COP26 and Competition Law's Role in achieving Sustainability Goals

The highly anticipated COP26 climate summit in Glasgow came to a close, having made important progress in a number of areas and agreed upon the Glasgow Climate Pact, although the lack of stronger commitments to reduce emissions and failure to deliver on the issue of climate finance drew criticism. At COP26, countries made collective agreements to reach net-zero emissions by mid-century, halt and reverse deforestation, phase down coal. In addition to this, the governments of 24 countries and a group of major car manufacturers including Ford, Jaguar Land Rover and Mercedes-Benz, committed to work towards all sales of new cars being zero emission globally by 2040.

The implementation of the objectives set out at COP26 is dependent on the collaboration of governments and businesses in order to achieve the collective goal of a sustainable economy. For instance, the aforementioned commitment of car manufacturers to aim for all sales of new cars being zero emission requires these major businesses to collaborate. However, any collaboration between or among businesses, particularly rivals competing in the same industry, requires careful management of risks to ensure compliance with competition law rules. Therefore, it is important to consider the role that competition law will play in the effort to meet the COP26 targets.

Following a period of consultation, in September 2021 the European Commission published a Competition Policy Brief[1] setting out its views on how antitrust rules and sustainability policies can work together. With the consequences of breaching competition law being so significant, it is no surprise that the responses to the Commission’s call for contributions indicated a demand by businesses for more clarity on the assessment of ‘types of cooperation agreements that they consider essential for pursuing sustainability objectives’[2]. Such agreements include industry-wide agreements to phase out unsustainable products and modes of production, joint procurement of sustainable input products and joint R&D.

Firstly, the Commission, in its brief, points out that many sustainability agreements may in fact not constitute a restriction of competition. It sets out an intention to provide concrete examples demonstrating how sustainability objectives can be pursued safely, for instance through purchasing agreements. However, the Commission does acknowledge that, if companies are to jointly invest, identify solutions and produce sustainable products, more guidance is needed on ‘the circumstances in which such cooperation complies with antitrust rules’[3].

Furthermore, where sustainability agreements do restrict competition, the Competition and the CMA have both announced that they intend to provide guidance in relation to environmental sustainability. The Commission, in particular, plans to provide direction on how sustainability benefits can be considered when assessing exemptions under competition rules. We have seen this question arise in the CECED[4] case, for which the Commission granted an individual exemption in early 1999. This case concerned an agreement between domestic washing machine producers to cease producing and importing the least energy efficient washing machines. This agreement resulted in direct benefits to consumers as it resulted in lower energy costs, as well as providing environmental benefits through reducing CO2 emissions. At the time, the Commission seemed to consider both types of benefits, stating in regard to the lower emissions that ‘such environmental results for society would adequately allow consumers a fair share of the benefits even if no benefits accrued to individual purchasers of machines’[5]. Though, in later implicit references to this case, most notably in the Guidelines on horizontal cooperation agreements, the Commission seemed to downplay the environmental benefits, instead only referencing the direct consumer benefit of lower energy costs. Now, however, the Commission notes that the benefits that may be taken into account will not necessarily need to be a direct benefit in product quality improvement or cost saving. Furthermore, the Commission has noted that benefits achieved on separate markets may be taken into account provided that the group of consumers affected by the restriction and the group of benefiting consumers are largely the same[6]. This should allow it to consider sustainability benefits that amass for the benefit of society as a whole.

Therefore, it is clear to see that competition law needs to keep up with the demands of the changing global economy in the move towards sustainability and, if we are to achieve the objectives of COP26, then competition authorities may need to take decisive action to facilitate sustainable agreements and guard against an ‘unduly risk-averse approach’[7] to the application of antitrust law.

[1] Competition policy brief, "Competition Policy in Support of Europe's Green Ambition" accessed 23 November 2021.

[2] Ibid. 2

[3] Ibid. 5

[4] CECED (Case IV.F.1/36.718) OJ L 187/47

[5] CECED n(4) 56

[6] https://my.slaughterandmay.com/insights/briefings/path-to-cop26-competition-law-in-tackling-climate-change

[7] https://www.dentons.com/en/insights/articles/2021/november/11/cop26-sustainability-agreements-and-competition-law