How the climate consulting industry builds greener local economies

Private environmental engineering and consulting firms both provide services necessary to fight climate change and help create greener local economies, which I explore in depth in my recently published article in Energy Research & Social Science. Private environmental consultancies and energy service companies (ESCOs), including AECOM, ERM, Honeywell and Siemens, feed growing demand for climate change mitigation expertise and constitute a “global professional technocracy” selling environmental governance solutions.

A large source of this demand is the wave of corporate sustainability efforts sweeping the world: thousands of businesses adopting environmental stewardship and climate mitigation goals under the banner of corporate social responsibility (CSR) and environmental, social and governance (ESG) standards. Another large source is local, regional and national governments. When an organization, be it a business or a government, commits to take climate action and to decarbonize, the answer to the immediate “now what?” question often takes the form of contracting to private environmental services firms that offer the services necessary to implement a range of decarbonization measures. These firms and the services they offer are being integrated into government strategies for meeting the crucial goals of reducing greenhouse gas (GHG) emissions and growing greener local economies, a subject I spoke about at the Sustainable Urban Design Summit in Detroit. 

Greener local economies 

Globally, governments are increasingly achieving sustainability goals while making their markets “greener,” specifically by acting as customers of local environmental services industries that sell the expertise and resources necessary to decarbonize. Governments are using public procurement strategically—to simultaneously achieve goals of economic growth, sustainable economic transition and emissions reduction. 

This strategy involves contracting to private environmental consultancies and related companies to design and implement key components of urban climate change mitigation, from GHG inventorying to targeted decarbonization projects. For example, cities often decarbonize their buildings by entering into energy performance contracts, a service ESCOs and similar consultancies offer, in which the contractor installs all relevant upgrades to buildings. This contracting model is particularly popular because the client does not pay up front. Rather, the client pays according to the actual energy savings achieved from the upgrades over time, making energy performance “budget neutral” and enabling governments to achieve emissions reductions without making large budgetary investments. By procuring services such as energy performance contracts from local environmental services companies, governments reduce GHG emissions cost effectively while also investing in the growth of local low-carbon sectors. 

Institutionalizing green job growth

Major cities have successfully implemented this strategy. When Singapore passed regulations requiring buildings to improve energy efficiency, the government provided building owners a list of the local environmental consultancies and ESCOs offering the services they would need to ensure compliance, including energy performance contracts. This resulted in more than 1,000 green building projects and 150,000 tons of GHG emissions reductions. It also institutionalized local job growth in the environmental services sector. The green construction industry and associated environmental services became the fastest-growing sectors in the city-state.

Melbourne, Australia’s climate action included a “green productivity” strategy designed to enhance the city’s competitiveness in emerging green markets by meeting consumer and shareholder demand for improved environmental performance. Melbourne entered into an energy performance contract with the local branch of Honeywell, which it accessed through its membership in C40, to retrofit 13 city council buildings and other facilities with more efficient heating, ventilation, lighting and other systems. This resulted in annual energy cost savings of $190,000, 1,560 tons in annual GHG reductions, and growth in the local energy service industry. 

Knoxville, Tennessee, entered into an energy performance contract with AMERESCO, which retrofitted 130 city-owned facilities and achieved 4,000 tons of annual GHG reductions. It also created jobs in local environmental services.

The number of these consultancies in a city matters: My global-scale analysis finds that greater GHG emissions reductions are strongly associated with the local presence of environmental consultancies and energy services companies. These consultancies are not the only helpful source of knowledge for climate solutions: For instance, cities often draw on the policy models and emissions inventorying software offered via memberships in environmental governance networks like ICLEI. Hence, the same study also shows that concurrent city government memberships in such networks are also associated with emissions reductions. 

While making growth in environmental services industries a built-in feature of urban sustainability is a promising endeavor, it also begins a conversation about privatization risks: Will excessive government dependence on outsourcing grant private climate services companies too much power? Might it skew the science away from the public interest and toward profit? Whatever the case, balancing these opportunities and risks will remain an important theme surrounding the private sector’s role in sustainability.