How to procure a green economy

By: David Billedeau and Nicholas Palaschuk

Originally published in The Hill Times

The Government of Canada is rightly focused on achieving net zero by 2050. Yet, Ottawa is still resisting implementing procurement policies to support a green economy.

The federal government is the single largest buyer in the country. According to the Organisation for Economic Co-operation and Development (OECD), it is estimated that the procurement of goods and services accounts for nearly 33 per cent of all federal government spending, and 13.3 per cent of national GDP. With nearly $22-billion in procurement spending per year, the federal government is in a perfect position to integrate environmental sustainability considerations into procurement decision-making processes and drive progress toward a net-zero economy.

To achieve net zero, it is time for all levels of government to get serious about green procurement policies.

The federal government can deepen demand for environmentally preferable goods and services that validate low-carbon innovations and increase their use throughout Canada. This not only incentivizes industrial low-carbon investments but drives emissions reductions, spurs commercialization of Canadian-made goods/services, enhances the global competitiveness of Canadian businesses, and stimulates clean and sustainable job creation.

With over 56 governments worldwide implementing green procurement policies as an instrument of strategic innovation to support the low-carbon transition, it is perplexing why Canada is dragging its heels.

Calls for greening the procurement process are by no means new to Ottawa. In 1994, the federal government received its first instructions to develop a government-wide approach to green procurement. With more explicit commitments coming from the 2006 Policy on Green Procurement, it appears as though the federal government is not completely apathetic to the idea of introducing environmental considerations into procurement spending. While most recent efforts on procurement, including the 2017 Greening Government Strategy, help clarify how procurement policies might be leveraged to help reach net-zero commitments (e.g., buildings, fleet electrification, clean electricity), these efforts are staggered and show little adeptness to meaningfully engage with new industry (e.g., small- to medium-sized enterprises, also known as SMEs) and community stakeholders (e.g., indigenous communities).

Canada needs to revamp its nearly 30-year-old procurement system.

A recent 2022 Hewlett-Packard report shows that the current federal procurement system fails to sufficiently integrate sustainability in evaluative processes, and has limited consideration for material environmental issues—much less the total cost of ownership over the lifecycle of goods or services.

The principle of obtaining the best value for taxpayer money currently translates to a national system that uses cost-based assessments as the main guide to decision-making. This policy approach continues to present significant barriers to Canada’s net-zero commitments as it overlooks key sustainability criteria tied to product life cycles and does little to reward those driving innovation.

While integrating environmental considerations and deepening industry and community participation in procurement policies is no small measure, there are steps Canada can take.

First, aligning green procurement standards across federal, provincial, territorial, and municipal levels of government will enable businesses to align organizational spending with sustainability values. With the majority of public infrastructure owned at the sub-national level, we believe an increased emphasis should be placed on co-ordinating green public procurement processes and metrics across all levels of government. Creating shared processes and understandings will foster nationwide cohesion and reduce the confusion that stems from businesses navigating a patch-worked regulatory environment. The Canadian Collaboration for Sustainable Procurement network has created a guide to engaging local government officials and driving green procurement practices throughout municipal initiatives. Using such efforts as a launchpad to scale across the country and up to the federal level will enable businesses to pursue green innovations more readily and proactively.

Second, Canada should develop a national industrial decarbonization strategy. With 20 per cent of Canada’s exports coming from the oil and gas industry, the need for a strategic and industrial-led approach to cross-sector decarbonization is necessary. Canada’s current approach of using broad policy levers (e.g., carbon pricing), while important, fails to drive the growth of new green industries at the rate needed to meet national net-zero commitments. While notable efforts have been made in the formation of the Economic Strategy Tables and Industry Strategy Council, current one-off investments are spread thin across a handful of industries. Much like that developed by the U.K. government, a national strategy that builds on Canada’s competitive advantage will help establish consensus on specific goals, processes, and systems to manage and monitor the integration of sustainability within public procurement. More importantly, it will help clarify how Canadian industries can decarbonize in line with net-zero commitments while building competitive advantage and without pushing emissions abroad.

Lastly, incorporating the total cost of ownership (TCO) as a procurement criterion will help create a link between “best value” and the growth of the low-carbon economy. Defined as the practice of capturing all associated costs incurred by the purchasing party when purchasing from external providers, integrating TCO would directly address a lingering challenge in Canadian procurement that prioritizes short-term savings at the expense of green innovation. Focusing on core purchasing processes such as supplier selection, contract negotiations and performance management, the use of TCO is well suited to an SME-dominated business landscape—helping to identify hidden costs throughout the acquisition, operation and disposal of goods/services. In turn, this will reduce the risk of low-carbon innovations and drive decarbonization through green business competition.

This is how the government can begin to create the type of market signals that incentivize green innovation and help Canadian companies scale up to gain a foothold in low-carbon markets and credibility in global supply chains.

While Canada’s current approach to procurement should be disconcerting, it highlights the breadth of potential opportunities that can be realized through the meaningful integration of sustainability into public sector procurement. We believe that Ottawa assuming a leadership position in greening procurement will have a ripple effect throughout the economy.

If Canada is to have a chance of realizing its net-zero ambitions, we need a renewed focus on green procurement that creates inclusive, outcome-based partnerships between the public and private sectors.

David Billedeau (left) is our Senior Director of Natural Resources, Environment and Sustainability and Nicholas Palaschuk (right) is our economic policy researcher.