Competition Law’s Role in the Green Agenda | Dentons

Introduction

With increasing international pressure to address climate change and encourage sustainability in current business practices, many governments and companies have a green agenda on their minds. In Europe, the European Commission (EC) aims to become a climate-neutral continent by 2050, and in line with this, has implemented several measures and incentives to accelerate the transition to a more sustainable future. The United States of America, Canada, Australia and China are also all developing programmes to arrest greenhouse emissions and embark on an energy transition journey through a mix of regulations, economic incentives and taxation.

Closer to home, ASEAN aims to pair economic growth, environmental and social sustainability to create an ecosystem of “sustainable development”, wherein more jobs and opportunities are created in clean technology and energy transition. The ASEAN Comprehensive Recovery Framework aims to propel ASEAN countries towards a more sustainable and resilient future through accelerated efforts of transition to green energy, build green infrastructure and adopt sustainable and responsible investment, among others.

In a similar vein, in February 2021, Singapore introduced its own Green Plan 2030, which provides a cohesive framework, through financial and other forms of support for businesses, government agencies and individuals to come together to begin tackling the climate challenge and the sustainable use of resources while benefiting from sustainability as a new engine for jobs and growth. Forms of support include the introduction of the Resource Sustainability Act, Enterprise Sustainability Programme and the Monetary Authority of Singapore’s Sustainable Financing Initiatives, among others. The Green Plan 2030 demonstrates the sheer breadth and scale of changes needed to address greenhouse emissions, waste and biodiversity loss which requires industry-wide recalibration of objectives and a collective effort by industry players to achieve sustainability goals.

Undoubtedly, the collective efforts by companies to tackle climate challenges may have perceived conflicts with competition law. An illustration of this may be seen in the EC’s latest decision on car manufacturers wherein seemingly benign participations in technical meetings to develop selective catalytic reduction-technology to eliminate harmful nitrogen oxide (NoX) emissions were found to have evolved into a cartel amongst car manufacturers to avoid competition on NoX-emissions cleaning capabilities, with infringing agreements on product characteristics offered to consumers. As a result, the EC imposed a total fine of €875 million on the investigated parties.

In support of our transition to a greener and cleaner economy, this article will explore the potential treatment of sustainability initiatives under Singapore’s existing framework as well as the approach adopted overseas.

Role of Competition Law in Singapore’s Green Plan

Overview of Competition Law in Singapore

Briefly, Singapore’s Competition Act (Cap. 50B) (the Act) prohibits three types of conduct/activities:

1. Section 34 Prohibition – prohibits agreements or concerted practices or decisions by competitors which have, as their object or effect, the prevention, restriction or distortion of competition in Singapore;
2. Section 47 Prohibition – prohibits conduct which amounts to the abuse of a dominant position in any market in Singapore; and
3. Section 54 Prohibition – prohibits mergers and acquisitions (M&As) that result in a substantial lessening of competition in Singapore.

The Act, which is enforced by the Competition and Consumer Commission of Singapore (CCCS), has as its objectives, the protection of competition and competitive processes, by encouraging firms to innovate and improve the quality of their offerings or to offer lower prices, thereby making markets work well for the benefit of consumers.

Potential exceptions for the Green Agenda under Singapore’s Competition Act

Whilst there are no specific guidelines or exemptions for sustainability initiatives, the current framework under the Act and guidelines show promise at being sufficiently flexible for CCCS to take into account the transition to a green agenda.

• Net Economic Benefits arising from Green Collaborations: The Third Schedule of the Act, provides that evidence of net economic benefit (NEB) shall be an exception to the Section 34 prohibition. In particular, the NEB exception provides that (subject to certain conditions) agreements that help to improve production or distribution or that promote technical or economic progress, are generally exceptions to the Section 34 prohibition against anti-competitive conduct or agreements.
  • Whilst the NEB exception does not demonstrate a clear nexus to sustainability and environmental factors, CCCS has demonstrated early indications of its willingness to consider such factors.
  • In CCS 400/005/17, relating to the application for approval for the formation of a joint venture between five poultry distributors for purposes of consolidating their slaughtering facilities and operations, CCCS considered that the benefits which include the alleviation of land shortage in land-scarce Singapore (through the re-deployment of land currently occupied by individual poultry distributors), increased efficiencies in energy, water and waste disposal and the reduction in pollution outweighed the potential harm arising from a joint venture between close competitors. As a result, CCCS approved the joint venture subject to certain ring-fencing commitments from the joint venture parties.
• Objective Justifications of Dominant Firms with a Green Agenda: Additionally, other potential exceptions due to wider societal benefit considerations accruing from sustainability and environmental practices may be found in the CCCS Guidelines on the Section 47 Prohibition. Under the guidelines, CCCS has room to take into account evidence that the dominant undertaking’s conduct is objectively justifiable. This exception to the Section 47 Prohibition indicates that actions by dominant companies to reach sustainability goals in their industry may be justifiable if spurred by legitimate commercial interests, and provided that such restrictions are proportionate to the benefits claimed and are not more restrictive than necessary to achieve its goals.
• Net Economic Efficiencies in Green Mergers: As environmental factors increasingly feature in M&As, merger parties could affix sustainability and environmental factors to traditional measures of economic efficiency and corporate performance under the exception in the Fourth Schedule of the Act (which provides that the Section 54 prohibition shall not apply to any merger if the economic efficiencies arising from the merger outweigh the adverse effects due to the substantial lessening of competition in the relevant market in Singapore).

