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Public Contract Law Journal

Public Contract Law Journal Vol. 49, No. 4

A Common Taxonomy for Carbon: How States and Cities Use Public Procurement to Combat Climate Change

Lauren Olmsted


  • Assesses the use of environmentally sustainable procurement by state and local governments
  • Develops a common taxonomy to encapsulate the strategies, processes, and tools used by state and local governments
  • Proposes that states and cities should pursue greenhouse gas emissions-focused procurement tools and source selection evaluation criteria to counteract climate change
A Common Taxonomy for Carbon: How States and Cities Use Public Procurement to Combat Climate Change
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The global marketplace is facing an existential threat — climate change. As governments and public institutions grapple with this risk, these bodies increasingly are seeking innovative public procurement solutions. This paper assesses the use of environmentally sustainable procurement by state and local governments and develops a common taxonomy to encapsulate the myriad of strategies, processes, and tools used by these jurisdictions. This paper proposes that, although environmentally preferable purchasing policies are commonplace, states and cities should pursue greenhouse gas emissions-focused procurement tools, in particular the use of source selection evaluation criteria, to aggressively counteract climate change.

I. Introduction

From record-breaking Australian wildfires to devastating hurricanes, global climate change impacts pose urgent and critical threats to environmental sustainability, human safety, and livelihoods. Current levels of greenhouse gas (GHG) emissions, a leading driver of human-caused climate change, are unsustainable and continue to affect millions of lives adversely. Many Americans nationwide now consider global warming a crisis and are turning to carbon emissions reduction as a means of mitigation. As a result, governments and organizations around the world are turning increasingly to public procurement as an innovative tool to combat these climate risks.

Traditionally, public procurement focuses wholly on economic efficiency, giving little consideration to secondary non–cost objectives. However, as the concept of sustainable development has progressed in recent decades, policy makers have become increasingly aware of the strategic advantages that public procurement offers in regards to furthering sustainable objectives. The concept of sustainable public procurement reflects the idea that best value does not always equate to lowest cost. Rather, public authorities strive to balance the inclusion of economic, environmental, and social components appropriately in the value determination. This idea stems from the sustainable procurement principle that, as the holder of the public purse, the state should always seek to procure with the public’s interests in mind.

Environmental sustainability, commonly referred to as Green Public Procurement (GPP), is the most prevalent pillar of sustainable public procurement. GPP directly links government waste, emissions, and environmental risks to the goods and services procured by the government. Because buying and using environmentally friendly products often saves money and improves efficiency over the product’s lifecycle, GPP practices have become an integral component of public procurement. Although the U.S. federal government once championed GPP, its dedication to environmental sustainability has fallen to the wayside in recent years. State and local governments have now been put in the position to “lead by example” and use their purchasing power to advance the goals of GPP.

Implementing a green procurement program, however, is fraught with many challenges, including “administrative hurdles, technical barriers, and skepticism from purchasers and product end-users.” This article first discusses environmental sustainability as a concept, and provides a brief overview of GPP trends at the federal level. This article then identifies a common taxonomy of green procurement tools and examines how these tools are manifested at the state and local levels. Finally, this article proposes that the future of green procurement rests with GHG emissions and recommends how tracking carbon emissions can fit into the taxonomy at any hierarchical level.

II. Environmental Sustainability in Public Procurement

Green Public Procurement aims to better the environment through the sourcing of resource-efficient goods and services that minimize any negative environmental impact across their full life cycle, while simultaneously invigorating innovation in environmental technologies. Commonly pursued benefits include the reduction of GHG emissions and waste, improved energy efficiency, and access to clean water. These benefits, in turn, generate cost savings opportunities for the government (and taxpayers).

One hallmark of green procurement is the use of environmentally preferable products (EPPs). In general, EPPs are defined as “products and services that have a lesser or reduced effect on human health and the environment when compared to competing products or services that serve the same purpose.” EPPs can address any number of environmental concerns (and to varying degrees of aggressiveness), but generally feature some of the following characteristics or environmental benefits: recycled content, waste and toxics reduction, energy and water efficiency, and renewable energy. EPPs often are an early step in GPP strategies because these products require fewer resources to procure, and a wealth of guidance is readily available.

