Role of Competition Policy and Law in Mitigating Climate Change
The international community commemorates the World Competition Day on the 5th of December, the day when the United Nations Conference on Restrictive Business Practices approved the United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices in 1980. The aim of the World Competition Day commemorations is to ensure that stakeholders globally, realise the potential benefits from an effectively implemented competition regime, and also play their role in making competition regimes work worldwide. This year’s celebrations are running under the theme “Competition Policy for Mitigating Climate Change”. Climate change is threatening our existence on mother earth and developing countries are bearing the brunt of its impact. This article discusses how competition policy can be used to mitigate climate change.
Legal and Policy Framework
Over the years, Zimbabwe has made significant strides to incorporate climate change issues in its national development agenda as witnessed by the signing of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 at the Rio Earth Summit. Zimbabwe is a signatory to the Kyoto Protocol entered into force on 16 February 2005 and operationalized the UNFCCC by committing industrialized countries and economies in transition, to limit and reduce greenhouse gases emissions in accordance with agreed individual targets. The Kyoto Protocol also established a rigorous monitoring, review and verification system, as well as a compliance system to ensure transparency and hold Parties to account with regards to emission targets. The expiration of the Kyoto Protocol in 2020 necessitated the need for a new binding agreement to guide future efforts to address climate change, which saw the adoption of the Paris Climate Agreement which is a legally binding international treaty on climate change. It was adopted by 196 Parties at Conference of the Parties (COP) 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016, with the goal to limit global warming.
At the local level, Section 73 of the Constitution on environmental rights highlights that every person has the right (a) to an environment not harmful to their health or well-being; and (b) to have the environment protected for the benefit of present and future generations, through reasonable legislative and other measures that (i) prevent pollution and ecological degradation; (ii) promote conservation; and (iii) secure ecologically sustainable development and use of natural resources while promoting economic and social development; (c) the State must take reasonable legislative and other measures, within the limits of the resources available to it, to achieve progressive realisation of the rights set out in this section. Zimbabwe’s constitutional provisions require sustainability and environmental protection and this has to be taken into account when implementing all of Zimbabwean policies.
The overarching goal of the National Development Strategy 1(NDS1) is to ensure high, accelerated, inclusive and sustainable economic growth as Zimbabwe moves towards an upper middle-income society by 2030. One of its objectives is to ensure sustainable environmental protection and resilience. The thrust of environmental protection, climate resilience and natural resource management under the NDS1 stands on sustainable management of wetlands, rehabilitation of mined areas, climate change mitigation and sustainable natural resources management. Further to that, the country has drafted the Zimbabwe Long-term Low Greenhouse Gas Emission Development Strategy (2020-2050) for supporting its sustainable development agenda of a climate resilient economic growth. Zimbabwe’s legal and policy framework with regards to mitigating climate change and ensuring environmental protection is quite clear as the supreme law of the land supports sustainable development, and has environmental protection requirements which must be integrated into various policies and activities, particularly with a view to promoting sustainable development, including competition policy and law.
Mitigating Climate Change through Competition Policy and Law(CPL)
Competition can be very crucial in the fight against climate change. This emanates from the fact that as companies compete for customers they are forced to innovate and come up with new products that are environment friendly. Without competition the incentive to innovate and come up with new products is eroded as companies are guaranteed their share of the market. CPL is one of the key drivers of environmental protection as it aims at improving quality which includes the sustainable production of quality products, increasing choice of more environmentally friendly products and use of green innovation. Where consumers prefer environmentally friendly products, companies are most likely to adapt their supply of environmentally friendly products and gear their investments to reap that demand. When there is willingness to pay on the part of consumers for more sustainable products, competition leads to the most efficient outcomes and stimulates companies to invest in product differentiation in a green direction.
a. Merger Regulation
Merger regulation is a key aspect of competition regulation which allows the competition authority to assess and remedy anti-competitive mergers and allow for realisation of efficiencies arising from mergers and acquisitions. Analysis of efficiencies in merger regulation originates with the assumption that while mergers can impede competition, they may also have economic advantages and other public interest benefit. Merger regulation aids in mitigating climate change through considering efficiencies in support of environmental protection as well as protecting green innovation. CPL is part of the solution as mergers analysis, especially in areas which have great implications on greenhouse gas emissions and environmental degradation, are factoring in efficiencies which lead to sustainable development. Dominant firms usually protect their brands which may not be environmentally friendly by using their financial chest to buy small companies and thereafter get rid of their innovations and brands. Globally, competition authorities are deterring big business from destroying new environmentally friendly ideas of small businesses that are green innovators through mergers and acquisitions.
