President Obama meets with employees of Smith Electric Vehicles in Kansas City, Mo. Companies that take inventory of their greenhouse-gas emissions will stand a better chance of winning federal business under a new plan. (Pete Souza / The White House)
Government contractors will have to track their greenhouse gas emissions or risk losing out on new contracts, under a new General Services Administration plan.
The requirement, which could take effect in fiscal 2011 or 2012, is a tall order: Few companies currently track their emissions.
But GSA is in a strong position to achieve this goal, said Cliff Majersik, executive director of the Institute for Market Transformation, a nonprofit that advocates for energy efficiency in the private sector.
"The government has enormous leverage," Majersik said. "It's the largest customer in the country. It can move the market to a great extent and be an enormous leader toward sustainability."
Vendors that create an inventory of their overall greenhouse gas emissions will get preferential treatment when bidding on contracts, under GSA's plan, which is still being reviewed by the Obama administration. Companies would get extra credit for tracking emissions throughout their supply chains and getting third-party verification of their findings.
"Making this a mandatory source selection factor for all contract awards would send a strong signal to the supplier base and would begin to move the market to a position where gaining insight to a supplier's sustainability would be possible," the GSA report states.
GSA prepared the 65-page report for President Obama, who issued a far-reaching executive order in October telling agencies to find ways to cut their emissions. In that executive order, Obama suggested requiring contractors to report their greenhouse gas emissions and then formulate plans to reduce them. GSA's report says that's not feasible, at least in the short term. It recommends, instead, that federal contracting officers ask companies to voluntarily take a corporate-wide inventory of their greenhouse gas emissions and have those data verified by a trusted third party — if they are capable of doing that.
They would then report to the government whether they have done this. If they have, this would become a factor in any contract competition in which they participate.
Over the next two years, GSA said federal acquisition rules will likely need to be revised to reflect the changes, and new training programs will need to be created and rolled out to the entire federal acquisition work force.
Down the road, once many companies are able to do this, they will then start calculating greenhouse gas emissions at the product level, GSA said in its report.
Obama's executive order "will naturally lead agencies to look for opportunities to reduce the emissions from their supply chains," the GSA report says. "With agencies looking for reduction opportunities, suppliers will want to add low GHG emissions as part of their value statement [during contract competitions]."
GSA also called for agencies to modify their online purchasing systems, such as GSA Advantage and the Defense Department's Electronic Mall, in order to showcase emissions data provided by vendors.
Contractors demonstrating low emissions could also be given set-aside contracts in the same way that small and disadvantaged businesses are today, the GSA report said.
GSA officials were not available to comment on the report.
Alan Chvotkin of the Professional Services Council said giving preference to contractors that track their emissions could exclude companies that produce high-quality products that aren't as environmentally friendly.
"It can operate as a barrier to competition," he said. "The impact could be significant."
Most firms — especially smaller ones — will be starting from square one. The Climate Registry, one of the largest greenhouse-gas emissions registries in North America, gets reports from only about 400 organizations. That's 0.07 percent of the almost 600,000 companies registered to receive government contracts or grants, GSA points out in its report.
Stephen Engler, head of Deloitte's U.S. carbon management services practice, expects that situation to change. Many large companies, such as utilities, oil refiners, or iron and steel producers, are already measuring their emissions, either on their own or in response to a recent Environmental Protection Agency requirement that certain companies collect and report emissions data. Others are starting to move in that direction, he said, and GSA's initiative could be a deciding factor.
"You've got companies on the bubble deciding, ‘Should we look at this or should we not?' " Engler said. "This could be enough of a nudge."
Experts consistently mention Wal-Mart's initiative to track the environmental impact of companies in its supply chain, and said GSA's effort could be the public-sector equivalent.
Wal-Mart is requiring all of its suppliers to calculate and reduce their greenhouse-gas footprints.
"When Wal-Mart says, ‘I want you to jump,' the vendors typically say, ‘How high?' " Majersik said.
Measuring emissions can be a headache for smaller companies, said Denise Sheehan, vice president of government and regional affairs for the Climate Registry.
"A lot of companies who supply to Wal-Mart don't even know what a greenhouse-gas emission is," she said. "They are starting to kind of pay attention."
The federal government will likely encounter this confusion, as well, and will need to set up clear metrics and a standardized process for emissions reporting, Sheehan said. GSA acknowledges this in its report, and suggests several solutions, including the "carbon footprint tool" it has developed for agencies to calculate their own environmental impact. The report concludes that selecting a method for vendors to disclose their emissions and for that data to be passed on to contracting officers is an area that "require(s) further exploration."
GSA indicates in its report that in a few years, it might be possible to better examine the environmental impact at each level of the supply chain, and to force contractors to calculate and report their greenhouse-gas emissions. For now, the agency recommends simply nudging contractors in that direction.
Engler said measuring emissions in the private sector usually starts with a small team collecting data on a firm's most basic emissions — such as the fossil fuels it burns or the electricity it uses — in Excel spreadsheets. As those efforts evolve to examine the supply chain and calculate indirect emissions, such as what greenhouse gases are generated by products and services the company purchases, measurement can cost hundreds of thousands of dollars for a large firm, Engler said. It typically takes several years for companies to fully implement a greenhouse-gas measurement program, he said.
Chvotkin said he is pleased that GSA didn't ask vendors to track so-called Scope 3 emissions, which would mean drilling down to measure the environmental impact of items like commuting employees or flights booked for business travel. Vendors will initially be asked to measure only the emissions that they create by burning fuel themselves and the energy they directly consume, such as electricity.
GSA's report incorporates some recommendations that PSC made in December. Most important of those, Chvotkin said, was PSC's request in a letter to GSA that "the government's approach ... must be focused on incentives and not viewed solely as a matter of contractor compliance."
The report states that "GSA decided that an incentive-based approach ... would be most effective in providing agencies with supplier GHG emissions data."
Paul Campbell, head of Deloitte's energy trading and risk management practice, said many firms will choose to move forward on greenhouse-gas reduction even in the absence of a federal mandate.
"Just the act of measurement itself often will identify energy efficiency opportunities, and companies will move forward with reduction without an external incentive," he said.
Readying the work force
GSA's report acknowledged the potential impact on an already overburdened acquisition work force of adding another task to the procurement process. The agency pledged to lead efforts to train workers on new greenhouse-gas reporting requirements and procedures.
"The key challenge for the government is to operationalize this," Majersik said. "To make sure their procurement agents all up and down the line ... understand this is a requirement. They have to be evaluated and held accountable for measuring and improving the sustainability of their actions."