Energy efficient public procurement

The aim of the policy is (1) to use the significant market influence of the public sector and to introduce, accelerate, and expand the market for energy-efficient products; and (2) to achieve energy and cost savings for the public sector, so as to also avoid lost opportunities and lead by example.

Worldwide implementation status
In several countries worldwide, energy efficient public procurement programmes (often part of a green public procurement initiative) already exist.
Some states have already introduced procurement programmes with ambitious targets, for example the Dutch government aims for a 100% sustainable procurement. A similar role for the public sector has been promoted in China, the USA, South Africa or Russia where government actors strive for a resource efficient procurement (Mäkinen & Neij 2010). Energy efficiency is mostly part of a broader strategy, which includes all dimensions of a sustainable development. The same is true for the many cities around the world that have energy-efficient and ecological procurement policies, often with support from networks such as the International Council for Local Environmental Initiatives (ICLEI).

Governance level
The governance level of public sector activities varies among countries. Procurement programmes commonly include authorities at national, regional and local levels and agencies at different levels.

Related sectors

• services: The sectoral focus is the service sector

In this description the focus is appliances. Most procurement programmes focus on office equipment like computers, monitors, and imaging equipment (copiers, printers, scanners, faxes, multifunctional devices). However, public bodies also sometimes purchase residential appliances such as refrigerators and freezers, dish or clothes washers, and TV sets.

Related target groups

• Governmental actor: The target groups are predominantly public procurers. They can save energy and money.
• Manufacturer: Energy efficient public procurement programmes stimulate procurers to buy products, which are more energy-efficient. This can be an incentive for manufactures to invest in more energy-efficient products and to drive the market towards these appliances (EC 2008).

Direct beneficiaries

• Governmental actor

  The target groups are predominantly public procurers. They can save energy and money.

Indirect beneficiaries

• Retail company

  A successful implementation of public sector programmes increases the demand of energy-efficient products and supports manufacturers to invest in energy-efficient products.

• Manufacturer

  A successful implementation of public sector programmes increases the demand of energy-efficient products and supports manufacturers to invest in energy-efficient products. Energy efficient public procurement programmes stimulate procurers to buy products, which are more energy-efficient. This can be an incentive for manufactures to invest in more energy-efficient products and to drive the market towards these appliances (EC 2008).

• User

  In addition, the general public has an advantage. More efficient products, realised by economies of scale, can enter the market more rapidly and reduce the energy costs of individual end-users.

Relevant barriers

• Knowledge and information barriers: Procurement officials often have a lack of information about energy-efficient products. Especially challenging is the fact that costs should be analysed on a lifecycle basis. The barriers can be overcome by mandatory procurement requirements, which public authorities must comply with. The use of energy efficiency labels or the establishment of product lists or tools can simplify the identification of energy-efficient appliances.
• Economic and financial barriers: A main barrier not to invest in energy efficient equipment is higher purchase prices for energy-efficient products.
• Organisational barriers: Procurement staff often lacks time and knowledge to engage in energy-efficient purchasing. There are often unsatisfactory technical and institutional capacities and a risk aversion of purchasers. The barrier can be overcome by making it both obligatory and easy to integrate energy efficiency in public procurement.

Relevant incentives

• Saved energy costs: After a given period of time, the upfront costs, which are normally higher for energy-efficient products compared to their less-efficient ones, are amortised due to lower running costs.
• Directly increasing earnings or profits for actors on the supply side: The more market actors buy energy-efficient goods, the more manufacturers invest in energy-efficient products resulting in dropping prices. As soon as appliance manufacturers realise that there is a market for energy efficient products, they start reaching out to this target group. Due to the economics of scale this will gradually reduce the manufacturing costs, which, in turn, will reduce the sales price.
• Contribution to protection of the environment: Most governments have national targets to reduce air pollution and to protect the environment. Participation in a procurement programme can be a positive signal of public or private institutions being eco-friendly. With the high market value of the public sector, it is possible to influence the market significantly.

The policy works perfectly with mandatory and voluntary energy labels. One striking example of how labels can complement public procurement successfully is the procurement policy in the USA. A law obliges all federal agencies to purchase only Energy Star labelled computers and office equipment (Harris 2005).
This makes it easy and transparent for public purchasers and manufacturers to take into account the energy-efficiency requirements without enormous efforts.
Another example of additional policies are the information campaigns for public purchasers and for people working in the public sector. They can be informed about cost- and energy-efficient alternatives and saving options during the use-phase (Mäkinen & Neij 2010). One example was the European “Campaign for No-cost Measures in Offices”, a programme that emphasises energy-efficient procurement and energy-saving behaviour by office workers (www.energyoffice.org; Harris 2005).
Other policies, which work perfectly with procurement programmes are tools to support public purchasers like purchase specifications, databases with energy efficient products, LCC calculation methods, examples of tender documents etc. (Borg & Co AB 2003).

