Is carbon-adjusted procurement coming to construction?
It seems there are more and more headlines covering the devastating impacts of catastrophic weather events like flood and wildfire. It is also clear that governments worldwide are starting to seriously ramp up their efforts to act against climate change through a concerted push to achieve net zero economies. As global governments look to find ways to reduce the carbon footprint of their economies, they are obviously focusing their efforts on the industries that are the largest emitters of carbon.
Building emissions and construction combine for close to 40 per cent of all carbon emissions, and with these two sectors clearly identified as prime emitters of carbon, governments are starting to find ways to reduce emissions in both sectors.
The construction sector supply chain produces significant amounts of carbon through the creation of raw materials and manufactured goods used in the construction process. Cement and concrete produce about 0.9 pounds (0.42 kilograms) of carbon dioxide for every pound of concrete, and the sector makes up approximately eight per cent of the world’s total carbon dioxide emissions. This is one of the largest carbon emitting sectors of the construction economy and there are several others, that when combined, represent a significant portion of overall global carbon emissions annually. As a result, governments across the globe are looking for ways to help the construction sector lower its CO2 emissions and are concluding the best place to start is at the start of construction — or procurement.
To see what the future of procurement could look like we should take a closer look at the Netherlands and the ways it is changing its procurement models to reflect the impact of the design-build, and even operations, on the environment. The Netherlands utilizes the Environmental Cost Indicator (ECI) measures when assessing the best bidder for some of their projects. The ECI is an indicator that unites all relevant environmental impacts into a single score of environmental cost — which represents the environmental “shadow price” of a product or project. It is expressed in currency value. In order to arrive at accurate ECIs for all aspects of the construction supply chain, companies within the supply chain need to undergo Life Cycle Assessments (LCAs) around the products they are creating. These LCAs create the foundation for the value of the ECI. Once the ECIs are mapped out for a majority, of the supply chain — the entirely of it under ideal conditions — the government can assess the total cost of the project inclusive of the “shadow costs” related to environmental impact, sometimes considered the societal costs. Such a procurement model considers the long-term impact of project inclusive of externality costs.
Could such procurement models, as those used in the Netherlands, start proliferating at a global level? Well, one would assume if the costs of climate change continue to rise and the coverage of the devastating impacts of these events continue to expand, we could see governments being forced by their citizens to take more action. In taking that action they, as mentioned, will focus on the industries that are most closely linked to the purported creation of climate change, and construction is one of those top industries.
There will be plenty of debate around this very contentious issue. For instance, why should certain governments procure their built environment assets with a greater cost than the rest of the world, when the other regions are not using such “total cost” procurement models? Why do these other areas get a “free ride” to a better environment? Others will counter this argument with the fact that some economies have to become leaders for the rest of the world, and will also cite that such procurement models will drive innovation and over time the economies with the most responsibly developed built environments will attract more investment and receive best terms from those investors, thus will have much more efficient economies.
The debates will be plentiful and significant, but as a stakeholder within the construction industry, you likely care less about the debate and more about what the future of procurement might look like — and how you can take advantage of that opportunity. Thus, the primary purpose of this article is to bring forward the potential of growth in this “total cost” procurement model and help advance your knowledge around this trend in order for you to be ideally prepared to take advantage of the opportunity.
David Bowcott is Global Director — Growth, Innovation & Insight, Global Construction and Infrastructure Group at Aon Risk Solutions, as well as a member of the Canadian Construction Association’s (CCA) board of directors.
This article first appeared in the August 2021 edition of On-Site. Click here to read through the full issue.