Green agreements: Oxera’s perspective on the new UK guidelines
The CMA has launched its Green Agreements Guidance to help businesses co-operate on environmental goals. This new guidance will help businesses understand how they can collaborate on environmental sustainability goals while adhering to the law.1
Oxera welcomed the opportunity provided by the CMA to comment on the draft guidance. In our submission, we have set out our thoughts on the draft guidance from an economics perspective.
Below, we set out a number of aspects of the new guidance that are of interest from an economics perspective.
Notably, the CMA distinguishes between ‘Environmental sustainability agreements’ and ‘Climate change agreements’. The former involves agreements between competitors with the primary aim of preventing, reducing, or mitigating the adverse effects of economic activities on the environment or facilitating the transition towards environmental sustainability. The latter pertains to agreements that contribute to combating climate change—typically by reducing negative externalities resulting from greenhouse gas emissions arising from the production, distribution or consumption of goods and services.
The CMA has offered in its finalised guidance, among others, new practical examples of sustainability and climate change agreements. These developments are encouraging as they offer valuable insights to firms. For instance, concerning ‘Environmental sustainability agreements’ the CMA references an agreement between fashion manufacturers to discontinue the use of certain fabrics that contribute to microplastic pollution in bodies of water. In the context of Climate change agreements, the CMA mentions, as an example, an agreement between waste management companies to commit to recycling a waste product rather than incinerating it.
The CMA has also highlighted the importance of willingness to pay in the context of one of the cumulative criteria of Section 9(1) of the Competition Act 1998 (the national equivalent of Article 101(3) TFEU): indispensability. In cases where the demand for sustainable products is limited, the CMA clarified that parties need to provide evidence that there are not enough consumers willing to pay for a more sustainable product at this point in time. As indicated by the CMA, there are several ways to evidence consumers’ insufficient WTP, such as surveys of consumers’ preferences. In our submission to the CMA, we also elaborate on this, see for more information section 3.5.
Understanding how to deal with out-of-market efficiencies is a key challenge within the field of sustainability, and competition practice more broadly. On this topic there are differing views among various competition authorities. In its new guidance, the CMA introduces a clear differentiation in addressing these efficiencies—contingent upon whether they relate to environmental sustainability agreements or climate change agreements.
For environmental sustainability agreements, the CMA considers that while there may also be benefits felt outside the UK, the balancing exercise between benefits and potential harm only considers UK consumers. In other words, the agreement can only be exempted from the cartel prohibition if the benefits to UK consumers outweigh the harm. For climate change agreements, however, the CMA considers that a more permissive approach is appropriate in assessing the relevant consumers. If the agreement reduces greenhouse gas emissions outside the UK, it is assumed that UK consumers will also benefit from global climate improvement. The reasons for this different approach can be found in what the CMA calls the ‘exceptional nature of the harms posed by climate change (and therefore the exceptional nature of the benefits to consumers from combating or mitigating climate change or its impact)’.2
Furthermore, we see more and more cases arising in practice on so-called ‘greenwashing’ (i.e. unsubstantiated or misleading claims regarding a firm’s or product’s environmental performance). While greenwashing is not necessarily related to an exemption of the cartel prohibition, the CMA has provided guidance by clarifying that collaboration to develop industry standards should comply with consumer protection laws to avoid misleading labels or greenwashing.
1 Competition and Markets Authority (2023), ‘Guidance on environmental sustainability agreements’, 12 October, https://www.gov.uk/government/publications/guidance-on-environmental-sustainability-agreements.
2 Competition and Markets Authority (2023), ‘Guidance on environmental sustainability agreements’, 12 October, para. 6.4, https://www.gov.uk/government/publications/guidance-on-environmental-sustainability-agreements.
Dr Nicole RosenboomPrincipal
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