On September 21, the Biden administration approved recommendations from the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG), directing federal agencies to consider the Social Cost of Greenhouse Gases (SC-GHG) in federal procurement processes.
The announcement opens the door for climate-related preferences to be incorporated in agency solicitations and procurement decisions.
Part of a Broader Effort
This action figures into a broader Biden administration effort designed to leverage its procurement power to fight climate change, beginning with announcing a proposed rule in November 2022 that would require certain federal contractors to disclose their greenhouse gas (GHG) emissions, assess their climate risks, and set emissions reduction targets to meet the Paris Agreement goals. The decision received a largely unenthusiastic response from the contracting community worried about capacity limitations and administrative burdens. We wrote about the proposed rule in a November 2022 blog post.
In addition, the Federal Acquisition Regulatory Council (FAR Council) has been tasked with developing proposed amendments to the Federal Acquisition Regulations (FAR) in an attempt to “minimize” climate risks on “major” federal procurements. Executive Order 14030, a 2021 directive laying out the Biden administration’s policy related to climate-related financial risks, directs the FAR Council to amend the FAR to “ensure that major Federal agency procurements minimize the risk of climate change, including requiring the social cost of greenhouse gas emissions to be considered in procurement decisions and, where appropriate and feasible, give preference to bids and proposals from suppliers with a lower social cost of greenhouse gas emissions.” A proposed rule has reportedly been drafted but has yet to be publicly released.
The IWG and SC-GHG
The IWG – a group convened by the Obama administration in 2009 and co-chaired by the Director of the Office of Science and Technology Policy (OSTP), the Director of Management and Budget (OMB) and the Chair of the Council of Economic Advisors – is tasked with, in part, providing the president with recommendations related to decision-making, budgeting, and federal government procurement. The Trump administration disbanded the IWG and withdrew the use of the SC-GHG estimates in 2017. Subsequently, the Biden administration reestablished the IWG and the estimates, adjusted for inflation, with a 2021 Executive Order.
The SC-GHG is a metric used to “estimate . . . the economic impacts associated with emitting an additional ton of that GHG in a given year” and is usually “presented as dollars per metric ton of a GHG emitted every year.” The metric has been frequently used to better inform agencies of the costs and benefits of their decisions from a climate perspective.
The Biden administration’s announcement specifically directs agencies to consider the SC-GHG when making procurement decisions for “high-impact procurements”—“procurements of large, durable, energy-consuming products and systems.” The aim is for these procurements to act as a pilot program allowing agencies to “build the capacity and repeatable methods needed to replicate successes as they more broadly integrate the SC-GHG in select procurements.” The agencies would then assess the potential climate risks and costs associated with a particular proposal.
The announcement also specifies that some agencies are already considering the social costs of GHGs when evaluating proposals through the use of environmental impact reviews. Specifically, the U.S. Postal Service reviewed climate benefits associated with procurement options when it undertook the transition to low-emission delivery vehicles.
It has become clear that the U.S. government wants to leverage its buying power to combat climate change. While it is unclear how agencies will evaluate the SC-GHG metric with respect to procurement decisions, they may begin incorporating SC-GHG criteria into solicitations. Contractors should review solicitations closely to determine whether such a requirement exists and better understand how it may influence an agency’s decision-making. In addition, contractors may want to begin implementing the institutional infrastructure necessary to determine SC-GHG metrics.
If you have any questions about the new announcement or forthcoming proposed rules, please contact the author.