Federal purchasing power, green economy and sustainable development management
While President Biden was waiting for our dysfunctional Congress to take action on his “Rebuild Better” plan, last week, he took major administrative action to shift the power of federal procurement to the back of the green economy.according to White House fact sheet:
“The President’s executive order directs the federal government to use its size and procurement power to achieve five ambitious goals:
- To achieve 100% carbon pollution-free electricity (CFE) by 2030, at least half of which will be locally supplied clean energy to meet 24/7 demand;
- 100% zero-emission vehicle (ZEV) procurement by 2035, including 100% zero-emission light-duty vehicles by 2027;
- Achieve net zero emissions from federal procurement no later than 2050, including a “purchase clean” policy to promote the use of building materials with lower implied emissions;
- Achieve a net zero-emission building portfolio by 2045, including a 50% reduction in emissions by 2032; and
- By 2050, the entire federal operation will achieve net zero emissions, including reducing emissions by 65% by 2030. “
The purchasing power of the federal government is huge, and administrative orders like this will have a major impact on companies seeking to manufacture and sell green products.As In fact sheet pointed out: “By changing the way the federal government builds, purchases, and manages its assets and operations, the federal government will support the development of clean energy and clean technology industries in the United States…”
The federal government owns 300,000 buildings and 600,000 cars. Its non-personnel budget is approximately US$650 billion per year. Buildings require energy to operate, and vehicles are regularly replaced. Although it will take decades for the federal government to decarbonize, its immense power in the market will accelerate the profitability of companies in the renewable energy, energy efficiency, and electric vehicle businesses.
Although the executive order exempts operations directly related to national security and intelligence gathering, the Department of Defense has been committed to climate adaptation since 2014, and environmental sustainability has gradually been integrated into military operations and planning over the past decade. In the summer and autumn of 2020, I instructed a group of graduate students who are engaged in management simulation. Proposal to decarbonize the non-combat sector of the Ministry of Defense.
My students proved the feasibility of this initiative. In fact, during the Iraq War, the military took the lead in using solar energy as a way to reduce the use of oil tankers that are very susceptible to roadside improvised explosive devices.
In addition to carbon reduction, the executive order also requires agencies to improve water efficiency, reduce and recycle waste, prevent pollution, and pay attention to the environmental sustainability of their supply chains. It also requires each agency to submit an annual plan to report environmental progress, and perhaps most importantly, it requires the federal government to build organizational capabilities to manage the implementation of President Biden’s green executive order.Next section Executive Order Section 501:
“The Office of the Federal Chief Sustainability Officer is re-established within the CEQ. The Environmental Protection Agency shall provide financial and administrative support to the office.
(a) The office shall be headed by the Federal Chief Sustainability Officer, who shall be appointed by the President. The Federal Chief Sustainability Officer shall lead the formulation of policies, plans, and partnerships to implement the policies specified in this order, promote sustainable development and climate change-adapted federal business, and ensure that the federal government leads by example in responding to the climate crisis.
(b) The heads of all agencies shall cooperate with the Federal Chief Sustainability Officer and provide information, support and assistance that the Federal Chief Sustainability Officer may request as appropriate in accordance with applicable laws. “
Section 502 of the executive order requires each federal agency to appoint an agency chief sustainability officer, and OMB and other federal government departments have other requirements to ensure that the executive order is executed.
In my opinion, the executive order requires the federal government to manage sustainability. Just as agencies must submit and manage their financial resources through a highly institutionalized budget planning and management process, they now also need to manage their material resources in accordance with the principles of environmental sustainability. If the chief sustainability officer of an organization is seen as a senior manager in its organization, we will know whether this is true. Executive orders and their implementation design are a good first step, but they will only make sense if the president and his advisor’s inner circle take them seriously and hold institutions accountable for their performance.
Some organizations tend to think that environmental sustainability is less serious. In these organizations, sustainability is seen as public relations rather than an element of operational management. Despite these sustainable imposters, many organizations have begun to realize that inefficient or expensive energy, unmanaged waste, and environmental responsibility may be the main drag on organizational performance and corporate profitability. In some organizations, the chief sustainability officer is not important. In other cases, they are core participants in organizational strategy formulation and decision-making.
For all slow-moving, process-centric behaviors, the federal government tends to take rules and administrative orders seriously. There will be obvious efforts to comply with Biden’s orders. But we need to look at the output and outcome performance indicators to see if anything really happened. Calculating the number of electric cars purchased should be easy. Energy audits can be conducted on government buildings and changes in procurement practices can be tracked. Waste and recycling data are also relatively easy to record and analyze.
It will be more difficult to assess the impact of President Biden’s orders on other economic sectors. If “Rebuild Better” is promulgated and added to the trillion-dollar infrastructure bill, the federal environmental management budget will increase by more than $500 billion in the next ten years. Combined with federal green procurement, it will inject a lot of cash into the green economy. We don’t know how much this sector will grow without federal spending, and it’s difficult to sort out the different sources of federal funding. But I suspect that there will be synergies, because private sector managers and investors will explain the combined power of federal spending when making decisions about corporate spending. The rapid commitment of U.S. automakers to major capital investments in electric vehicles is an example of the potential impact of Biden’s green agenda.
I also hope to see Biden’s executive order be emulated by state and local governments. We have seen companies and large organizations announce carbon reduction targets. Corporate sustainability reports and financial growth indicate that Biden’s orders are likely to survive the conservative Republican government.As I write last month:
“…The capital market finally discovered that companies are not immune to environmental risks. Drought and extreme weather caused by climate disrupt operations. Toxic substances and invasive species can damage ecosystems, and when infectious viruses are involved, they can cause economic stagnation. , Because they will disrupt the supply chain, and the durability of the supply chain is not as high as we think. Some wealthy people and public pension funds insist on “green” investment. We also learned that just as companies need to pay attention to financial and reputation risks, They must also understand and manage their environmental risks.”
Although the right has criticized President Biden’s actions, many business leaders have expressed support for the president’s environmental agenda. Sustainability management is quickly becoming the norm, and the shock of this federal resource will accelerate the growth of the green economy.
