Key overview
Competition regulators globally are debating if competitor collaborations to achieve environmental goals can occur consistent with the competition laws.
In Australia, the ACCC can take into account public benefits, which may include environmental benefits, where the proposed conduct is likely to result in public benefit which outweighs the likely public detriment (‘net public benefit’ test) to authorise conduct that would otherwise violate competition laws.
Given the climate change emergency, the ACCC Chair has stated that the ACCC is open to considering collaborations between competitors seeking such authorisations. The ACCC has established a new internal sustainability taskforce to build the ACCC’s expertise and announced that guidelines for businesses on this issue are forthcoming.
Businesses should be encouraged to engage with the ACCC on such proposals, but early and thorough preparation is advisable, particularly in testing cases. Key issues to consider in this regard include assessment of the nature and likelihood of benefits, beneficiaries of the benefits and the balance between expected benefits and detriments. Further details on these issues are set out below.
Recent international developments
The Climate Change Act 2022 (Cth) enshrines in law for the first time in Australia economy-wide emissions reduction targets for reducing net greenhouse gas emissions. Whilst collaborations with competitors may be necessary in some cases as businesses look to do their part in realising this public objective - they also need to consider competition law risks arising from such collaborations (especially where there is an impact on prices or choice for consumers).
Competition regulators across the world have been grappling with the question of how competition law can avoid being an unnecessary roadblock to necessary collaborations between competitors pursuing environmental goals. Many of them have taken positive steps in this regard over the last year. Most recently, in February 2023, the UK’s Competition and Markets Authority (CMA) published draft guidance on its proposed approach towards business collaborations that pursue environmental sustainability goals. In March 2022, the European Commission drafted guidelines that explicitly exempt sustainability agreements between companies from collusion rules, as long as the new agreements have a ‘collective benefit’ to society.
Competitor collaborations for environmental goals: the ACCC is open to engagement
Arguably, Australia is already ahead of many major jurisdictions in the debate on whether the existing competition laws are fit for purpose given that its current competition law framework clearly allows the ACCC to take into account public benefits, including environmental benefits under the ‘net public benefit’ authorisation test for exemption from competition laws. Under this test, the ACCC may authorise conduct where it is satisfied that the proposed conduct is likely to result in public benefit which outweighs the likely public detriment (e.g. substantial lessening of competition).
The ACCC’s Chair, Gina Cass Gottlieb, has acknowledged this her speech last year at the Law Council Annual Competition and Consumer Law Workshop Opening Address (September 2022):
the transition to a low-carbon economy may lead to new types of collaboration between companies which may require competition exemptions. Our ability to take environmental benefits into account as part of our net public benefit authorisation test means we are well placed to consider proposals, and we are open to engagement
Most recently, the focus on this topic has been gathering momentum at the ACCC. In announcing the ACCC’s 2023/24 compliance and enforcement priorities in March 2023, the Chair has confirmed that broader work in relation to the intersection between environmental and sustainable issues and competition law is a priority and has established a new internal taskforce focused on sustainability that will build the ACCC's expertise, inform, and coordinate efforts across the agency. At the ABA Antitrust Section Spring Meeting in March 2023, the Chair of the ACCC’s Enforcement Committee also confirmed that the ACCC is proposing new guidelines for businesses on this issue.
The Battery Levy case: the ACCC finds environmental public benefits outweigh detriments
Environmental public benefit consideration is of course not new to the ACCC. In September 2020, the ACCC authorised the Battery Stewardship Council to operate a national scheme to provide for the appropriate disposal and re-use of various end-of-life batteries which was proposed to be funded by a levy charged by competing battery suppliers to consumers on battery prices, i.e., consumers would face a price increase (the Battery Levy case). Amongst other factors, the ACCC considered that the levy was likely to represent a small increase in the overall retail price for most batteries whereas the scheme would likely to result in significant environmental benefits as well as increased public awareness of battery disposal and use. Following the interim authorisation granted, the ACCC announced in March 2023 that it proposes to grant authorisation for 12 months to enable major supermarkets to continue collaborating on a short-term solution to manage the recycling of soft plastics following REDcycle’s suspension of its operations.
Engaging with the ACCC: key issues to consider
Whilst the ACCC has expressed an openness in continuing to consider collaborations resulting in environmental benefits, there has not been a truly testing case yet and moreover, the ACCC is unlikely to take a light-touch approach in granting exemptions from competition law. Businesses seeking such exemptions are therefore advised to be well-prepared. We set out below key issues for businesses to consider in this regard.
So we see a real balancing act in that area: promoting competition but being facilitative of genuine initiatives in industry. - Liza Carver, ABA Spring Meeting (March 2023)
What benefits may result from competitor collaborations?