An emerging cornerstone of GPP is the valuation of carbon dioxide — financially, socially, and environmentally — as it relates to environmental savings available in a particular procurement. This concept embodies the idea that the carbon and other GHG emissions associated with a product, service, and supply chain can be calculated and essentially measured, thus revealing the true cost of publicly procuring that item or service. In this calculation, GHG emissions are divided into three categories: Scope 1, 2, and 3. Scope 1 emissions involve those resulting from purchased goods and services and their transportation, and contribute a considerable part of the total purchasing organizations’ emissions. Scope 2 emissions involve those from purchased sources, such as electricity. Scope 3 include those from a source over which the agency or organization exerts no direct control. As entities continue to pursue GPP globally, many of their respective efforts focus on the reduction of carbon dioxide emissions to truly improve the best value received in a particular acquisition.

III. Environmental Sustainability in the U.S. Federal Government

The United States’ approach to the use of green public procurement to promote environmental sustainability has evolved on a narrow path. National environmental objectives, such as GHG reduction, dictate the use of GPP in the federal procurement system. The federal procurement scheme is designed to deliver the best value product or service on a timely basis, while concurrently maintaining the public’s trust as it seeks to fulfill public policy objectives. Environmental objectives generally are among those objectives that influence public procurement, although others often are competing for significance on any given transaction. As the nation’s largest energy consumer, federal environmental sustainability policy focuses heavily on emissions reductions and the social cost of carbon to American taxpayers.

A. Executive Orders

Over the last decade, a number of executive orders issued under the Bush and Obama administrations have guided the use of GPP to reduce the federal government’s carbon footprint. In 2007, President Bush issued Executive Order 13423, “Strengthening Federal Environmental, Energy, and Transportation Management.” This executive order directed federal agencies to reduce agency GHG emissions and to give preference in procurement to a variety of environmentally sustainable products, including those that are bio-based, environmentally preferable, and recycled-content.

Two years later, President Obama signed an executive order to establish and implement an integrated sustainability strategy to prioritize GHG emissions reductions across federal executive agencies, among other environmental and climate-related objectives. In addition to other sustainability goals, the 2009 executive order developed sustainability-related performance goals to track and incentivize GHG reductions. To comply, agencies must establish baselines and targets for Scope 1, 2, and 3 GHG emissions. In regards to governmental suppliers, the order recommends that suppliers assume an active role in qualification-focused ways: register with an organization to report GHG emissions, develop and make available a GHG inventory, utilize incentives for products manufactured using GHG-limiting processes, and encourage the adoption of generally sustainable practices to reduce GHG emissions. Executive Order 13514 includes provisions that allow agencies to claim credit towards their goals for any GHG emissions reductions stemming from changes in federal suppliers’ manufacturing processes, delivery services, modes of transportation, and supply chain activities. The implementation of these provisions suggests that agencies are considering these environmental targets when contracting for goods and services.

Furthering the government’s commitment to lead by example in combating the drivers of climate change, President Obama signed Executive Order 13693 in 2015. This executive order aimed to reduce federal GHG emissions over the next decade by forty percent from 2008 levels, generating estimated taxpayers savings of up to $18 billion in cumulative energy costs. Additional goals included increasing the share of renewable energy consumption up to thirty percent. Following the issuance of Executive Order 13693, the U.S. General Services Administration (GSA) issued a proposed plan of action to launch incentive strategies and develop a supplier reporting system to encourage voluntary disclosure of GHG emissions.

Subsequently, the Trump administration began to roll back the above-mentioned federal environmental sustainability efforts. In May 2018, President Trump issued Executive Order 13834, “Efficient Federal Operations,” directing federal agencies to comply with federal statutory requirements related to energy and environmental performance “in a manner that increases efficiency, optimizes performance, eliminates unnecessary use of resources, and protects the environment.” Critically, this Order revokes Obama’s Executive Order 13693, thereby also eliminating the specific GHG reduction targets and efficiency standards established for federal acquisitions. President Trump’s Executive Order 13834, instead, offered a less comprehensive environmental policy and directed the Council on Environmental Quality (CEQ) to develop implementing guidance. The CEQ published the implementing instructions in April 2019, although the guidance is hardly forward-looking (for example, relying upon energy reduction targets in place since 2007). Furthermore, the issuance of Executive Order 13834 prompted the withdrawal of a proposed Federal Acquisition Regulation (FAR) rule that sought “to promote sustainable acquisition and procurement by ensuring that environmental performance and sustainability factors are included to the maximum extent practicable for all applicable procurements.”

