it validated by the Science Based Targets initiative. The Republican memo suggested that the reliance on “quasi-governmental” third parties might be illegal and promised an investigation.
The FAR Council rule on sustainable procurement has also flown under the radar, despite the fact that it is likely to be final this spring — long before the disclosure rule or carbon rule.
In the past, agencies were encouraged to buy products that participated in certain eco-labeling programs like Energy Star or WaterSense. But last summer’s draft rule directed agencies to do so “to the maximum extent practicable.” Agencies seeking exemptions to that requirement would have to jump through hoops.
“There’s now going to be a higher standard for agencies to not use the products that are covered by one of the programs,” said Daley, the DLA Piper attorney, who specializes in government contracts.
He said companies that make sustainable products — like low-flow toilets — may have standing to file a pre-award bid protest if an agency fails to prioritize sustainability.