Structural pre-conditions are an agency and a standard test procedure or a well-prepared labelling scheme. Furthermore, financing of the co-ordination programme and the procurement itself might be needed to counteract the increased investment costs.

Agencies or other actors responsible for implementation
Agencies can be an important actor for public sector programmes. They can take over a part of the process including financing, tools, awareness raising etc.
Agencies can act as intermediaries between the public purchaser and the industry. The agency can provide information about the requirements of the public sector and about the technical details (Platteuw 2009).

Funding
Public procurement practice is often based on the lowest product purchase price. The use of life-cycle criteria is still not very common in the public procurement process.
To realise energy efficient procurement public sector actors can pursue multiple funding possibilities for efficiency measures, including both redirecting existing budgetary funds as well as acquiring additional funding specifically for energy efficiency improvements (e.g. grants, loans, external finance) (Mäkinen & Neij 2010; Energy Charter Secretariat 2008). 

Test procedures
In case there are no well-established energy labels or environmental labels with energy information for a product group, it may be necessary to develop a standard test procedure for energy consumption.

Other
A labelling scheme can be very useful to identify energy-efficient products. An established labelling scheme can simplify the procurement process.

Energy-efficient public procurement spans the whole procurement process, from selection of products, through supplier selection, to the delivery of the required appliances.
It is essential that procurement planning is carried out prior to the purchase of appliances. Procurement plans should include information about the budget, the current market situation and the selection criteria. The selection criteria can be chosen in accordance with labelling requirements or can be adapted to an analysis of the best available technology in the specific country. Energy efficiency must become a standard criterion in this procurement process.
In this context it is important to guarantee a fair and open procurement process, guarding against corruption (OGC 2008). Energy management schemes can take over some steps of this design and implementation process.
For the overarching co-ordination programme, research on the market situation, energy saving potentials, life-cycle costs and cost effectiveness, and existing energy or environmental labels may be needed in the development phase. A clear mandate and funding must be provided to a co-ordination agency. When the programme concept is developed, a legal basis is usually the next step, requiring the individual agencies of a national, regional, or municipal government to follow the rules of energy-efficient procurement. The co-ordination agency for the energy-efficient procurement should provide assistance and easy-to-use tools to the other agencies. Compliance and impacts should finally be monitored and evaluated.

Quantified target
The policy can and should have quantified targets. These procurement targets should be in accordance with the energy savings potentials of the public sector. It is essential to underline the relevance of energy efficiency in appliances and to lead by example (Borg & Co AB 2003). Targets can be overall (e.g. reduced energy intensity) or specific (e.g. reduced energy use of appliances) (Harris 2005).
An example for an overall target is the Dutch government, which aims for 100% sustainable procurement.
Concrete energy efficiency improvements of appliances should be based on the best 25% products. If the requirements are too “soft” the procedure has no significant market relevance and would not support a market transformation towards energy efficiency (Borg & Co AB 2003).

Co-operation of countries
Several countries worldwide have already introduced voluntary or mandatory energy efficiency procurement programmes. Therefore co-operations are helpful for countries, which plan to implement similar measures.
Furthermore, additional helpful policies are voluntary or mandatory labelling schemes like the European energy label or the Energy Star label. Public purchasers can use these labelling requirements for their own purpose. This makes it easy and transparent for purchasers and manufacturers to define and follow the requirements.

Monitoring
In order to be effective, the process and design of public sector programmes should be monitored. The results of this process should be reported regularly to responsible authorities (e.g. an agency or the national government). Afterwards the authority should analyse the success or failure of the programme and make suggestions for improvement (Borg & Co AB 2003).

Evaluation
Responsible authorities like energy agencies or research institutions should carry out an evaluation of the energy and cost savings from, and the cost-effectiveness of, public procurement programmes. Key information includes: an overview of the products purchased, the changes in the product range of suppliers and the resulting development of the market. Other factors are the number, variety and (additional) costs of energy saving measures and the costs for all market actors.

Relevant individual dynamics and side-effects

• Dynamic market transformation and/or innovation: Public sector programmes have the chance to stimulate innovation within the appliance industry, but procurement programmes will only support this development with ambitious requirements. The criteria must be updated regularly to take the technological development into account and to guarantee a dynamic market transformation (Oosterhuis 2006).
• Avoiding lost opportunities: By promoting the most energy-efficient appliance on the market, energy efficiency procurement programmes try to avoid that public purchasers buy energy-wasting appliances, which would be a lost opportunity for saving energy.
• Minimising rebound effects: Possible rebound effects should be considered within the procurement requirements. Information campaigns for employees should be implemented to minimise negative side effects and the wasteful use of energy.
• Minimising snap-back effects: To minimise snap-back effects, procurement programmes should be open-ended and regularly updated.
• Creating Spill-over effects: With the concept of buyer-driven energy efficiency efforts, procurement programmes can play a significant role in a market transformation process towards more energy-efficient products. With a high political will to increase the energy-efficiency of appliances, manufacturers can feel the need to improve the performance of other products. Furthermore, the instrument (and its requirements) can become the basis of other energy efficiency polices (such as voluntary agreements).

