Incentive Contracts for Road Construction to Reduce Greenhouse Gas Emissions

Abstract

Road constructions play a significant role in greenhouse gas (GHG) release into the atmosphere due to a large amount of materials consumption. To reduce emission has an effect on project costs. This research proposes an incentive measure named the Construction-Emission-Punishment (CEP) bidding method which offers emission reduction options and incentives for participating bidders. An equivalent bid price and a financial penalty will be specified in the construction contract as a part of this method. This penalty is applied when there is a failure to comply with binding obligations. The results show that the rates of the emission deduction from the six reduction options account for 0.115%-2.768% of the project cost. The case study also shows that a bidder who receives some emission deductions can be the winner. The effectiveness of the CEP method depends on the bid price gaps among the bidders and the emission deduction from the selected options.