Sustainability and Competition: Recognizing Potential in Competition Law to Promote Green Future
[Aileen is a student at Jindal Global Law School.]
In the wake of the severe effects of climate change being felt across the globe, the importance of actively working towards a more sustainable and green future has taken center stage. There is a sense of urgency around the sustainable use of resources. Now more than ever, governments and businesses need to take action and get innovative in order to counterbalance economic development, efficiency, and sustainability. Over the past couple of years, a discourse around the use of competition law and policy as a means to achieve sustainable development goals has ensued and various competition authorities, economists, academics, and stakeholders across the globe have begun considering the viability of the same.
An Analysis of the Ongoing Debate
At the moment, there is no consensus as to whether competition law can or should contribute to promoting sustainable development goals and whether it can actually effectuate positive change while doing so. This is mainly due to the perception that there is a possibility of conflict between the objectives of competition law and achieving sustainable development. Predominantly, the arguments that have arisen during the course of this debate fall into three categories. The first includes those who argue that competition law must be remodeled in order to promote co-operation and sustainable development while acknowledging the risks of promoting co-operation. They view collaborations amongst market players as an opportunity to promote sustainable efficiency. The second category consists of those who argue that competition law is not the ideal tool through which one can advocate, implement, and achieve sustainable development goals. This is because sustainability is a public interest objective and therefore cannot fall within the scope of competition law as it could potentially lead to a conflict between the objectives of the two. The third consists of those who are yet to decide as to whether or not there exists a relationship between competition law and sustainability which can actually work hand in hand to effectuate positive change.
Each view point has valid concerns, and acknowledging the advantages and disadvantages of each of them is the only way in which we can discern the viability of the relationship between competition law and sustainable development. While competition law alone might not be instrumental in achieving a sustainable future, it can definitely contribute to the global movement against climate change. Companies that wish to contribute to a sustainable future require competition law to support them as collaborative efforts are the only way in which they can efficiently achieve such goals. Companies need to collaborate in order to avoid first-mover disadvantages caused due to the consumers’ unwillingness to pay. Further, the first mover has difficulty in the acquisition of specialized raw materials which in turn increases the costs for them and prevents them from achieving economies of scale and scope, thereby posing a serious threat to innovation. Therefore, producers are unable to reduce the average fixed costs of green products. As a result, sustainable alternatives are much more expensive than non-sustainable options.
For example, if a company decides to switch to green packaging which is relatively more expensive than normal packaging, consumers would simply switch to another substitute that does not have the green packaging and is therefore cheaper. Not all consumers are willing to pay for sustainable packaging until and unless all other consumers are paying the same amount. It is also probable that not many consumers actually care enough to contribute to sustainability. Competition law is wary of collaborative initiatives because the chances of market distortion and cartelisation are extremely high. Cartels can have various negative effects on the market such as reduction in output, reduction in innovation which can also have an impact on public interest goals such as sustainable development, etc. If companies were allowed to collaborate then all the companies in the said industry could collaborate to use green packaging, thereby creating a larger demand. Consumers would not have many alternatives and this would increase their willingness to pay as all the companies would have incorporated green packaging and its costs. This might seem unfair to the consumers since consumer welfare (in terms of price) takes a back seat. But we must consider the fact that when we engage in conduct that is not environmentally friendly, the price we pay is much higher. The effects of climate change ranges from social, economic, environmental damages that increase the cost of living which causes a lack of resources (food, energy, health infrastructure). As a result, we must either deal with price surges or rely on cheaper but ineffective and unsafe alternatives.
A Sustainable Approach to Anti-competitive Agreements
It has been argued that certain green collaborative agreements amongst market players cannot be considered as anti-competitive agreements because these agreements have genuine, non-economic benefits that are pursuant to public policy. The Dutch competition watchdog, the Netherlands Authority for Consumers and Markets (ACM), has published draft guidelines on how competition law can promote sustainability. The draft guidelines recognize that certain collaborative agreements do not restrict competition, while certain others do restrict market competition. In cases where they do restrict competition, it has been suggested that the objective sustainability benefits must outweigh the disadvantages caused by such agreements. Parties are also required to either quantitatively or qualitatively substantiate the benefits arising. Drawing from the previous example, if a group of firms collaborate to use green packaging, they must substantiate that the benefit from collaborating and using green packaging is much higher than the disadvantage of increasing the price of the product. They must show that such collaboration is not pursuant to the objective of increasing profits but rather it is pursuant to genuine public policy. Essentially, the ACM has laid down that the harm to competition must be far less than the benefits of the collaborative agreements and that the undertakings that are involved have a limited combined market share.
The threat of cartelisation would still exist as collaborative agreements would require parties to share information and it would provide a legitimate platform to do the same. However, this cannot be used as an excuse to impede global efforts to create a green future. Firms must be extremely cautious and must analyze whether or not there is a genuine need for collaboration, and it must ensure that it fits within the guidelines. In this context, the draft guidelines by the ACM recognize the important role played by collaborative agreements in increasing innovation, protecting competition, and helping firms achieve economies of scale and scope. The ACM draft guidelines are at the forefront of the debate as it has also released guidelines for Sustainability Claims which lays down five rules of thumb to assist businesses in ensuring that their sustainability claims are not unclear, incorrect, or misleading for consumers. These include the fact that businesses must make clear what sustainability benefit their products offer, must substantiate their sustainability claims with facts and keep them up to date, must be honest and specific about their company’s efforts with regards to sustainability, must ensure that visual claims and labels are not confusing to consumers, and finally that comparisons with other products, services or companies are fair.
It is evident from the depth of the guidelines that the Dutch competition regulator has come up with a well thought out and comprehensive guideline that genuinely wishes to use traditional competition law to serve non-economic benefits. While it remains to be seen whether or not this translates into real benefits, the sense of urgency and the need to change our ways and consider all paths to create a green future has never been more important. In an interview, economist Mariana Mazzucato has argued that instead of simply saying ‘clean the ocean’ what we must focus on is the larger picture of getting firms to collaborate and use sustainable alternatives which would actually help in getting rid of the plastic. In reality, this would call for a lot of private (collaboration of firms pursuant to non-economic benefits) and public investment (the effect on the product’s prices). The ACM does exactly this by detailing a comprehensive draft guideline, so that it can truly push for sustainable development and try to effectuate change.
The Competition Commission of India (CCI) is yet to join the debate on the interoperability between competition law and sustainable development, however, it can benefit by observing the discourse unfold in various EU competition regimes. Australia, Greece, Germany, Lithuania, New Zealand and various other authorities have contributed to the discourse and have brought some unique concerns to the table; however, the draft guidelines by the Dutch competition authority seem to be the most promising. There are many aspects to this debate, each being extremely important in order to help build an approach that is comprehensive and truly benefits the market rather than distort competition.
At the moment, there is no doubt that the Dutch competition authority’s draft guidelines are the most extensive approach to applying traditional principles of competition law in order to achieve sustainability. The CCI could potentially look into this as a starting point to start including sustainability as an important aspect under the already existing competition framework. Throughout the globe, there is a sense of urgency with regard to climate change, and at this juncture, it is pertinent that we consider competition law as a viable option to help curb climate change and promote a greener future.