B. Federal Acquisition Regulation Part 23

The FAR is relatively modest in its coverage of environmental sustainability. Part 23 of the FAR implements the sustainable acquisition policy and is the most direct of the provisions as it pertains to green public procurement. This part reflects the Executive Order mandate that federal agencies must ensure that ninety-five percent of new supply contracts involve the procurement of broadly defined preferences, such as products or attributes that are energy-efficient, bio-based, and environmentally preferable products, among others. Furthermore, FAR subpart 23.8 codifies federal policy to reduce GHG emissions in accordance with the targeted levels promulgated in Executive Order 13693 and requires full and transparent disclosure of certain emissions-related information for federal contractors receiving $7.5 million or more in annual contract awards.

However, while FAR part 23 represents a significant step forward in achieving carbon-based reductions in federal procurement, the regulations do not require specific procurements to conform. Rather, it is sufficient that the total percentage of acquisitions meet a ninety-five percent threshold requirement of sustainability; in practice and effect, this requirement becomes meaningless. The designated preferences also are rarely absolute given many of the requirements are in fact conditional, such as applying only to acquisitions whose price exceeds certain thresholds, or subject to various exemptions. For example, the FAR mandates agencies procure products made from recovered materials, yet there is an absence of companion clauses that incorporate minimum content levels into commercial off-the-shelf acquisitions.

IV. A Common Taxonomy at the State and Local Level

Almost every state and most localities have a sustainable procurement program. Some of these programs are simple procurement policies that address environmental considerations at an arguably superficial level, while others represent aggressive approaches towards incorporating environmental preferences throughout the acquisition lifecycle. At the state and local levels, resource availability and innovation have a much greater impact on program development than at the federal level. Nonetheless, state and local governments have a suite of tools available to aid in the process of identifying and buying products and services in an environmentally sustainable way. This section attempts to identify and group these tools into a common taxonomy and provides examples of how different jurisdictions are implementing these tools at each level.

A. Procurement Design: Technical Specifications

Contracting authorities can implement environmental considerations through technical specifications. As buyers, contracting authorities possess vast discretion to define the specific acquisition subject-matter that they seek to award. This is done through the procurement’s technical specifications, which identify the required characteristics of the services or supplies being procured, such as environmental and climate performance levels. In designing the technical specifications, contracting authorities might, for example, set product performance levels to diminish GHG emissions and thus ensure that the awarded contract contributes to the climate change agenda.

In other cases, the technical specifications may reflect a broader EPP purchasing policy. For example, the Pennsylvania Department of General Services Green Procurement Policy requires contracting officials during the procurement planning stage to identify and analyze the available green options for each material and service. If a comparable EPP in terms of quality, availability, and price is obtainable, contracting officials must restrict the “statement of work or specifications to only the environmentally preferable products or services.”

The District of Columbia provides sustainable specifications for fourteen product categories. In guidance for the Automotive Products category, for example, the District provides the following language to be used in the statement of work as the minimum EPP requirement: “Automotive products purchased by the District of Columbia shall meet the environmental criteria defined below.”

1. Eco-labels
Often times, states and municipalities may use standards, certifications, and eco–labels as means of developing GPP policies or as the technical specifications themselves. Jurisdictions can use these procurement mechanisms, which convey specific sustainability-related information and environmental attributes, “to [quickly] verify a product’s ‘green’ credentials, as a minimum requirement, or as a method to create sustainability criteria.” This can enhance procurement efficiency, thus bringing conventional procurement benefits to green procurement tactics.

Given the proliferation of such standards and eco–labels — some hundreds exist in the market — and the availability of useful guidance from the U.S. Environmental Protection Agency (EPA), Federal Trade Commission, and reputable international bodies, these procurement tools can be well-suited to resource-constrained jurisdictions. However, this also inevitably results in inconsistent credibility among different certifications and labels, and the risk of “green-washing.” Utilizing an ineffective certification can be devastating at the local level, particularly for a resource-constrained jurisdiction.

