21 November 2013 - Article published on Build Up website.
Authors: Andreas Formosa and Catherine Weller, ClientEarth.
When considering the many tools available to the EU in its fight against climate change, public procurement may not necessarily come to mind first, despite its potential to save huge amounts of resources.
The public sector is the largest purchaser in the economy: in 2010 it accounted for 19% of the EU's GDP. The benefits? First, studies show the EU's green public procurement criteria resulted in a significant reduction in CO2 emissions. The public sector can also act as a 'launching customer' for a more sustainable and innovative market for energy efficient products and services, boosting a market with important economic and employment opportunities.
Rules on how contracting authorities must carry out their purchasing for large contracts are found in the two Public Procurement Directives (PPDs) of 2004, whereas sectoral legislation, such as the Energy Efficiency Directive (EED), can set out minimum criteria for particular goods and services. However, we will soon have new general rules as the revision of the PPDs is near to finalisation. A European Parliament vote on the trilogue text is expected in December or January. It is therefore a good opportunity to briefly analyse whether the draft Directives are a step forward in enabling the pursuit of sustainable and energy efficient public procurement.
Overall the draft PPDs appear to have embraced the idea that procurement can and should be used to pursue sustainability objectives and increase a public purchaser's options to do so. For example, the life-cycle costs of products and services have been better integrated into the evaluation stage of the procurement process. The draft PPDs place a requirement on public authorities to purchase the 'most economically advantageous' of the tenders meeting its requirements. And although this can still mean simply choosing the cheapest offer, there is now a clear alternative that life-cycle costs can be the basis for awarding the contract. Life-cycle costs are defined in the draft Article 67 to explicitly include 'costs of use, such as consumption of energy', but also costs imputed to environmental externalities, such as the costs of greenhouse gas emissions. Therefore when a product or service is energy efficient, despite having a higher upfront cost, it may actually be at a competitive advantage due to its strong sustainability performance when in use.
Another positive clarification is a call for contracting authorities to integrate the impact of the production processes into their award criteria. Further, in the recitals of the draft PPDs, the example of rewarding the use of energy efficient machinery during production is given. While this will not be a mandatory criterion, it is an option in the toolkit of contracting authorities. By extending the reach of public procurement to incentivise energy savings in the production phase, overall energy consumption could be reduced significantly. This has the welcome knock-on effect of reducing the state's energy bills and greenhouse gas emissions while increasing Europe's competitiveness. This development will also allow energy efficiency to become relevant in the purchase of non-energy using products (e.g. office desks, food and drink). By contrast, most of the EED's provisions currently only require procurers to look at the energy performance of a product once in use. This includes, for example, provisions relating to standards in the Energy Labelling Directive. The EED does however require procurers to purchase energy-related products that are in line with the standards set out under the Ecodesign Directive. These standards also relate to the production and packaging phase, but are limited to products that consume energy, meaning the EED does not go as far as the provisions in the draft PPDs.
On the negative side, there may be cause for concern over the procurement of energy performance contracts (EPCs) and energy service contracts in general - a key tool in making Europe's economy more energy efficient. The draft Directives encourage contracting authorities to split contracts into lots, i.e. breaking down large contracts into several smaller contracts. For EPCs this could seriously impact their effectiveness. Energy efficiency projects contracted under an EPC require coordinated efficiency improvements to achieve a guaranteed level of energy savings; this will be undermined if the tender is split into lots. Additionally, splitting EPCs into separate improvements can cause lock-in effects - after one improvement, the decision to make more could take years, therefore reducing the EPC's effectiveness and appeal from an economic perspective. Fortunately, splitting contracts into lots will not normally be a mandatory obligation. Providing they explain their decision, contracting authorities can decide not to split contracts and the draft PPDs provide example justifications, such as 'excessive technical difficulty'. Nevertheless, there is a risk that the decision will be taken away from contracting authorities if Member States declare lots obligatory for certain types of contract. It would be a disaster for EPCs to be included on any such list.
In conclusion, it is expected that the revised PPDs will enhance the potential for public procurement to promote energy savings. The increased focus on life-cycle costs of products and services, plus clarification about considering energy efficiency in the production phase, are both important developments. Meanwhile, through raising awareness with contracting authorities and Member States, we must ensure the effectiveness of EPCs is not undermined by the move to split more contracts into lots.
A more detailed analysis on how best to implement the public procurement provisions in the EED can be found in the Coalition for Energy Saving's 'Guidebook for Strong Implementation of the Energy Efficiency Directive' here.
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