IOS/UUCePP Transactional Talk: Green Contracts, Greener Firms? Green Public Procurement as an environmental policy


In this Transactional talk, organised by UUCePP and IOS platform The Transactional State, Olga Chiappinelli will speak about economic research into Green Public Procurement (GPP) as an environmental policy. By using procurement practices that value the environmental quality of bids in the award of public contracts governments can leverage  the sheer size of their purchasing power to create demand for environment-friendly solutions, thereby incentivizing suppliers to invest in green technology.

Although the potential of GPP as an environmental policy is increasingly acknowledged and initiatives and experiences are growing, economic research on this topic is scarce. In particular, it is unclear whether GPP is able to put in place effective incentives for firms to improve their enviromental performance. This project aims to contribute towards addressing this knowledge gap both theoretically and empirically. The theoretical part provides an auction-theoretical analysis of GPP as a preferential program based on a bid discount – a mechanism adopted for example by the Dutch Infrastructure Authority.

We find that GPP incentivizes more competitive firms to invest in green technology. We also show that GPP can be an optimal mechanism for a procurer who cares about minimizing  the purchasing price while triggering green investment. The empirical part uses the United States as a laboratory to conduct the first empirical analysis of an affirmative program  for sustainable products---specifically, those with recycled content---which account for one-sixth of the total federal procurement budget. We combine the universe of federal  procurement contract data with greenhouse gas emissions and financial records of listed firms from 2008 to 2019. Using a difference-in-differences approach, we identify the causal  effects of green contracting on firm environmental and economic outcomes.

Our results indicate a significant positive impact on firms: securing green contracts not only reduces emission  intensity per dollar of value added but also increases revenues and employment, among other economic variables. These effects persist in the long run. We propose that a key mechanism behind  these improvements is the increase in R\&D investments incentivized by the program's requirements.


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