b. Antitrust/competition law enforcement
CPL enforcement also aids in mitigating climate change through supporting green transition, by protecting competition that drives companies to innovate more and to operate more sustainably. Businesses can limit competition through various forms of agreements some of which may also have negative implications on the environment. In the European Union for example, car makers were fined for agreeing not to compete to produce cleaner cars. Thus, agreeing not to compete in this instance when firms had capacity to produce cleaner vehicles was anticompetitive and denied consumers increased alternatives/choice and innovation. However, these rules are not to discourage companies from working together for purposes of making their products more environmentally friendly.
Abuse of dominant market position can also result in negative outcomes that may affect the environment. A case in example involves exploitative abuses by dominant buyers especially in the agricultural sector.In competition analysis, customer-supplier relationships between farmers and buyers of agricultural produce are a cause for concern. In such instances, farm produce buyers abuse their market power through arrangements that dictate low prices for farm produce to ensure they make huge margins through buying low and selling high. In a desperation to break even due to low prices, farmers may adopt practices which may not be good for the environment but less costly for farming operations. A typical example of bad environmental practice is the destruction of forests for firewood as a source of energy in tobacco curing. In the tobacco sector, the Commission has advocated for the review of the Tobacco Pricing Matrix so that farmers get better prices for their tobacco critical in them adopting sustainable ways of tobacco curing with a view to reduce deforestation and agriculture emissions. Other energy alternatives for tobacco curing which have been tried include biogas though research is still ongoing, while ethanol and solar energy have been viewed to be expensive for small holder farmers in the interim in terms of cost effectiveness.
Globally, CPL has provisions for exemptions and exclusions where firms can work together to achieve a particular objective of interest to the public. In Zimbabwe’s case, Section 35 of the Competition Act [Chapter 14:28] (“the Act”) allows parties to apply for authorisation to enter into or give effect to any agreement or arrangement which may be considered as prohibited in the Act. Thus, cooperation amongst firms is possible under current legal provisions to achieve climate change mitigation objectives in an effective manner. An example can be cooperation by firms to pool together resources for Research & Development in new green technologies.
Cooperation by the private sector to mitigate climate change is something which Competition Authorities globally are considering in the fight against climate. Companies cooperating to introduce green technologies may incur reduced costs for innovation and research while a single company may incur increased costs which maybe difficult to recoup if sales are minimal. CPL need not stand in the way of urgent action and cooperation by the private sector to fight climate change. A good example in Zimbabwe is the Business Council for Sustainable Development which is part of the World Business Council for Sustainable Development which has been a leading voice in climate change mitigation in Zimbabwe and promoting low carbon technology partnership initiatives, industrial energy efficiency and use of renewable energy sources. Such organisations and partnerships provide latest developments on climate change and raise awareness of this emergency to industrialists.
c. Barriers to Entry removal in Green Transition
CPL plays an important role in increasing the pace at which countries attain green transition. This can be done through removal of barriers to entry in the production and trading of green goods and technologies. An example can be a shift towards renewable sources of electricity such as solar and wind energy. CPL advocates for the elimination of unjustified barriers to entry, especially administrative and regulatory barriers discouraging green transition critical in mitigating climate change.
d. Standard Essential Patents in Green Transition
Last, CPL has also shaped the development of standard essential patents (SEPs) for essential technologies. These are patents which are crucial for the standardised development of industry and must be licensed on fair, reasonable and non-discriminatory (FRAND) terms. Patents confer legal monopolies and for purposes of ensuring that even competitors access intellectual property for essential green technologies reducing the environmental burden on the earth SEPs, ensures that even competitors can access such patents on FRAND terms. This drives more parties including small to medium enterprises, to participate in improvements and the manufacturing of green technologies critical for climate change.
Climate change will continue to be high on the political agenda of the Republic of Zimbabwe and globally. Competition law and policy, as highlighted above, plays a crucial role in the process of mitigating climate change as the economy transitions to a low carbon economy. It has a role to play in mitigating climate change by protecting the competition that drives companies to innovate more and to operate more sustainably. The Commission, as a competition enforcer, will increasingly attach more weight to environmental objectives when balancing the anti-competitive effects and the environmental benefits of mergers, cooperation agreements, and any market conduct as it enforces Competition Act [Chapter 14:28].