Suppliers are interested in low-carbon goods and services, but doubts over demand limit investment. Becky Slack examines carbon compacts, which demonstrate that customers really are hungry for eco-friendly supplies
November 2009 saw devastating floods hit Cumbria. A life was lost, homes and businesses were destroyed, and schools, hospitals and vital infrastructure were damaged as heavy rainfall caused rivers and streams to break their banks.
Incidents such as these are on the increase across the UK. Many scientists believe them to be the result of climate change; they predict more extreme weather in the future. And such events do not come cheap. Flood damage alone already costs Britain £1bn a year, while the Stern Report – commissioned in 2006 by the Labour government to investigate the potential costs of climate change – estimated that a failure to respond could cost 5-20 per cent of global GDP every year.
Acknowledging that this is too expensive a problem to ignore, in 2008 the UK government introduced the Climate Change Act, which committed the country to a reduction in greenhouse gas emissions of at least 34 per cent by 2020 and 80 per cent by 2050. In addition, the coalition government has pledged to reduce its carbon output by 25 per cent by the end of this Parliament.
Achieving these goals will require a dramatic fall in the carbon footprint of goods and services. Yet at present, in most markets it’s impossible to find goods and services that are both low-carbon and affordable. According to the Prince of Wales’ Corporate Leaders Group on Climate Change (UK CLG), the reasons for this are two-fold and interlinked: a perceived lack of customer demand means suppliers are unwilling to invest in developing new low- or zero-carbon products; while customers are not asking for such products as they are not yet available.
A problem shared…
One way of rectifying this, the government believes, is through the introduction of ‘low carbon procurement compacts’: agreements, signed by both public and private sector organisations, that commit the signatories to purchasing high volumes of low- to zero-carbon products and services. These demonstrate to suppliers that there is enough market demand to justify investment in the research and development required.
With the help of the UK CLG and the Department for Business, Innovation and Skills (BIS), the government this month launched its first such compacts. The aim is that by taking measures to stimulate and reward the supply chain in its efforts to reduce carbon emissions, government and large businesses will soon be able to procure in a way that has a much lower environmental impact. So far, 25 departments and businesses have signed up, including the Cabinet Office; the Department for the Environment, Food and Rural Affairs; the Department for Energy and Climate Change; and the Ministry of Justice.
“In the past, traditional procurement hasn’t been that strategic – or where it has been strategic, it might not have been directed at carbon efficiency,” explains Gaynor Whyles of JERA Consulting, who has been working with BIS and UK CLG on the scheme. “This initiative provides a good opportunity for the public and private sector to work together to influence and stimulate the supply chain for goods and services that are needed for the future. We can’t move to a low-carbon economy if goods and services are high-carbon.”
This is not just about using more energy efficient lightbulbs and printers (although that is important). This is about removing carbon from the entire supply chain: from all the materials and energy used in products’ manufacture, storage and transportation. For example, engineers at Anglian Water recently redesigned their water pipes so they use less plastic and more eco-friendly paints and dyes, reducing the company’s carbon footprint.
One small step at a time
In recognition of the ever-increasing demands on procurement officials – who are currently re-engineering buying systems using LEAN principles, attempting to re-interpret some EU regulations and procuring more from SMEs, to name just a few current agendas – the aim is to keep things simple and move slowly. For now, the focus is on three high-spend pilot areas – transport, energy and catering – with the potential to expand into other sectors and industry areas at a later date.
It is also to be an evolving process, says Martin Chown, a Government Procurement Service executive director, and suppliers won’t be expected to suddenly come up with the goods overnight. He uses the Transport Compact to illustrate what he means: “We have started to set different standards, depending on the vehicle. Each time we launch [a procurement] auction, we set lower and lower carbon standards,” he says. “We will ask the market to reduce emissions and drive innovation, but we want to make sure there is a level of competition. If we do not restrict it too quickly, we can still get a good market comparison.”
All views welcome
Key to the success of the scheme is an extensive market engagement process that will ask for views on how best suppliers and customers can work together.
“There is a myth in procurement that you can’t engage with suppliers. That is not true,” says Whyles. “Yes, you have to be aware of maintaining level playing fields, but [suppliers’] engagement in the pre-procurement process is critical. If suppliers don’t know what is needed, they can’t deliver it. One of the mistakes in the past has been that government hasn’t given enough advance notice of what it is looking for. Arguably, this could be part of the reason why some IT systems have been less successful than others: because there was a failure to engage with suppliers over the specifications.”
The aim is that this engagement process will provide suppliers with details of what products and services are required and the opportunity to inform their design, and the government with a sense of the potential barriers to delivering them. Workshops and steering groups will then bring teams together to explore in more detail what is needed to deliver the projects, and develop a plan for doing so. This will subsequently be put into action as relevant tenders open for applications.
The government is aware that there is a lot to do and that there is plenty of potential for error. However, carbon compacts appear to provide a way to kick-start a set of essential changes. “Where do we go from here? We don’t claim to know the answers,” says Whyles. “But unless we start talking and looking at [procurement] specifications we’re not going to be able to deliver.” And simply doing nothing is not an option – just ask the people of Cumbria.
Supply and demand: progress so far
The low-carbon procurement compacts, signed by government departments and big businesses, provide evidence to suppliers of the high levels of customer interest in environmentally-friendly products and services
Transport
Assured demand: The GPS is tendering in 2014 for replacement vehicle purchase, hire and lease frameworks with a potential value of £800m.
Desired supply: Vehicles that can provide a clear path to zero carbon emissions, while meeting the need for rapid refuelling times and long range.
Energy
Assured demand: The government buys approximately £1.5bn of energy every year.
Desired supply: Renewable biomethane that can be used to generate cost-effective, low-carbon heat or power.
Catering
Assured demand: The total energy consumption of Britain’s catering industry is estimated to be in excess of 21bn kWh per year. More than 50 per cent of this comes from non-commercial catering such as schools, hospitals and defence bodies.
Desired supply: Progressively lower-carbon catering goods and services in areas such as logistics, cooking equipment, waste management and food preparation.