It will be important to clearly identify the benefits expected to accrue from collaborations, demonstrate to what extent these can be expected (e.g. to what extent greenhouse gas emissions will be reduced) and the likelihood that they will actually accrue. In many cases, it may be sufficient to provide a qualitative assessment of the expected benefits, especially where the proposed conduct does not give rise to material competition concerns or where the nature of the benefits is more qualitative in nature (e.g. animal welfare). In some cases, quantification of benefits might be necessary - especially where there is a fine balancing exercise between the expected benefits and detriments.
We note that the Dutch and Greek competition authorities published an expert economic report (available here) which sets out possible methods to quantify environmental benefits in this context using knowledge from environmental economics. Quantification methods discussed in this report include using case-specific data (e.g. willingness to pay from actual purchases), case-specific impact (e.g. difference in medical costs or labour productivity as a result of reduced pollution) or using data from existing sources (e.g. using the ‘Social Cost of Carbon’ or other such data where published by the Government for determining the ‘environmental price’). Of course, we expect that key challenge here will be the availability of credible data and so early preparation and engagement with experts as well as the regulator is advisable as businesses and the regulator both navigate these questions.
Who will accrue the benefits?
Early on, the international debate between competition regulators focussed on requiring the beneficiaries of the conduct to be the same group of consumers who faced the alleged detriment arising from the conduct, e.g. increased prices. However, there appears to have been a shift in the regulators’ view on this aspect. For example, the EU Commission’s Draft Guidance on Sustainability Agreements published in March 2022 recognise the existence of ‘out of market’ benefits in the form of collective benefits and the Dutch competition authority’s Draft Sustainability Guidelines recognise that benefits may be reaped by ‘society at large’. In its Draft Guidance, the CMA has confirmed that benefits can include future benefits and has proposed a more permissive approach for ‘climate change agreements’ where benefits to all UK consumers (rather than consumers of the relevant product/services) can be taken into account where they offset the harms in line with existing legally binding requirements or well-established national or international targets.
When will the benefits likely outweigh any detriments?
Sustainability initiatives may lead to higher prices for consumers (e.g. by excluding cheap but environmentally damaging raw materials) or reduced choice for consumers (e.g. phasing out an unsustainable product or potentially reduced innovation competition when competitors collaborate to develop new products together). Therefore, some of these initiatives may be undermined without competitor collaboration.
In this context, we set out below some factors useful in demonstrating to the ACCC that the expected benefits outweigh any likely detriments:
the proposed collaboration is indispensable to achieve the benefits claimed.
the expected benefits outweigh any detriments. As discussed above, depending on the case, this may be a qualitative or quantitative assessment.
For e.g., in the Battery Levy case, the ACCC considered that: that the environmental harm caused by disposing of batteries to landfill and the costs of recycling batteries were not reflected in the price of batteries. The levy and rebate system proposed was likely to better align the price of batteries with the cost of their responsible disposal and increase the incentive for businesses to facilitate their recycling and therefore, the price increase that would occur due to the levy was likely to signal a more (rather than less) efficient allocation of resources in the economy; and price rises of up to 6% in the price of some batteries was ‘small’ in comparison to the significant environmental benefits expected from the scheme.
that the environmental harm caused by disposing of batteries to landfill and the costs of recycling batteries were not reflected in the price of batteries. The levy and rebate system proposed was likely to better align the price of batteries with the cost of their responsible disposal and increase the incentive for businesses to facilitate their recycling and therefore, the price increase that would occur due to the levy was likely to signal a more (rather than less) efficient allocation of resources in the economy; and
price rises of up to 6% in the price of some batteries was ‘small’ in comparison to the significant environmental benefits expected from the scheme.
that the environmental harm caused by disposing of batteries to landfill and the costs of recycling batteries were not reflected in the price of batteries. The levy and rebate system proposed was likely to better align the price of batteries with the cost of their responsible disposal and increase the incentive for businesses to facilitate their recycling and therefore, the price increase that would occur due to the levy was likely to signal a more (rather than less) efficient allocation of resources in the economy; and
price rises of up to 6% in the price of some batteries was ‘small’ in comparison to the significant environmental benefits expected from the scheme.
a price rise does not increase risk of coordination on other aspects between competitors (e.g. it only relates to an element of the overall price leaving competitors free to compete on the other elements of the price and non-price factors).
Takeaways
Businesses should be encouraged by the ACCC's clear signals to consider collaboration proposals that may result in environmental benefits to the public.
Despite signalling an openness, these cases will truly test the ACCC’s ability to consider benefits to the public that maybe counterintuitive to traditional competition law views. We expect that the ACCC’s approach (as well that of its counterparts globally) will likely evolve as it considers more cases and more relevant data becomes available. Given that this is still a nascent and evolving area, early preparation and engagement with the ACCC is advisable.
Please contact our team if you would like to discuss further.