Federal purchasing power, green economy and sustainable management
As President Biden waits for our dysfunctional Congress to act on its Build Back Better agenda, last week he took major executive action to shift the power of federal government procurement behind the green economy. According to the White House fact sheet:
âThe presidential decree orders the federal government to use its scale and purchasing power to achieve five ambitious goals:
- 100% carbon-free electricity by 2030, at least half of which will be clean energy supplied locally to meet demand 24/7;
- 100% zero-emission vehicle acquisitions by 2035, including 100% zero-emission light vehicle acquisitions by 2027;
- Net zero emissions from federal government procurement no later than 2050, including a clean purchasing policy to promote the use of building materials with lower inherent emissions;
- A portfolio of net zero emissions buildings by 2045, including a 50% reduction in emissions by 2032; and
- Net zero emissions from overall federal operations by 2050, including a 65% reduction in emissions by 2030. â
The purchasing power of the federal government is enormous, and an executive order like this will have a substantial impact on companies looking to manufacture and sell green products. As the backgrounder notes, “By transforming the way the federal government builds, purchases, and manages its assets and operations, the federal government will support the growth of America’s clean energy and clean technology industries …”
The federal government owns 300,000 buildings and 600,000 vehicles. Its non-staff budget is approximately $ 650 billion per year. Buildings all need energy to function and vehicles are replaced on a regular basis. Although it will take decades to decarbonize the federal government, its enormous market strength will accelerate the profitability of companies in the renewable energy, energy efficiency and electric vehicle industries.
While the decree exempts operations directly related to national security and intelligence gathering, the Department of Defense has been working on climate adaptation since 2014, and over the past decade, environmental sustainability has been gradually mainstreamed. in military operations and planning. In the summer and fall of 2020, I advised a group of graduate students engaged in a management simulation of a proposal to decarbonize non-combatant elements of the Department of Defense.
My students have demonstrated the feasibility of this initiative. In fact, the military was the first to use solar power during the Iraq war to reduce the use of oil tankers, which were highly vulnerable to roadside improvised explosive devices.
In addition to reducing carbon emissions, the decree requires agencies to increase water efficiency, reduce and recycle waste, prevent pollution, and focus on the environmental sustainability of their supply chains. It also requires each agency to submit annual plans showing environmental progress and, perhaps more importantly, requires the creation of organizational capacity within the federal government to manage the implementation of President Biden’s Green Order. Under article 501 of the decree:
âThe Office of the Federal Director of Sustainability is re-established within the CEQ. EPA will provide funding and administrative support for the Agency.
(a) The Bureau is headed by a Federal Director of Sustainability, who is appointed by the President. The Federal Director of Sustainability will lead the development of policies, programs and partnerships to implement the policies set out in this order, advance sustainability and climate-resilient federal operations, and ensure that the federal government gives the example in the fight against the climate crisis.
(b) Heads of all agencies should cooperate with the Federal Director of Sustainability and provide such information, support and assistance as the Federal Director of Sustainability may request, as appropriate and in accordance with applicable law.
Section 502 of the executive order requires each federal agency to appoint an agency sustainability officer, and there are other requirements for the Office of Management and Budget and other parts of the federal government to ensure the implementation implementation of the decree.
In my opinion, this Order in Council mandates sustainability management in the federal government. Just as agencies must submit and manage their financial resources through a highly institutionalized planning and budget management process, they will now need to manage their physical resources in accordance with the principles of environmental sustainability. We will know if this is real if agency sustainability managers are seen as senior managers within their agencies. The decree and its conception of implementation are excellent first steps, but they will only make sense if the president and his inner circle of advisers take them seriously and hold the agencies accountable for their performance.
Some organizations tend to view environmental sustainability as less than serious. In these organizations, sustainability is seen as public relations rather than part of managing operations. Despite these sustainability imposters, many organizations have come to recognize that inefficient or expensive energy, unmanaged waste and environmental responsibility can be a major drag on organizational performance and business profitability. In some organizations, sustainability managers are not considered important. In others, they are central actors in the formulation of organizational strategy and decision-making.
Despite all of its slow, process-oriented behaviors, the federal government tends to take rules and orders seriously. Visible efforts will be made to comply with Biden’s order. But we’ll have to look at the product and outcome performance metrics to see if something is really going on. It should be easy to count the number of electric vehicles purchased. Energy audits can be performed on government buildings and it will be possible to track changes in procurement practices. Data on waste and recycling are also relatively easy to record and analyze.
It will be more difficult to assess the impact of President Biden’s order on the rest of the economy. If Build Back Better is enacted and added to the trillion dollar infrastructure bill, more than $ 500 billion will be added to the federal environmental management budget over the next decade. Combined with green procurement from the federal government, there will be a massive infusion of funds into the green economy. We will not know how much this sector would have grown without federal spending, and it will be difficult to disentangle the various sources of federal funding. But I suspect there will be synergistic effects as the combined strength of federal spending is interpreted by managers and private sector investors when making decisions about corporate spending. The rapid commitment of large capital investments by U.S. automakers in electric vehicles is one example of the potential impact of Biden’s green program.
I also expect to see Biden’s decree emulated by state and local governments. We are already seeing companies and large institutions announcing carbon reduction targets. Growth in corporate sustainability reports and finances suggests Biden’s order may well outlast a conservative Republican administration. As I wrote last month:
ââ¦ Capital markets have finally realized that companies are not immune to environmental risks. Climate-induced drought and extreme weather conditions can disrupt operations. Toxic and invasive species can harm ecosystems and, when contagious viruses are involved, can cripple economies as they disrupt supply chains that turn out to be less sustainable than we thought. Some wealthy people and public pension funds insist on “green” investments. We’re also learning that just as businesses need to pay attention to financial and reputational risks, they also need to understand and manage their environmental risks.
While there has been no dearth of right-wing criticism of President Biden’s actions, many business leaders have expressed support for the president’s environmental agenda. Managing sustainability is fast becoming the norm, and this shake in federal resources will accelerate the growth of the green economy.