Green Public Procurement Mandates: California

Overview

Governments are sizable purchasers of heavy construction materials, such as steel and cement. The US government in particular is the largest purchaser of heavy building materials in the world, accounting for $630 billion annually. That means they’re in a powerful position to accelerate low-carbon offtake agreements, especially when green materials are not yet cost competitive with higher-emitting counterparts.

President Joe Biden’s executive order Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, passed in 2021, lays out an array of goals related to reaching net zero by 2050. One of the these is a commitment for the federal government to procure construction materials with lower ‘embodied emissions’, or the cumulative lifecycle emissions of a material from cradle to grave. This was followed in 2023 by the Biden-Harris administration’s Buy Clean Initiative, a plan to promote the purchase of American-made low-carbon materials.

Impact

California, the first US state to introduce legislation on buying clean, implemented the Buy Clean California Act (BCCA) in 2017. This green procurement mandate establishes standards for embodied emissions for steel, glass, concrete and insulation, based on the Global Warming Potential (GWP) of each material. (GWP refers to the total greenhouse gas warming impact, in terms of CO2 equivalence, over a certain time period.)

Additionally, the BCCA requires any bids for publicly funded infrastructure to include data on environmental metrics, and the standards are updated regularly to consider improvements in industrial processes.

For hot-rolled steel, the GWP limit of 1,080 kilograms means that one metric ton of steel production cannot cause more warming impact than the equivalent of 1,080 kilograms of CO2 over 100 years.

California’s GWP limits are currently set below the average emissions from traditional hot-rolled structural steel (BF-BOF) produced in the US, but well above the average for steel produced in an electric arc furnace (EAF). Some 70% of steel in the US is already produced via EAF, meaning it falls below the threshold. As a result, the policy supports domestically produced EAF steel and decreases demand for BF-BOF or imported steel that does not comply with the threshold.

The GWP limit is not yet low enough to require investment in new net-zero carbon steel capacity, as there is sufficient EAF-produced steel to meet the demand covered by the Buy Clean Act. However, the California government plans to tighten the GWP limits over time, which could in turn increase investment in primary green steel production, as the regulation becomes harder to achieve with simpler recycling or efficiency measures.

Opportunity

Governments thinking of implementing this type of policy mechanism should carefully consider whether the proposed mandate on emissions reduction is sufficient considering the current emissions intensity of each material, and how best to enforce these cutoffs.

Future policy proposals should also contain specific requirements targeting the private sector and measures to avoid so-called carbon leakage. Carbon leakage occurs when a domestic policy causes industry players to relocate to countries that have lower environmental compliance standards to avoid the additional costs of procuring green materials. Governments can combat carbon leakage by applying procurement policies to imports as well as domestic production.

Another option for policymakers is to combine the regulation with an incentive. For example, governments could institute a two-tiered system, with the first threshold being a mandatory emissions standard, and the second, more ambitious threshold being an optional target with an extra bonus for companies that reach it.

Source

BloombergNEF, US government, California government, World Steel Association