[Arnav and Ritisha are students at Rajiv Gandhi National University of Law and National Law University Delhi.]
Consider a situation wherein market players within the automobile industry collaborate to restrain the technological innovation of non-pollutant automobile devices. This is an example of anti-competitive conduct within the market, within the framework of the Competition Act 2002 (Act) and is regulated by the Indian antitrust watchdog, the Competition Commission of India (CCI). Such adverse practices move a step beyond the length and breadth of economic prospects and interests of the market, wielding a detrimental impact on the broader environmental realm. This impact is visible in the form of escalated prices for sustainable products, entry barriers to environment-friendly competitors, and stifling sustainable innovation, among others.
Recently, nations across the globe have flocked together to appreciate the importance of environmental preservation. In line with global practices, India too has committed to achieving a target of carbon neutrality by 2070 and an emission reduction of 45% below 2005 levels by 2030. Concomitantly, academicians and policymakers worldwide have realized the intriguing interplay between antitrust laws and sustainability, both being distinct yet interestingly wreathed together. The underpinning objective of antitrust laws is to preserve the interests of consumers; at the bedrock of which lie fair competition and innovation. Sustainable development, as a conceptual paradigm found under 2012 UN Resolution 66/288 outlines development towards "an economically, socially, and environmentally sustainable future for our planet and for present and future generations." The substance of sustainability is innovation, which concurrently serves as one of the core objectives of competition law, i.e., to promote technical and economic progress through innovation. Antitrust regimes across the globe are now equipping their laws to adapt to the burgeoning sustainable demands of society.
Among the numerous intersections between sustainability and antitrust, sustainability agreements (agreements undertaking the aim of restricting and mitigating the negative impact of economic gains on people and the environment) can play a crucial role in fostering an environment-friendly market. This article explores the scope of sustainability agreements and their exemptions from antitrust regulations. The piece will shed light upon the potential challenges that regulatory authorities might face when dealing with sustainability agreements. The authors will conclude by providing recommendations on the said issue.
Sustainability Meets Competition: A Flawless Fusion
As previously expounded, sustainability embodies the balanced development of both, the present and the future. At the heart of this balance lies the crossover of the competitive market(s), product enhancement, and affordability of prices through innovation. The outcome of the thriving competition landscape is the preservation of smaller market players against the big dominant players, thereby ensuring economic and social sustainability. In the realm of environmental sustainability, antitrust laws that champion technological improvement favoring sustainable production engender an improved environmental condition, reinforcing environmental sustainability. Hence, despite the conventional confinement of antitrust laws to economic spheres, they now play a key role in fostering all three aspects of sustainable development.
Notwithstanding the inherent synergy between sustainability and competition law, their pathway includes a plethora of challenges. For instance, sustainability agreements, as mentioned above, might transmute into a collusive anticompetitive practice that is prohibited under Section 3 of the Act. Corporations, in the pursuit of manufacturing ostensibly "greener" goods and services, enter into collusive agreements, the impact of which is borne by consumers in the form of escalated prices and diminished product quality.
Navigating Antitrust Policies in Pursuit of Sustainable Innovation
A well-drafted antitrust law with sustainability in its substance can actively foster the innovation of green technologies and make businesses adapt to the growing sustainability demands. To achieve this goal, the entities can compete on the merits of sustainability or enter into sustainability agreements. However, a major bottleneck in the way of competing on sustainability merits is that entities fear facing the first mover disadvantage whereby the first entity to take the sustainable initiative might incur a higher cost of production that would keep the sustainable entity at a competitive disadvantage, thus forcing it to either cease its sustainable practice or bear high costs. Nevertheless, the other way is through cooperation in the form of sustainability agreements, as mentioned above. This might attract antitrust regulatory interventions; for instance, the case of cooperation between car manufacturers in California to agree upon high standards on vehicle emissions invited an investigation from the US Department of Justice. However, not every cooperation agreement is anticompetitive, as will be discussed in the coming section.
