By: ProcurementIQ Analyst, Scott Winters
Depending on whom you ask, December 12, 2015 was either one of the most important days in history, or the beginning of endless headaches and woe. On this day in Paris, a gathering of representatives from 195 nations adopted the Paris Agreement, one of the most comprehensive agreements regarding climate change ever passed. Though environmentalists are elated by these results, many businesses (government operators in particular), have felt the burn to shell out for environmental products and services as their operations have come under fire from regulatory committees.
Although the United Nations Framework Convention on Climate Change (UNFCCC) has been negotiating these types of agreements since 1992 (the Kyoto Protocol, for example), this particular meeting was considered one of the most productive and successful conferences in the history of the UNFCCC. The Paris Agreement is the first international agreement to establish a specific goal of keeping the global rise in temperature below a certain threshold. The agreement states that all member countries will make an effort to keep global temperature growth below 2.0° Celsius above pre-industrial levels, primarily by reducing greenhouse emissions. To achieve this ambitious goal, all member countries were required to submit an action plan (called an intended nationally determined contribution, or INDC), which details their overall approach. The United States submitted an action plan that declares the goal of reducing the country’s greenhouse emissions by 26% to 28% below 2005 levels by 2025. The INDC further details plans “…to reduce emissions in 2025 of all greenhouse gases from all sources in every economic sector,” and reduce emissions from federal government operations by 40% below 2005 levels by 2025.
In the next few years, many government entities will face increased costs and steep penalties, such as the loss of federal funding, if they fail to comply with these ambitious emission reduction goals. Furthermore, even with the guidelines laid out in the current INDCs, global temperature change is still expected to reach about 3.5° Celsius, which is above the stated long-term goal. This means that additional measures and even stricter regulations will be required to keep the increase at or below 2.0° Celsius.
Alongside increasing regulations and the introduction of the federal government’s goal to account for 100% of emissions produced (according to the US INDC), demand for environmental products and services is expected to intensify. For example, as businesses seek to reduce their carbon footprint, demand and prices for Air Quality Monitoring Services, Environmental Planning Services and Carbon Management Services will grow strongly, making it difficult for buyers to negotiate with suppliers.
In the past three years, so called ‘green’ markets such as these have seen massive demand growth as businesses voluntarily began to embrace more environmentally-friendly practices and as tightening regulations have forced buyers to purchase these services to avoid penalties. As a result, prices have risen, typically from about 1% to 3% annually on average, and prices are expected to continue mounting through 2016. However, even in markets with strong demand growth, buyers that stay ahead of the curve regarding current and forecast trends can weather the storm of increasing regulations with their budgets intact.