Approaches in Other Countries

As more countries look to achieve their sustainability goals, many are taking a broad overview of the changes needed, including modifying or overhauling their existing competition law regimes. As countries look to take up their burdens in this global challenge, Singapore may see itself looking to and learning from other countries that have gone ahead in this domain.

• Netherlands: As a pioneer in the debate on the convergence between sustainability and competition law, the Authority for Consumers & Markets (ACM) has recently published its revised draft sustainability guidelines setting out its approach towards the assessment of sustainability initiatives under competition laws. These include setting out the types of sustainability agreements that fall outside the purview of competition law, guidance on how to demonstrate the sustainable and efficiency benefits of agreements, and providing illustrations and examples of its analysis of hypothetical cases.
  • Additionally, the ACM has even gone a step further and promised not to impose fines where companies can show that they have complied with the Dutch Competition Act in good faith and have cooperated no more than necessary with their competitors to achieve the sustainability goals.
  • These measures go a long way towards companies being further empowered and emboldened to charge full steam ahead in implementing their environmental sustainability initiatives. However, the ACM remains vigilant on enforceability and potential abuse of such leeway granted under the sustainability guidelines.
• European Union: In line with the 2015 Paris Agreement and goals set forth by the EC in its Green Deal, there is a strong consensus and push for competition law to recognise sustainability initiatives as exceptions to the traditional competition rules. The EC has generally recognised that agreements that pursue sustainability objectives may “in principle” enjoy the benefit of the EC’s block exemption regulations subject to several conditions (i.e. the agreements do not contain any hard-core prohibitions and the joint market shares of the parties to the agreement do not exceed specified thresholds). Additionally, the EC is considering implementing exceptions to existing competition laws where cooperation between companies, rather than competition, leads to greener outcomes (whether in products or production processes), and to provide more practical and detailed guidance for companies in this domain.
• United Kingdom: The Competition and Markets Authority (CMA) has reinforced commitments towards being climate-neutral by 2050 through continued engagements with stakeholders engaged in sustainability initiatives, and working through central and devolved government levels to ensure that climate change policies are fully in tune with competition laws. To that end, in January 2021, the CMA issued an information sheet setting out key points to help businesses and trade associations better understand the implications of competition laws when entering into sustainability agreements/collaborations, thereby providing crucial guidance to companies.
• China: Under China’s Anti-Monopoly Law (AML), exceptions are provided to allow monopoly agreements with specific societal-wide redeeming properties. In particular, the AML exempts monopoly agreements that achieve social or public benefits, such as environmental conservation and increasing and improving energy efficiency. This showcases the potential flexibility that the Act in Singapore may to achieve similar objectives in promoting sustainability and environmental goals.

Your Steps Forward

Reducing the global carbon footprint is an insurmountable challenge that is only achievable with collective effort. Without explicit or robust guidance from competition authorities in many jurisdictions as to competition law’s recognition, treatment and assessment of sustainability objectives, businesses continue to face competition law risks.

Given the inherent tension between competition laws and the means to achieve sustainability goals, companies should remain vigilant to competition risks so as to avoid unnecessary pitfalls in their green endeavours. Similarly, companies seeking exemptions to competition laws must ensure that their sustainability practices and related disclosures are legally sound, failing which, companies may be at risk of greenwashing and its attendant financial penalties and loss of reputation. More importantly, companies must remember that even a genuinely laudable objective of sustainability is not an absolute defence to competition laws. Where in doubt, companies should seek guidance from competition authorities early in their proposed conduct, collaborations or mergers and ensure that any discussions/sharing do not exceed what is necessary to achieve the project’s sustainability goals.

Dentons Rodyk thanks and acknowledges Legal Executive Rebecca Goh for her contributions to this article.