For example, New York State requires the use of product specifications in solicitations for over fifty product categories. The “Desktop and Laptop Computers” product category utilizes eco-labels in its environmental performance specifications: “Environmental Performance: All Desktop, Notebook, and Tablet PCs shall be registered Electronic Product Environmental Assessment Tool (EPEAT) Silver or better in the EPEAT registration system and meet or exceed all of the following 6 optional EPEAT criteria for standard configuration and standard option form factors: . . . .” EPEAT is a federally endorsed eco–label, developed in coordination with the EPA and therefore bearing a greater indicia of reliability.

2. Cooperative efforts
Finally, it can be useful for state and local-level EPP practitioners to adopt cooperative efforts to address sustainable procurement initiatives and challenges. A common strategy is for local jurisdictions to “link up” with state-level efforts and either purchase products directly through state contracts or use state-developed technical specifications. States often have more developed technical specifications, and the language can be incorporated into solicitations easily at the local level to save time and expense. Among the states that promote such efforts are Massachusetts, Ohio, and Vermont.

B. Public-Private Partnerships

Public-private partnerships (PPPs) have operated in the realm of sustainable development for several decades. Facing increasingly constrained budgets and an inability to generate additional resources, many state and local governments have sought to partner with the private and nonprofit sectors to harness their “investment and expertise … for the delivery of public works and services,” particularly infrastructure. “[A] PPP is conceptualized as a contractual agreement between government[] … and one or more private sector or nonprofit partners for the purpose of supporting the delivery of public services or financing, designing, building, operating and/or maintaining a certain project for the public good.” These partnerships allow public agencies to implicitly and explicitly leverage additional financing, resources, and expertise “which otherwise might not have been available … through traditional procurement practices.” If designed and implemented properly, PPPs can become “rather effective mechanisms for the delivery of public services and infrastructure, providing enhanced quality of service over traditional approaches.”

In the aggregate, such partnerships are often seen as highly powerful arrangements that can mobilize resources and develop solutions to complex problems across industry and policy domains. Proponents tout benefits such as “increased quality, improved service delivery, cost savings and lower costs of financing.” PPPs have been suggested as innovative and flexible financing structures that can lead to improved risk management, enhanced quality, and cost efficiencies. Such partnerships provide an effective framework through which governments can access a more diversified pool of financing tools, tap into private sector expertise and technical capacity, and share responsibility with private partners. Nonetheless, to avoid overstating the benefits and understating the risks associated with PPPs, it must be understood that PPPs present an additional financing option, not a new source of funds.

1. Chesapeake Forest Project
The Chesapeake Forest Project provides a useful case study of a successful PPP at the state level. For decades, the state of Maryland has focused on restoring and maintaining the environmental quality of the Chesapeake Bay, the largest estuary in the United States. In 1999, a private lumber company sought to divest its holdings in a forested area of the Chesapeake Bay; the state, in response, sought to purchase the land to preserve the ecological and cultural site. Given limited financial resources and personnel capable of managing the wetlands (including, for example, managing local timber harvesting that provided significant employment in the region), the state entered into a phased-in PPP to purchase and manage the forested wetlands.

For the initial land acquisition, the state of Maryland and a nonprofit interest group each purchased 29,000 acres for $16.5 million. The nonprofit then gifted its half to the state, requiring certain contractual stipulations be implemented in the next phase agreements. The contractual agreement provided that the private partner is responsible for land management and timber harvesting; the partner’s fees and expenses incurred must be paid from income self-generated from the project during that fiscal year — this carries great risk for the partner because there is no carryover capital. For Maryland, this both maintains environmentally sustainable forest management and provides an economically self-supporting system that generates reliable revenue without accompanying public expenditures. Today, the Chesapeake Forest Project is touted as a highly successful, innovative partnership that leverages the Bay’s renewable natural resources (the timber) to fund environmental services needed by Maryland.

2. Portland wastewater treatment plan
Portland, Oregon, is leading a wastewater conversion PPP that aims to convert methane produced during the sewage treatment process into renewable natural gas. This renewable gas, in turn, will be used by Portland to replace “dirty diesel” in the city’s waste management commercial vehicles.

This project kicked off in 2017, when Portland’s Environmental Services Agency partnered with a private utility company to develop the infrastructure necessary to harness the methane and distribute the newly transformed renewable natural gas. The project will reach full capacity this year, and the Agency projects the following benefits: (1) elimination of 21,000 annual tons of emissions; (2) generation of at least $3M to $10M in annual revenue; and (3) replacement of over one million gallons of “dirty” vehicle fuel with renewable natural gas (with Portland estimating that this will equate to enough gas to power 154 garbage trucks annually). Based on these revenue projections, the city estimates a four-to-eight-year payback period.

