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Antitrust Barriers to Climate Action

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25-11-2022

During a virtual event today (15th November), the ICC Global Competition Commission discussed an important policy paper addressing the interplay between competition law and sustainability entitled “When Chilling Contributes to Warming – how Competition Policy acts as a barrier to climate action”.

The ICC white paper addresses the question of whether antitrust policy and enforcement are fit for purpose for a net-zero future or whether change is needed to prevent competition law from standing in the way of industry collaboration intended to fight climate change. Some highlights are set out below:

  • The panel explained that in order to contribute to action against climate change, businesses face the dual challenge of becoming drivers for change and achieving sustainability goals while still delivering good results to their shareholders. Going alone and being the first mover is not without risk as innovation and change for sustainability purposes do not necessarily mean that pioneering firms will reap the profits resulting from early action. In fact actions taken by businesses to advance their sustainability objectives typically require investments in the short term and possibly higher operating costs that cannot be passed on to customers, possibly placing those firms at a competitive disadvantage.
  • Facing climate change goals, and the race to net zero, the paper recognises that the response to this issue could lie in collective action where competitors cooperate to bring about change that benefits the environment and society. However, such cooperation presents the risk that the collective action could temporarily reduce competition. The critical issue therefore is how to assess a reduction in competition in exchange for stainability benefits.
  • The paper includes 12 real examples that raise the issue and where projects may not have progressed for fear of competition law, for example:
    • a collective boycott by trade association members not to buy from suppliers using high polluting techniques to force suppliers to adopt less polluting techniques;
    • industry agreement that all new tyres and brakes manufactured would only use a new material which vastly reduces the amount of fine particles emitted resulting in increased costs; and
    • horizontal data sharing for energy saving purposes
  • Competition agencies around the world are having to take a position on the issue but we are seeing material divergence in approach with no general global consensus: some are taking an openly supportive approach to antitrust assessments (such as the Dutch Competition Authority which published draft guidelines on “Sustainability agreements: opportunities within competition law” on 26 February 2021), some are providing further guidance (such as the European Commission’s inclusion of a chapter on Sustainability Agreements in its draft Guidelines on Horizontal Agreements of 1 March 2022); some are making changes to the law (such as in Austria) whilst others are reactive to what they see as unorthodox economic analysis, or sceptical about suggestions that a reform of antirust rules is needed to support sustainability objectives – and fearing that such objectives may be used as a cover for anticompetitive practices (sometimes known as “greenwashing”).
  • Businesses are frustrated that the antitrust framework internationally does not provide the certainty they need that genuine sustainability-focussed initiatives will not be considered to breach antitrust rules. This uncertainty couple with the fear of enforcement is having a chilling effect. In the meantime, businesses are concerned that they are being asked to accept the commercial risk in bringing test cases to establish a precedent on the circumstances in which sustainability benefits from collective initiatives outweigh any effects on competition. This burden is compounded by the lack of a joined-up global approach, requiring businesses proposing global sustainability-related initiatives to engage with numerous competition regimes in search of pre-approval before initiatives are implemented (which can involve lengthy and costly processes).
  • Companies are therefore understandably cautious about bringing cases forward, in particular given the unpredictability of the outcome and as such many projects which could deliver sustainability benefits are abandoned.
  • It is this gap that the ICC paper aims to bridge, in particular the reluctance of many competition authorities globally to take effective action to ensure that competition law does not stand in the way of business cooperation to fight climate change and the reluctance of businesses to cooperate with competitors for (often unfounded) fear of competition law, and a reluctance to take their concerns or submit sustainability-related arguments to the competition authorities, to seek comfort / guidance.
  • The paper therefore provides a call to action for competition authorities to work together to come up with an agreed approach. In the meantime, the paper provides some high level “Do’s” and “don’ts” as indicators of the types of issues businesses and authorities need to consider when contemplating sustainability agreements.

 

Julia Woodward-Carlton, Partner in the EU, Trade and Competition team at Eversheds Sutherland comments

The ICC paper highlights an important issue for businesses and competition agencies around the world to grapple with. Competition policy has an important role to play in the fight against climate change and it is therefore essential that competition authorities globally work together to support collaborative initiatives driving to deliver sustainability goals and to ensure that competition law does not serve as a barrier to such projects.”

How competition policy acts as a barrier to climate action - ICC - International Chamber of Commerce

 

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