CLIP of the month: The role of competition law in addressing climate change

28.07.2020

This month’s CLIP of the month is Climate Change, Sustainability and Competition Law by Simon Holmes.

While a little off our usual topic of the interplay of competition law and IP, this article sheds light on another area in which competition law needs to interact with other policy issues and – more crucially – is an issue of the utmost importance for society as a whole.

The paper suggests that despite traditional considerations that competition law presents an obstacle to environmental initiatives, when interpreted correctly it can in fact be an advantageous tool in achieving socioeconomic policy goals. It suggests that no change to the law required, but simply a reinterpretation of the provisions as they currently exist.

Deals could potentially be approved where sustainable initiatives outweigh any anticompetitive elements. Efficiencies would have to be proven to benefit consumers over the long-term and counteract any competitive harms induced by the merger. Conversely, certain ventures which produced specific environmental concerns could be blocked. More use could also be made of remedies as an important tool in successfully approving a merger, in essentially ‘undoing’ any negative environmental effects.

The EU ‘Green Deal’ of last year underlined the need for a “modern, resource-effective and competitive economy” to face the threat of climate change. It is now more important than ever that businesses can cooperate and innovate for the benefit of the environment.

In fact, competition authorities are now grappling with this issue.  For example, the Competition and Market Authority’s 2020 annual plan notes the impact of climate change on market dynamics and customer behaviours, and sets out the ways in which the CMA can help towards the UK becoming carbon-neutral by 2050. It details the following aims:

  • Supporting the adaptation to climate change, and launching markets work, where appropriate, to help markets remain competitive and open to innovation;
  • Working with government on climate change and sustainability policies, ensuring that these policies are capitalising on the benefits of competition;
  • Developing existing tools to engage businesses in sustainability initiatives, and ensuring that businesses do not ‘shy away’ from green initiatives on account of fears of breaching competition law.

The Netherlands Authority for Consumers and Markets (ACM) has also published Draft Sustainability Guidelines which – in addition to reiterating Mr Holmes’ view that many such agreements are already permissible – propose to expressly permit restrictive agreements if the benefits of the collaboration outweigh the disadvantages, with examples provided over how such weighing may be carried out.  As with recent developments in the tech space, where privacy is now widely recognised as a parameter of competition (see our post on the recent CMA market study, here), the ACM explains that sustainability improvements are often seen by consumers as an aspect of quality, suggesting that there is scope for both collusion and pro-competitive activity in relation to this aspect of product differentiation.

Recent circumstances have necessitated waivers and a flexible approach to competition law.  While there is no doubt that the full force of competition law will be brought to bear in future (as mooted by Andrew Tyrie, outgoing chair of the CMA, here*), it is plausible that the learnings from  the period of the pandemic may have application to the climate crisis.  It certainly seems possible that competition law can, and should, be interpreted and adapted in a way that allows environmental and sustainability goals to be achieved, in the context of the increasing threats from climate change.

* This article warrants its own careful consideration.  For now we note that Lord Tyrie’s article, unlike our CLIP of the month, does not list climate change as one of the most pressing challenges to the economy.

Isobel Thomas

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