C. Life-Cycle Costing

Life-cycle costing (LCC) is the consideration of all costs of a product or service that will be incurred throughout its lifetime. Rather than evaluating just purchase price, LCC also considers operating costs, end-of-life costs, and residual value, for example. In theory, this permits a procuring official to assess the “true cost” of green purchasing as compared to conventional purchases.

The most common LCC methodologies are based on a purely financial valuation, considering four main cost categories: investment, operation, maintenance, and end-of-life disposal expenses. To become an environmentally relevant methodology, LCC should also consider the cost of environmental externalities associated with the product or service, such as GHG emissions. “In this way, the ‘externalities’ are internalized and are given a financial value.”

To combat the common criticism that sustainable products are more expensive upfront than conventional, non–green products, “[g]reen procurement proponents argue for an assessment of the cost that a product generates over its life span, noting that the purchase price for some products represents only a small quantity of all costs derived from the use, maintenance, and disposal of the product throughout its life cycle.” Success requires that LCC determinations be integrated at the acquisition planning stage to encourage procuring officials to weigh the benefits of sustainable procurement (cost savings and resource and energy preservation) against the speed and uniformity of conventional procurement.

Environmental advocates routinely tout the benefits of incorporating an LCC approach into the procurement process, namely that “buying green can save money.” In advocating the use of LCC, however, it is important to acknowledge the limitations this tool presents. Whether LCC “pays off ” is highly dependent on the scope (that is, the inclusion of environmental externalities and/ or other externalities) and the methodology used. The methodology, in particular, can present critical issues for the procuring officials (particularly if they are unsophisticated in the use of LCC) because, in many cases, it “is incomplete and based on experts’ perceptions, not on hard scientific evidence.” Furthermore, it is highly difficult to accurately calculate and track carbon emissions on a consistent basis.

Multnomah County, Oregon, provides specific guidance on the use of LCC in public procurement. When LCC is used, the solicitation must include relevant information about the product to be procured, such as the particular application for which the product is intended, the projected number of years of product use, and the anticipated operating environment. In addition, the solicitation must describe how LCC will be applied during the evaluation process, like a description of all relevant costs that will be considered. Such costs may include: average unit price; delivery, shipping, and transportation costs; switching costs; support costs; disposal costs; and residual value.

D. Source Selection Evaluation Criteria

Acquisition award criteria often present the most viable opportunity to aggressively pursue GPP. At this stage in the procurement process, contracting authorities focus on identifying the best tender in accordance with the award criteria specified during the procurement planning and design phase. This makes the use of award criteria an optimal means of introducing environmental sustainability into public procurement.

At the federal level, FAR 12.301(c) provides a mechanism for the Contracting Officer to insert the evaluation factors that will be used in a specific procurement, such as technical capability and price. Presumably this is where the Contracting Officer could impose GHG emissions-related evaluation factors, for example. The use of any award criteria must relate to the goods being acquired. Agencies must also generally consider price or cost, past performance, and the quality of the product as evaluation factors in every procurement. This indicates any environmental factors considered would be one among several, likely competing, factors on the basis of which the award is made.

At the state and city level, Santa Monica, California, was one of the leading jurisdictions to apply environmental criteria to cleaning product purchases. As part of its “Toxic Use Reduction Program,” the city developed specific low-toxicity environmental criteria for janitorial products used in public buildings. The city has since reduced spending on cleaning products by five percent and avoided the use of 3,200 pounds of hazardous materials annually.

Another tool to be used at this stage is price preference. Per the National Association of State Procurement Officials, some one-third of states “allow[] a price premium to be applied to environmentally preferable or green purchases.” Such premiums typically range from five to ten percent. This allows environmentally preferable products within that range to remain cost-effective compared to “traditional” goods and services. For example, the King County, Washington EPP Policy establishes a price preference of up to fifteen percent for recycled paper products and up to ten percent for re–refined lubricating oil. Cincinnati, Ohio, and San Diego County, California, include a three and five percent price preference for environmentally preferable products, respectively.