Sustainability aspects
Other sustainability aspects and environmental impacts can (and should) be part of an energy efficient procurement programme, e.g. health aspects or other resources such as water and detergents. Other criteria are the consideration of SMEs, working conditions etc.

Co-benefits
Including these sustainability aspects in an energy-efficient public procurement programme will yield the corresponding co-benefits. In addition, energy-efficient appliances often also provide a better service quality and may thus improve employee productivity, e.g. modern computer displays.

The following barriers are possible during the implementation of the policy:
Delays in legislation and/or weak requirements due to political processes and lobbying.
Lack of compliance and/or resources for ensuring it.
Public procurement is often complex and decentralised. This makes it difficult to establish binding requirements or guidelines for all public purchasers. Furthermore, the monitoring and evaluation process can be difficult with numerous actors and political changes (Borg & Co AB 2003).

The following measures can be undertaken to overcome the barriers:
The changes brought by adopting the policy can be enhanced with sound arguments concerning the benefits to the public body concerned. Compliance monitoring and enforcement will improve compliance, and it should be evident that the necessary resources should be provided. A strong co-ordination agency is all the more necessary in complex situations.

Nevertheless, the variety of activities in the public sector offers multiple opportunities for energy savings. A 2003 PROST study (not specific for appliances) estimates that public administration in EU member states (EU-15) could save up to 20% of their energy use (defined as heat and electricity) by 2020 (Borg & Co AB 2003). In Russia, audits conducted in 1998-1999 indicated that low-cost measures in federal buildings could potentially save 30-60% of heat and 14-40% electricity (Sorokina 2002).
The potential for energy savings in selected sectors (like transport, office equipment, buildings) and regions is illustrated in the next table. The table attempts to provide a very simple overview (Energy Charter Secretariat 2008). While these examples provide only an initial profile of the range of potential, they do indicate that there is great room for improvement.
Data on public sector energy use is limited in many countries. The public sector is often not analysed as a separate entity. Therefore detailed analysis of public sector energy use and efficiency improvements in the appliance sector are difficult to find. To improve the performance of energy efficient public procurement programmes, monitoring and evaluation efforts need to be improved.

Source: Energy Charter Secretariat 2008

Experiences have shown that energy efficient public procurement programmes are cost-effective and can ensure low cost energy savings. In most cases, it is possible to set procurement requirements at levels which require higher purchase costs but which are paid back from saved energy costs (EC 2008).
However, the lack of available money for energy efficiency improvements in the public sector is one of the most common and visible barriers to scaling up energy efficiency programmes in many countries.

If the public procurement guidelines are based on a life-cycle cost calculation public sector programmes will lead to net benefits.
The European PROST report (2003) found that through procurement, investment, management measures the public sector in the EU could yield between €9-13 billion in savings per year with annual investments of €80 million until 2020 (in EU-15) compared to baseline trends. The savings compared to the 2001 level, would be 4-8 billion Euro. These figures do not account for the investments needed, but using a conservative payback time of 5 years. The energy bill of the public sector could thus drop by up to 0.8% annually if going for stronger energy efficiency criteria in the purchasing practice (Borg & Co 2003) (To compare these calculations: the total use of heat and electricity in the public sector in the EU-15 region was 628 TWh/yr in 2001. The value of the heat and electricity used by the public sector was about 47 billion euro).
For the CIS, the potential is at least as large. Russian federal government facilities spent 70 billion roubles for energy in 2005 (USD 2.1 billion). While the potential for saved energy could total USD 700 million annually, it would be necessary to invest 500 billion roubles into the modernisation of these facilities to realise these gains overall (Bashmakov, cited in Energy Charter Secretariat 2008).
In the USA the federal government runs the energy-efficient public procurement programme (EEPP) as a part of the Federal Energy Management Program (FEMP). “Potential Annual Savings from EEPP [can amount to] […] $270 million” (DOE & FEMP p. 13).
Other data suggests “assuming there is 100% market penetration of the FEMP-designated products purchased by 2010 by the federal government, there is a potential for $1 billion dollars in energy savings” (Jeff Harris, quoted in: Lawrence Berkeley National Laboratory 2008).