Green Competition: Adopting A Flexible Regulatory Framework

[Oorja Newatia is a second-year law school student at NLSIU, Bengaluru. An earlier version of this post was first published with the Centre for Business and Commercial Laws]

Recently, on the sidelines of the BRICS Competition Conference, the Competition Commission of India’s (‘CCI’) chairperson has declared that the CCI is looking at ways to integrate sustainability dimensions into the competition law framework. India has declared an ambitious target to achieve carbon neutrality by 2070 and an emissions-intensity target of 45% below 2005 levels by 2030. To achieve these reduction targets, it is necessary to create a society that combines economic growth with the reduction of environmental burdens. Collaborative efforts by enterprises are the only efficient means for companies to achieve sustainability goals so as to avoid first-mover disadvantages. To ensure that enterprises build green businesses without having to face anti-competitive barriers, it is critical to have a clear framework to assess ‘anti-competitive agreements having sustainability dimensions’.

However, for much of its history, competition law has been largely focused on promoting consumer welfare as its primary objective. Thus, it can be argued that competition law is not ideal to achieve sustainability because sustainability is a public interest objective and hence outside the ambit of competition law. This post, by borrowing from various international jurisdictions seeks to argue that environmental concerns can be taken into account to assess the validity of restrictive agreements. In doing so, it first, explores the complex relationship between sustainability and competition, secondly, analyses the approaches adopted by various competition regimes to integrate sustainability in competition law and finally, suggests amending the Competition Act 2002 (‘the Act) to make it sufficiently flexible to allow anti-competitive mergers or restrictive arrangements that may have sustainability benefits to proceed without needing to change the objectives of competition law.

Competition Law and Sustainability: A Complex Relationship

Competition law is not considered the primary policy tool for promoting sustainability because first, the OECD has warned that having multiple objectives applied to competition law increases a number of risks including inconsistent application of competition policy and the public interest constraining the independence of competition regulators. Secondly, assessment of sustainability considerations often requires the ability to measure difficult trade-offs between environmental and commercial interests. Thirdly, at times there may be a conflict between sustainability and competition. For instance, a competition agency could decline a merger or take action against an arrangement that has potential environmental benefits because of its likely impact on competition.

In essence, competition law is a disincentive to cooperation between firms. In most cases this promotes consumer welfare i.e., where collaboration reduces competition, but it may also prevent industry-wide measures to achieve significant changes in the long-term interests of the public. Collective agreements related to environmental schemes can produce substantial benefits from a sustainability perspective, while simultaneously limiting competition (example, agreements to improve efficiency of refrigerators). In such cases the question is whether it is possible to adjust the issues causing competition concerns without harming the sustainability objectives.

International Approaches to Integrating Sustainability in Competition Law

The CCI has finally joined the debate on how sustainable dimensions can be integrated within the competition regime. Fortunately, it can benefit by exploring the approach adopted in various foreign regimes. Countries such as Japan,Netherlands, Australia, New Zealand, Greece, Germany have tackled anti-competitive agreements having green dimensions by drafting guidelines. Consider Japan which has recently adopted draft guidelines on how competition law can promote sustainability.

These guidelines consider that most activities seeking environmental sustainability are unlikely to restrict competition. However, in cases where business activities have both anti-competitive as well as pro-competitive effects (such as innovation and creation of new technologies resulting in say reduction of greenhouse gas), the guidelines envisage a threefold test: (i) whether the objective of the impugned measure is legitimate; (ii) whether the said measure is reasonable; and (iii) balancing test between the anti-competitive effects and the pro-competitive effects of the measure. However, hardcore restrictions, such as price restrictions, restraints on new entry and exclusion of existing players cannot be justified in the name of sustainability.