V. The Way Forward : Capitalizing on Carbon

States and cities are assuming an increasingly significant role in dealing with sustainability issues. Given the U.S. federal government’s retreat from aggressively pursuing green procurement, it seems that states and cities soon will be leading innovation in this area. Most jurisdictions at this level have embraced environmentally preferable procurement to some degree, and, although such efforts occur across a vast spectrum of procurement tools and policies, they reasonably can be grouped into the common taxonomy described above. Now that this taxonomy has been identified, the question remains: how can states and cities continue to apply these strategies to push sustainable procurement forward?

Arguably, the way forward is a greater embrace of incorporating GHG emissions throughout the procurement process. With growing momentum nationwide to mitigate the adverse effects of climate change, jurisdictions should harness this social and political energy to forcefully shape green public procurement policy.

GHG emissions are well-suited for inclusion within each level of the green procurement taxonomy. For example, at the specifications level, this may manifest as a simple requirement that offerors provide an environmentally preferable product that meets a certain carbon emissions threshold; procuring officials can rely easily upon one of the numerous carbon-focused certifications and eco–labels available on the market to implement this strategy. Carbon also fits particularly well as a driver of PPPs. Public infrastructure can yield an enormous carbon cost, resulting in significant impacts to climate change advancement. “Thus, a shift in the allocation of resources from carbon-intensive infrastructure to low-carbon infrastructure is needed.” It makes sense for states and cities to partner with private sector and nonprofit institutions to design, build, and fund low-carbon infrastructure to limit climate change impacts while providing needed public services.

The forefront of green procurement will be the use of GHG emissions as a source selection evaluation factor. The use of an evaluation factor allows procuring officials “the discretion to trade the price of a given procurement against the GHG emissions associated with that procurement and thereby enable reductions in agency scope 3 GHG emissions through the acquisition system.” Furthermore, this strategy grants procuring officials flexibility to tailor specific environmental factors to a given acquisition and to utilize a number of methodologies. States and cities should remain cognizant, however, that the approach chosen to incorporate GHG emissions as an evaluation factor can impact procuring officials’ discretion in a best-value procurement.

Some jurisdictions already incorporate low-carbon criteria in the bid evaluation process. For example, the inclusion of carbon externalities in LCC formulae is a potentially practical solution. The European Union has incorporated this approach in Article 68 of Directive 2014/24/EU, which states that, in regard to environmental externalities in LCC, “such costs may include the cost of emissions of greenhouse gases and of other pollutant emissions and other climate change mitigation costs.” If using this approach, states and cities must be diligent in the development or adoption of the life-cycle formula. An inappropriately written formula can become anticompetitive quickly.

A less robust, but easier to implement, strategy may be the use of offeror self-certifications to report GHG emissions. For example, the GSA has suggested using check-the-box reporting with questions such as, “Has a GHG emissions inventory been completed? Does the inventory include just scopes 1 and 2, or also scope 3?” The procuring agency determines the weight such a factor would be given.

As states and cities seek to incorporate meaningful evaluation criteria into their procurement processes, they may face challenges due to inconsistent emissions data availability or underdeveloped carbon databases. However, the federal government is in a position both in terms of resources and expertise to influence this outcome from above. For example, if the EPA or GSA were to develop reliable means of assessing GHG emissions in public procurement, those methods could then be passed down to states and cities. These jurisdictions would benefit from having access to the most progressive procurement tools, and their proliferation of these tools could, in turn, encourage private sector parties to adopt generally sustainable practices to reduce GHG emissions.

VI. Conclusion

As a government-operated instrument, public procurement should be aligned with the jurisdiction’s broad policy objectives. Thus, as U.S. citizens demand more action to counteract the rapid and adverse effects of climate change, states and cities should respond through the focused use of green procurement policies and tools. Efforts to promote and incorporate environmental sustainability can be organized into a common taxonomy of procurement approaches, which in turn can serve as a useful guide and impetus to eco-innovation.

As governments continue to pursue innovative strategies to reduce or reverse climate change, states and cities should consider the use of GHG emissions-focused green procurement tools. Such strategies simultaneously fit neatly within the existing taxonomy and promote the development of aggressive, cutting-edge solutions. In particular, to yield the greatest emissions reductions and still achieve best value, jurisdictions should integrate methodologies that make low-carbon emissions a competitive element of the bidding process.