Decarbonization can only be achieved by businesses working together. So is antitrust law a barrier?

Dry ground
Published Date
Mar 7, 2024
We need legal certainty around how antitrust regulators will cooperate with each other and with industry to assess collaborations and joint industry standards on low-carbon solutions.

Collaboration within an industry can only go as far as competition law will permit. In practice, where the application of competition law is unclear, collaboration will often only go as far as is comfortable for the most cautious industry player involved. Where regulators in different jurisdictions apply competition law differently, or have different sustainability policies, the potential for collaboration can be reduced further because businesses seeking a global solution will need to ensure their collaboration meets the strictest standards that any relevant regulator may apply.

Some antitrust authorities have put a lot of effort into providing clarity for business on how competition rules apply to sustainability agreements, including low-carbon collaboration. The Netherlands Authority for Consumers and Markets (ACM), UK Competition and Markets Authority (CMA), European Commission, the Competition and Consumer Commission of Singapore (CCCS) and the Japan Fair Trade Commission (JFTC) have, for example, each published detailed guidance on this topic.

Crucially, they have each also offered to provide informal guidance to businesses that are unsure about how competition law will be applied to the initiatives they are considering, which allows authorities to respond flexibly to novel cases that their guidance could not have anticipated. The ACM was the first to offer advice and, less than three years later, has received more than 20 requests. Businesses may have been particularly encouraged by the ACM’s commitment not to impose fines for any that followed its guidance in good faith. The CMA, CCCS and JFTC have made similar commitments.

Agencies offer guidance – but take divergent approaches

While businesses will undoubtedly appreciate the clarity and comfort that some regulators are offering, effective Net Zero collaboration often spans multiple jurisdictions. Even the regulators offering guidance and advice have taken different approaches to key issues. The CMA and ACM have said, for example, that the society-wide benefits of some low-carbon collaborations should be able to outweigh their possible harm to competition, implying this might be possible even where the net impact on certain groups of customers who are affected by the harm to competition is in fact negative.

The European Commission, by contrast, recently reaffirmed its view that the proper approach is to include, in the “weighing” exercise to apply a competition law exemption, only benefits that are felt by consumers who are harmed by a restriction of competition, so that the net impact on those consumers is positive. This difference of opinion has already put the ACM in a difficult position – it was forced to withdraw its more permissive advice on how to interpret the law on exemption and instead issue a “Policy Rule” as a guide to how it will enforce the law.

In jurisdictions where formal guidance has not been issued, companies must rely on broader policy statements from regulators, some of whom have expressed skepticism about the role that environmental sustainability considerations can play in a competition assessment (echoing sentiments from Lina Khan of the US Federal Trade Commission, who noted that there is “no such thing” as an “ESG exemption”). Faced with these mixed messages, businesses too often find themselves reducing the scope of their ambition for industry-wide collaboration.

While global alignment is unrealistic, some harmonization is required

It will not be realistic for competition authorities globally to reach alignment on the degree of collaboration they will permit on a topic as politically charged as climate change when each exists in (sometimes radically) different legal frameworks and political environments.

However, there is still significant distance that regulators should travel together to ensure that, at minimum, businesses are not forced to abandon beneficial sustainability projects because the law in one or some jurisdictions is unclear to them.

This should include some degree of information sharing about “novel” forms of collaboration that authorities investigate or advise on, to allow each to keep up with the pace of innovation in this field when investigating, or issuing guidance or advice.

It could also include the pooling of resources to consider specific sustainability and competition law issues together. The Netherlands ACM and Greek competition authority have, for example, previously collaborated on a technical report exploring economic tools to measure sustainability benefits as part of a competition law analysis. Ideally, it will also include frequent dialogue about the challenges industries are facing and how competition law can work to preserve competition and protect consumers without unduly obstructing the changes needed to tackle climate change.


Ten lessons in sustainability regulation

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This content was originally published by Allen & Overy before the A&O Shearman merger