Government green procurement spillovers: Evidence from municipal building policies in California

Abstract

We study how government green procurement policies influence private-sector demand for similar products. Specifically, we measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the US Green Building Council's Leadership in Energy and Environmental Design (LEED) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the LEED standard and investments in green building expertise by local suppliers. These findings suggest that government procurement policies can accelerate the diffusion of new environmental standards that require coordinated complementary investments by various types of private adopter.JEL Codes: L15, Q58, Q55, O33.Keywords: Public procurement, green building, quality certification, environmental policy. * We thank Melissa Ouellet and Mark Stout for their outstanding research assistance and Tom Dietsche for providing and interpreting data from the US Green Business Council. We gratefully acknowledge financial support from the Lee-Chin Institute at University of Toronto's Rotman School of Management and the Division of Research and Faculty Development at the Harvard Business School. We appreciate helpful comments from Hunt Allcott, Ken Corts, Kira Fabrizio, Andrew King, and Marc Rysman and from participants at the Alliance for Research in Corporate Sustainability (ARCS) conference, the Strategy and the Business Environment conference, and seminars at Dartmouth's Tuck School of Business and Indiana University's Kelley School of Business.1 Governments often use their formidable purchasing power to promote environmental policy objectives. The US Environmental Protection Agency and the European Union, for example, have developed environmentally preferable purchasing guidelines for goods ranging from paint, paper, and cleaning supplies to lumber and electricity. Various state and local governments have taken similar steps. 1These procurement policies often have the stated goals of encouraging cost-reducing innovation among suppliers and spurring private demand for green products (Brander et al. 2003;Marron 2003). The European Union, for example, justifies its environmental procurement policy not only on the basis of leveraging government demand to "create or enlarge markets for environmentally friendly products and services" but also on the basis of stimulating "the use of green standards in private procurement" (Commission of the European Communities 2008: 2). To date, there has been little evidence on whether these targeted government procurement policies produce the intended spillover effects. This paper provides some initial evidence by measuring the impact of municipal green building procurement policies on the private-sector adoption of green building standards.We examine whether green building requirements that apply only to municipal buildings accelerate the use of green building practices b...

Ten questions concerning integrating smart buildings into the smart grid

“…Public building construction and procurement rules can account for a large share of the sector and catalyze broader changes rippling across the industry. Many green certified (e.g., LEED) buildings of the last decade are governmentowned [49] and, like the effect on green buildings, public procurement rules favoring smart buildings can help smarter technologies diffuse and reach critical mass in the market [50]. Conventional regulatory tools like buildings codes and appliance efficiency standards remain available to push greater adoption of smart buildings engaging the grid.…”

System Establishment and Method Application for Quantitatively Evaluating the Green Degree of the Products in Green Public Procurement

“…Public procurement regulations generate spillover effects that stimulate both the standard adoption of the private-sector and investments [11]. The inclusion of carbon footprint in GPP could play the role of a strong stimulation for eco-innovation in the services sector [12]. The green degree of suppliers is a key factor in the selection because of the demand for intimate connection between contractors and suppliers in green construction [13].…”

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“…C, S. Hallstedt, Broman and Oldmark [6] opined that in other to allow for a more strategic approach that will significantly promote innovative service solutions in support of sustainable development, policy and process changes are needed. Simcoe and Toffel [7] posited that public sector procurement policies may influence private sector demand for similar products; in a study of municipal policies in California, USA, they concluded that government procurement policies facilitate spill-over effects that stimulate, a) private sector adoption and b) supplier investment in green building expertise.…”