Green cartels: climate change and competition law
16 November 2022
Businesses have a major role to play in New Zealand's transition to a net zero emission economy. The Climate Change Commission has signalled the need for collaboration to decarbonise, reduce emissions, and develop bespoke solutions for industrial sectors in Ināia tonu nei: a low emissions future for Aotearoa. But businesses need to be vigilant of the competition and consumer law risks arising from environmental and climate change-related initiatives.
In this update, we highlight recent action by the Commerce Commission, as well as developments overseas, and provide our quick tips for businesses looking to collaborate and innovate in this space. In short, we believe the structure of New Zealand's competition law framework provides sufficient scope to pursue climate objectives without engaging in illegal cartel conduct.
Watch this space
Over the last decade, we have seen a flurry of action from the Commerce Commission in connection with environmental claims about goods and services, including its publication of guidelines for businesses making those types of claims. This activity has largely focused on the Fair Trading Act 1986. But businesses also need to be mindful of their obligations under the Commerce Act 1986, and in particular its prohibition of cartel conduct.
The Commission's recent warning to The Better Packaging Co and one of its directors is a timely reminder. Better Packaging suggested to a competitor that they refrain from going after each other's customers to avoid a bidding war and drop in prices. The Commission viewed this as an attempted market allocation that breached the prohibition of cartel conduct in the Act. The Commission's media release states "businesses may have legitimate reasons to communicate with each other, including for sustainability objectives, but these are not opportunities to try to reach unlawful cartel agreements with competitors, which can harm the potential for industries to innovate and develop products and services at the lowest cost and highest quality".
Competition regulators overseas have also been monitoring businesses for cartel conduct and have imposed significant penalties for violations in sustainability-related cases. For example, the European Commission fined a group of motor vehicle manufacturers €875m for colluding on a technical development. It found that the group possessed the technology to reduce harmful emissions beyond what was legally required under the EU emissions standards but agreed to avoid competing on using this technology's full potential. Information was exchanged and agreements reached on the level of technology to be implemented.
Ensuring compliance when collaborating and innovating
Certain countries are considering how competition law affects environmental and climate-related initiatives, and the role of their competition law framework in the transition to a low carbon economy. For example, Austria has introduced an exception to the Austrian Cartel Act 2005, allowing certain cartel agreements that contribute to an ecologically sustainable and climate neutral economy.
In our view, such an exemption does not appear necessary in New Zealand, as these issues can adequately be dealt with under the existing law. We also envisage the Commerce Commission would be pleased not to add another bespoke function to its responsibilities, following the recent additions of fuel, payments, and supermarket regulatory oversight.
As a starting point, the collaborative activities exception to the prohibition of cartel conduct in the Commerce Act seems very likely to support joint innovation by competitors that will bring genuinely new sustainable products to market. Indeed, in its Competitor Collaboration Guidelines, the Commerce Commission gives the example of parties collaborating "to achieve some environmental, health and safety, or other social welfare purpose, which is unrelated to their individual or collective competitiveness".
In that regard, there is scope for competitors to collaborate without necessarily needing to engage with the Commerce Commission. That said, the exception will only apply where parties are involved in a collaborative activity (ie a cooperative enterprise, venture, or other activity, in trade that is not carried on for the dominant purpose of lessening competition) and the cartel provision is reasonably necessary for the purpose of the collaborative activity. Collaborative arrangements would still need to be assessed under the general prohibition on arrangements that have the purpose or likely effect of substantially lessening competition in a market.
In situations where engagement with the Commission is necessary, the Commerce Act already provides several mechanisms for the Commission to facilitate businesses collaborating to advance environmental goals and climate change initiatives:
- Collaborative activities clearance: a party proposing to enter into an agreement containing a cartel provision that is part of a collaborative activity can apply to the Commerce Commission for clearance
- Authorisation: the Commission can authorise some anti-competitive agreements where the public benefits outweigh the competitive harms. From April 2023, the Commission will be able to authorise any cartel conduct prohibited by section 30, following the changes implemented by the Commerce Amendment Act 2022. The Commission's Authorisation Guidelines note that it can take into account environmental benefits, as well as detriments, when considering proposed agreements or mergers, and did so when considering the benefits in an authorisation application by Nelson City Council and Tasman District Council (although the environmental benefits - reduced pollution and other environmental improvements – were not quantified in that case and were ultimately not determinative). The Commerce Commission has also demonstrated in other circumstances that it is open to taking a novel approach to assessing public benefit, including considering the benefit of quality and plurality (diversity of voices) in the media. A novel approach may be required in analysing an authorisation involving innovative arrangements to address environmental issues.
Our quick tips:
- If you are considering collaborating with a competitor, seek competition law advice early and make sure protocols are in place to manage what can be discussed and what information can be shared.
- If you are involved in a product stewardship scheme, make sure you are familiar with the Commission's guidance, including its Product Stewardship Scheme Fact Sheet.
For assistance complying with and assessing risks under the Commerce Act, contact our competition and consumer law team.
This article was co-written by Susie Kilty (partner), Anna Parker (senior associate) and Hugo Schwarz (law clerk).