Alternate Track for Sustainability Agreements
Before analyzing exemptions for sustainability agreements, it is pertinent to observe that compartmentalization of sustainability benefits is often not possible. Not every benefit arising from a sustainable agreement can be justified by off-shooting competition. Only objective benefits substantially stemming from the agreements influencing sustainability goals are entitled to exemptions. These benefits particularly address environmental damage not calculated into production costs. Subsequently, the next step would be to corroborate such benefits. This can be done either quantitatively or qualitatively, depending on the case. For instance, reduction of CO2 emissions and recycling of products are benefits that can be quantified, whereas benefits like innovation or animal welfare, which are tough to quantify, can be assessed qualitatively. The determination of the true cost of a product is pertinent in assessing its sustainability benefits. Often, costs attributed to environmental damage are not added to the final operation costs of a product, thereby making unsustainable products cheaper than sustainable ones. In such cases, sustainable agreements have to bridge the gap between the market cost and the true cost of the product as much as possible to count it as an objective benefit.
Significant Perks for Consumers
The next criterion is to accord sufficient benefit to consumers from product contravention of sustainability objectives. Section 19(3) of the Act particularly focuses on this. The rationale is to compensate consumers who are adversely affected by business restrictions for the greater environmental good. The challenge for the CCI would be to determine the extent to which future consumers (direct or indirect) have to be considered and the exact time frame in which such consumers can see the environmental benefits. Initially, while deciding the compensation, the interpretation of the term "consumers" under Article 101(3) of the Treaty on Functioning of the European Union was limited to the direct consumers of the product. However, this narrow approach hinders the very definition of sustainability benefits and impedes any restraint on competition, as environmental benefits cover society at large. Therefore, it is suggested that the definition of consumers ought to be broadened to include future consumers too. For instance, the Austrian antitrust authority, with a recent amendment to the "fair share criteria", has set a benchmark efficiency benefit that will be said to qualify if the cooperation or agreement "contributes substantially to an ecologically sustainable or climate-neutral economy”. Moreover, full compensation to the affected consumers is no longer a necessity, as evident from the revised draft guidelines of the Dutch Authority for Consumers and Markets (ACM) on sustainability initiatives. In India, while the CCI does not explicitly address the inclusion of ‘future consumers’ in terms of environmental agreements, CCI’s stance at the 8th BRICS Competition Conference reflects its intent to incorporate broader sustainability objectives in competition enforcement. However, the detailed guidelines on such inclusion of future consumers are still awaited.
Necessity Sanction
At last, come the necessity factors that construe the restraint put by the sustainability agreement as reasonably necessary to achieve the benefits it sought to achieve. The rationale is to consider a less anti-competitive measure to achieve the desired results. One way of showcasing the necessity factor is when parties to a sustainability agreement can genuinely prove that they must collaborate as none of them can afford to face the 'first mover disadvantage', as mentioned above. The bottom line is that the benefit should overshadow the restraint, and it should be the last resort to adopt. For instance, the ACM in 2011 gave a green signal to an agreement between associations that set out fishing quotas, as they thought that such an agreement was the last resort to prevent overfishing. Similarly, the German competition authority green-signed an initiative of retailers to put forth a common standard on wages in the banana sector, as the same was held to achieve substantive public interest, in this case, social sustainability. The CCI is yet to grant any ‘necessity’ exemptions to sustainability agreements in light of greater environmental good.
Conclusion / Way Forward
As India pursues its way towards achieving its environmental goals, the incorporation of antitrust laws into sustainability presents a multidimensional challenge. Learning from global experiences, the CCI can explore ways to broaden the existing provisions of the Act that can accommodate wider sustainable objectives. To begin with, the pro-competitive factors enlisted in Section 19(3) are well suited to encompass sustainability objectives and can act as a mitigating factor while assessing the anti-competitive effects. Additionally, antitrust authorities can foster sustainable goals by promoting innovation and R&D in sustainability agreements. As discussed above, sustainability agreements have the potential to bridge the gap between fair markets and a healthy environment, provided such agreements are not impeded by regulatory interventions. Further, beyond market power on prices, due considerations need to be given to non-price factors to assess the efficiency of an agreement. Competing on merits like less polluting production methods, recyclable tendencies of products, and efficient utilization of non-renewable resources would be the first step on the road to sustainable development. The ultimatum is to balance the anti-competitive effects with the pro-competitive ones, ensuring environmental gains benefit all. As the regulatory body walks on this path, benchmarking against global practices is vital to nurturing economic prosperity and environmental well-being.
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