Agencies are now required to consider greenhouse gas emissions in procurement decisions, budgets, and environmental reviews

In late September, the Biden Administration directed federal agencies to consider the social cost of greenhouse gases (GHG) when making procurement and grant award decisions, developing and implementing federal budgets, and performing environmental reviews under the National Environmental Policy Act (NEPA). 

This alert discusses the Administration’s directive and the challenges that agencies may face when implementing it.[1]        

Procurement and grant actions

In directing agencies to consider the social cost of GHG when making procurement decisions, the Biden Administration stated that such consideration would be particularly appropriate in “high-impact procurements,” in which the government is procuring large, durable, energy-consuming products and systems.  These procurements will serve as pilot procurements for agencies to build capacity and repeatable methods for integrating the social cost of GHG into the federal procurement process. 

Additionally, it was recommended that agencies consider the social cost of GHG when assessing the potential climate benefits and costs associated with proposals submitted in response to grant opportunities.

According to the Administration, consideration of the social cost of GHG in procurement and grant decisions will reduce emissions and energy consumption and help limit the effects of climate change.  Additionally, the Administration noted that consideration of the social cost of GHG is consistent with recent sustainable procurement developments, including a proposed rule that would require certain contractors to disclose their GHG emissions and set science-based targets for emission reductions,[2] as well as a separate proposed rule that would require federal agencies to procure sustainable products to the maximum extent practicable.[3] 

The Administration initially signaled that it wanted agencies to consider the social cost of GHG when making procurement decisions more than two years ago.  In May 2021, an Executive Order required that the Federal Acquisition Regulation (FAR) Council amend the FAR to ensure that “major” federal procurement minimize the risk of climate change by considering the social cost of GHG in procurement decisions and, when appropriate, giving preference to bids and proposals from suppliers with a lower social cost of GHG.  The FAR Council is currently in the process of developing a proposed rule addressing that requirement.

Until that proposed rule is issued, there is limited guidance on how agencies will consider the social cost of GHG when making procurement decisions.  Agency officials have previously expressed that it can be challenging to consider the social cost of GHG when evaluating proposals and indicated that they are looking for the proposed rule to provide additional guidance.  The Administration’s recent directive does not provide such guidance, aside from identifying energy costs as a potential cost savings. 

Thus, at this time, it is unclear how agencies will implement the direction to consider the social cost of GHG in procurement decisions.  Moreover, the requirement is initially aimed at “high-impact procurements,” which limits the scope of the requirement in the near term.

Agency budgets

The Biden Administration additionally directed agencies to consider the social cost of GHG when developing and implementing budgets.  Agencies are to consider those costs when measuring programmatic emissions and the value of investments that reduce emissions.  The Office of Management and Budget will work with federal agencies to measure their baseline GHG emissions, so that agencies are able to use the social cost of GHG to calculate the benefits and impacts of federal programs and incorporate those calculations into agency budget proposals. 

International assistance and financing agencies were encouraged to work with partner countries and international financial institutions to ensure that investments support the Administration’s climate goals.  Additionally, agencies that enforce administrative penalties for violations of statutory or regulatory requirements were directed to consider incorporating the social cost of GHG into those penalties.

NEPA reviews

Finally, the Administration directed agencies to consider the social cost of GHG in environmental reviews conducted pursuant to NEPA.  The Administration stated that agencies often already consider the social cost of GHG in those reviews and that, when they do, “it is a relatively simple – yet tremendously informative – step.”  According to the Administration, it is important for agencies to evaluate the social cost when comparing the climate change impacts of proposed actions and their alternatives. 

The Council on Environmental Quality is currently working to finalize guidance on how agencies should evaluate climate change impacts and trade-offs between alternatives.

Going forward          

In the Biden Administration’s view, incorporating the social cost of GHG into the federal decision-making process will allow for better comparison of the true costs of agency action and will help reduce federal spending on climate-related disasters.  However, as discussed above, there is uncertainty as to how agencies will accurately evaluate the social cost of GHG, particularly with respect to federal procurement decisions.  There will be a learning curve for federal agencies, and the process is likely to evolve over time. 

Contractors, therefore, are encouraged to review solicitations to see whether an agency is incorporating the social cost of GHG into a procurement and, if so, how it will impact the agency’s evaluation of proposals.

We are closely monitoring developments in this area.  If you have any questions, please contact the authors.