Similarly, the Dutch guidelines suggest that in cases where agreements promoting sustainability restrict competition, the sustainability benefits must outweigh the disadvantages caused by such agreements. It necessitates that the parties qualitatively or quantitatively justify the benefits arising. Such an integration of sustainability in competition law can also be viewed in the orders by New Zealand and Australia’s Commerce Commissions (‘NZCC’ and ‘ACCC’ respectively). In Refrigerant License Trust Board (RLTB) case, RLTB sought authorisation for an arrangement under which up to 100% of New Zealand refrigerant wholesalers may agree to supply refrigerants only to customers that are trained and licensed or certified to safely handle refrigerants. The NZCC granted authorisation on grounds that the net benefit of such an arrangement in the form of reduction in the amount of ozone depletion outweighed any detriment to the exclusionary provision. Likewise, the ACCC in 2018 granted authorisation to the Tyre Stewardship Scheme which envisaged dealing with only accredited businesses along the tyre supply chain because it aimed at increasing the recycling of tyres and use of products made from recycled tyres.

Crafting A Flexible Regulatory Framework

To promote sustainability, the CCI needs to create a competition regime which is sufficiently flexible to look beyond a consumer welfare standard to consider broader wider economic and social impacts. In doing so, it could observe the EU’s approach. The EU Guidelines (2004) read ‘public interest objectives that are pursued by other provisions of European treaties’ into article 101(3) of the Treaty on the Functioning of European Union (‘TFEU’) which provides exemptions to anti-competitive agreements. Along the same lines, this post suggests that a flexible framework requires restricting the ambit of section 3 of the Act which deals with anti-competitive agreements. This can be done by creating a second proviso to section 3(3). The proviso could be framed as follows:

Provided that nothing contained in this sub-section shall apply to any agreement entered into by two or more entities if such agreement furthers public interest objectives pursued by other existing laws in India.”

Public interest covers a broad range of issues including environment, culture, public health and social issues. However, this begs the question whether a full exception from prohibition of anti-competitive agreements can be made for sustainability initiatives. A full exception was granted by the Court of Justice of the European Union (‘CJEU’) in the Albany International decision where it ruled that the agreement was excluded from the scope of the prohibition of anti-competitive agreements because the agreement contributed to improving one of the employees’ working conditions. Here, the CJEU did not rely on proportionality by weighing social policy objectives and the welfare losses from anti-competitive agreement to be expected.

If the benefits arising out of restrictive agreements are not qualitatively or quantitatively justified using the proportionality test, entities may simply claim the protection of abstract public interest goals to evade the competition watchdog. Thus, there are now limits to the extent public interest objectives are taken into account. Entities have to prove that the adversely affected consumers on the relevant market also benefit from the advantages of the agreement and are overall not placed in a less favourable position by the agreement. Essentially, what is required is a balancing act between the anti-competitive effects and the pro-competitive effects of the measure.

Conclusion and Recommendations

The integration of sustainability dimensions into competition law represents a complex and evolving challenge. As India strives to achieve ambitious environmental targets, the CCI can play a vital role in balancing sustainability with competition. The global landscape provides valuable insights into how competition regimes can adapt to promote sustainability without compromising their core objectives. The CCI needs to craft a flexible regulatory framework that takes into consideration broader economic and social impacts including sustainability.

To begin, it is imperative to enforce competition laws in a manner that does not undermine both private and public sustainability initiatives. This entails embracing an accommodating approach such as seen in R&D horizontal agreements and other agreements that encourage innovation. This accommodating approach is justified as a transformative effort aimed at reshaping consumer preferences toward more sustainable products. Secondly, the competition law must break its insularity and become synchronised with broader constitutional values and aims regarding sustainability. For this, it needs to consider various externalities and their inter-generation effects rather than merely focusing on the impact of market power on prices. This accommodating approach can be adopted by creating a second proviso to section 3(3) of the Act.

The real challenge lies in striking the right balance between anti-competitive effects and pro-competitive benefits to ensure that sustainability initiatives are not misused, and consumers ultimately benefit. As the CCI explores these possibilities, it is essential to keep a keen eye on global best practices to build a competition regime that supports both economic growth and environmental sustainability.

– Oorja Newatia

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