Trucost News / 21 Mar 2012

Local authorities manage risk from rising carbon and energy costs

Local authorities in the East of England use carbon data to identify risk to procurement budgets from rising carbon and energy costs.

Research published today through a partnership between Trucost, Sustainability East and Improvement East is enabling 11 East of England local authorities to manage risk from rising carbon and energy costs through lower-carbon public sector procurement.

Many local authority suppliers will have to buy allowances for carbon dioxide emissions under the CRC Energy Efficiency Scheme from April 2012. Local authorities procurement budgets could be exposed to increasing carbon costs passed on by their carbon intensive suppliers. Pass through costs could be further increased as a result of volatile energy prices.

The research found that 1.4 million tonnes of carbon were associated with the supply chains of 11 East of England local authorities in 2009/10; 66% more than the carbon dioxide associated with the local authorities’ own operations in 2008/9 (0.9 million tonnes of carbon) underlying the need for local authorities to ensure carbon management policies encompass procurement spend.

Six county councils and five unitary authorities in the East of England that took part in the study have gained insight into critical sources of 1.4 million tonnes of carbon linked to their combined spend of £4billion with 5,795 suppliers. The research identifies carbon hot spots in the local authorities’ supply chains – the main sources of emissions and exposure to rising carbon and energy costs.

David Webb, executive director, Sustainability East said “We commissioned this study to facilitate the process of using carbon as an informant for future service design. The aim of the project has been to help local authorities pinpoint where efficiencies can be made now and to ensure that a focus on value for money in the short term does not lead to greater costs in the future.”

Steven Bullock, head of supply chain research, Trucost said: “Focusing on just a handful of suppliers to cut emissions can make a big difference. Whatever the size of the procurement budget, emissions are usually concentrated among a few sectors and suppliers. Knowing where these hot spots are helps target action to cut carbon.”

Local authorities could have a big impact on cutting carbon by looking more closely at purchases in the Utilities and Social Community Care Supplies & Services sectors, which contributed most to the carbon emissions of procurement (48%).

Mark Housden, supplier manager, Hertfordshire County Council said ‘The Council is developing a strategic role with suppliers to reduce carbon emissions. Using the information from this project, it has been identified that an area that HCC has most influence and the biggest positive impact locally is within the care home sector. A project is currently underway in association with Hertfordshire Care Providers Association using specialist advisers to identify and articulate the resource efficiencies that can be made by these providers.”

Local authorities that took part in the study received preliminary carbon hot spot reports and an analysis tool with information on how their suppliers compare on carbon performance.  Suppliers that contribute most to procurement emissions and are more carbon-intensive than sector peers can be encouraged to improve energy efficiency to limit exposure to rising carbon costs in budgets in April 2012.

The carbon intensity of expenditure by different local authorities varies in the same sectors – particularly Building Construction Materials, Utilities and Public Transport. This shows potential for existing suppliers to become more carbon efficient, or to shift purchasing to lower-carbon suppliers. Suppliers outside of the Utilities sector were responsible for 70% of supply chain emissions, and could therefore deliver valuable carbon savings. The study shows that if carbon-intensive suppliers reduced emissions in line with peer benchmarks in nine sectors (excluding Utilities), emissions from local authority purchases could be cut by almost 130,000 tonnes – potentially avoiding up to £1.5 million in carbon costs. Findings show that 10 companies accounted for more than one-third of emissions from local authority procurement in the region.

This supply chain emissions project will be followed up by Sustainability East’s active networks and next steps will be defined through local authorities’ interaction with Sustainability East and Improvement East. Findings are already being used in individual authorities such as Hertfordshire to target actions to cut emissions.

Eddie Gibson, senior programme manager, Improvement East said: “Part of the rationale for commissioning this study was to challenge the perception that “environmentally-friendly” procurement adds cost into contracts. Trucost’s supply chain analysis has proven emphatically that the reverse is true and we hope that this fosters a change in public sector purchasing behaviour in the East of England”

Key findings:

  • 1.4 million tonnes of carbon were associated with the supply chains of 11 East of England local authorities in 2009/10; 66% more than the carbon dioxide associated with the local authorities’ own operations in 2008/9 (0.9 million tonnes of carbon)
  • 7 authorities have a carbon intensity above the regional average of 347 tCO2e per £ million.
  • If the suppliers analysed were to pay £12 per tonne for their greenhouse gas emissions and pass these costs on in higher prices, local authorities could incur carbon costs of more than £17 million*
  • Exposure to carbon costs varies across authorities; county council supply chains range from approximately 250 tonnes of carbon per £ mn of expenditure to 447 tonnes of carbon per £ mn.
  • Unitary authority carbon footprints ranged from 297 tCO2e per £ mn to 496 tCO2e per £ mn.
  • Local authority supply chains were linked to more than 371 million cubic metres (m3) of water. If suppliers were to pay the global water scarcity price of £0.72 per mand pass these costs on in higher prices, expenditure could rise by more than £268 million.

* The fixed price of carbon dioxide under the CRC Energy Efficiency Scheme from April 2012

 

Contact

sarah.wainwright@trucost.com

+44 (0)20 7160 9800

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