Sustainable Public Procurement: Towards a lowâcarbon economy

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52 Sustainable Public Procurement: Towards a low carbon economy in three projects, two of them have already got CDM accreditation in UNFCCC. CDM refers to the Clean Development Mechanisms that has been operational under the Kyoto Protocol to enable the generation of certified emission reduction (CERs) units for transfer to Annex I parties. In order to illustrate the scale of CDM project implementation in India, it would be useful to take a look at the following numbers. There have been more than 600 projects approved by the NCA (National CDM Authority). Out of a total worldwide registered 732 projects, Indian alone accounts for 252 or 34% of the global total. Further out of a total of 62 million units of CERs issues, 26 million are issued out of Indian projects. In terms of sectoral distribution, energy efficiency accounts for almost 26% of the total CDM projects in India. 31 This also gives us an idea of the scope for change that CDM could bring in terms of energy efficiency within the procurement system, by making it economically viable and lucrative for companies to invest in energy efficiency. There have been several examples of CDM driving energy efficiency in procurement especially in the iron and steel sector. For instance the Bhilai Steel Plant at Chattisgarh replaced coke through coal tar and coal dust in the blast furnace. Also installation of energy efficient pushers type furnace, high efficiency recuperator and flue line and chimney have all been part of the energy efficiency drive in specific steel companies in Bihar. Other projects include fuel switching in the boiler at M/S Cadbury India Ltd at Thane, Maharashtra, energy efficiency through lights switches in Lotus Suits at the Orchid Hotels Projects at Mumbai, etc. Despite the promise, however there are certain structural impediments that exist in the potential for developing energy efficient CDM projects and thereby influencing procurement. One of such impediments relate to preparation and approval of CFL methodology by the Executive Board, preparing and testing methodology for energy efficient refrigerators, etc. 32 Thus 31 See for detailed information http://www.unescap.org/esd/climatechange/workshop/2007_07_18/docume nts/Thu,%2019%20July/Session5-1/3_Nitu%20Goel.pdf, accessed on 12 January 2008. 32 See for overview, http://www.cdmindia.com/General_Presentations/Presentation_19_Energy %20Efficient%20CDM%20Projects.pdf accessed 12 June 2008. Also http://www.ongcindia.com/press_release1_new.asp?fold=press&file=press3 24.txt accessed 12 June 2008. T E R I Report No. 2007GL01
53 Sustainable Public Procurement: Towards a low carbon economy Low life term cost development of methodology is one of the critical aspects which would need to be addressed for the expansion of energy efficiency and thus its implication for procurement in India. Internal policies of the companies, such as environmental policies and R& R policy influence the procurement process indirectly. Therefore, they see SPP as a means of implementing their policy and mission. Companies like IOCL and NTPC, which are involved in mega projects which cause large scale displacement and relocation, see this as an opportunity to mitigate the ill effects and win the confidence of the local people. This brings back the point mentioned in the previous section that companies with an environmental policy find it easier to justify their choice of energy efficient items, even though it may cost more to the company. Unless there is an internal institutional commitment towards environment protection at the level of the company, a sustainable approach in their procurement process is difficult to find. It is clear that performance and cost are the two most important factors determining the procurement made by companies. Financial cost of a product can be determined on the basis of either least cost at the time of purchase or a lifetime cost of the product. Depending on the nature of goods being procured, requirements, quantity and cost of item to be procured, choice between immediate and long term cost is made for the purposes of evaluation of a bid. Least cost at the time of purchase is the most common and usual practice but a lifetime low cost is what serves as the basis for following an energy efficiency criterion while making a procurement decision. Reduced energy consumption gets translated into reduced operating costs and hence, a more economical in the long run despite the initial incurring of expenses. The basic difference between whole life costing and L1 cost is that the concept of former “allows for the consideration of environmental, social and economic costs and benefits that occur throughout the life of the a product or service, rather than simply restricting these to the financial outlay involved in initial T E R I Report No. 2007GL01
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