It's Not Easy Being Green

Abstract

Being green is not easy, but is it also costly? We use US government procurement contracts to calculate the cost of being green. Comparing contracts that are nearly identical but for one being required by regulation to be green we find a cost premium of at least 20%. We further show that the quality of green contracts, for otherwise identical products and services, are worse along a variety of dimensions, even though there is no measurable difference in their competitiveness. The green premium does not increase employment but seems to be a wealth transfer to private firms. The green contracts do spur green innovation, but at a cost 50 times per patent versus a direct R&D investment. This paper calls into question the demand that the government leads the green revolution.

Keywords: Green; procurement; innovation

JEL Classification: G38; H57; P16; Q58