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COMPETITION AND SUSTAINABILITY:WAY FORWARD FOR INDIA

Updated: Jan 6

[]Vidisha Verma is a fourth year student at DSNLU Vishakhapatnam]


INTRODUCTION


India faces challenges as a major polluter despite efforts in renewable energy. The nation, committed to the Paris Agreement and Sustainable Development Goals, struggles to meet targets. Sustainability, defined by the UN, necessitates integrating environmental concerns with economic development. Despite the global scope of the 2015 Sustainable Development Goals (SDGs), the latest report indicates that many of them are significantly off track for achievement by 2030.


Private businesses, in collaboration with government initiatives, should actively pursue net-zero goals and sustainable practices. The Competition Commission of India (CCI) can play a pivotal role in shaping and balancing these initiatives, despite the current Indian competition law, the Competition Act of 2002, lacking explicit sustainability provisions. By interpreting sustainability within the assessment of adverse effects on competition, the CCI can align competition laws with environmental objectives, fostering a conducive environment for businesses to embrace sustainable practices. There is ample room to interpret sustainability within the assessment of adverse effects on competition, as enumerated below:


1. Anti-competitive agreements


SECTION 3 of the Competition Act prohibits agreements causing adverse effects. Evaluation involves balancing six factors outlined in SECTION 19(3); the last three promote competition. Businesses aligning with these factors can support sustainability. CCI considering these aspects encourages sustainable practices, fostering a competitive yet eco-friendly market.

The following factors present significant opportunities for reading sustainability into current competition practices:


Firstly, the factor given under SECTION 19(3)(D) of the act, i.e., accrual of benefits to consumers. This factor provides an opportunity to promote eco-friendly products and green initiatives to meet consumer demands for sustainability, reducing ecological footprints and fostering a circular economy, benefiting both consumers and sustainable development.

For instance, in 2021, the Australian Competition and Consumer Commission (ACCC) authorized Paintback Limited and Refrigerant Reclaim Australia Limited for their environmental initiatives. Paintback's safe paint disposal and Refrigerant Reclaim's product stewardship program aimed at reducing harmful emissions were recognized. In 2018, Tyre Stewardship Australia's scheme to enhance the use of end-of-life tyres was also approved for its environmental and safety benefits.


Secondly, the next factor, that can help achieving the goal of sustainability is given under SECTION 19(3)(F), i.e., promotion of technical, scientific, and economic development. Encouraging businesses to invest in green technologies and sustainable practices fosters competitiveness and environmental responsibility, promoting a shift towards a low-carbon economy and sustainable development.


For instance, In the Philips/Osram case, an EU investigation found that their agreement in the LED market encouraged sustainable innovation without monopolizing or limiting competition. Similarly, the CECED case showcased European appliance manufacturers promoting energy efficiency, albeit with reduced choice and higher costs, ultimately benefiting consumers and the environment. These instances highlight the importance of balancing sustainability and competition in market practices. Likewise, in considering such agreements, CCI may carefully weigh the benefits against potential negative impacts such as raising entry barriers and coordination.


2. Abuse of dominance


The Competition Act acknowledges that dominant firms can have a legitimate and beneficial presence in the market. The act places emphasis on addressing the abuse of dominance rather than the mere existence of dominance itself. It targets and penalizes unfair exploitation or anti-competitive behaviour by dominant entities under SECTION 4. The assessment of abuse of dominance relies on balancing the thirteen factors outlined in SECTION 19(4) of the competition act. The following factors offer ample opportunities to construe sustainability into competition practices:


Firstly, SECTION 19(4)(K) i.e., social obligations and social costs assesses dominant entities' impact on society and the environment, encouraging sustainable practices and fulfilling social responsibilities, aligning with the widely accepted concept of Corporate Social Responsibility (CSR) to achieve sustainable development goals. As per United Nations and the European Commission, Corporate Social Responsibility (CSR) leads to triple bottom-line: profits, protection of environment and fight for social Justice (Prof. Vishal.V.Benchalli). In line with this understanding, the Indian government introduced the COMPANIES ACT OF 2013, which mandated Corporate Social Responsibility (CSR) activities. This legislative approach aimed to reshape the relationship between businesses and society, making CSR a reality in India. The Act prompted Indian businesses to shift their perspective and acknowledge that sustainable development requires them to address not only the economic aspects but also the ecological and social impacts of their operations.


Secondly, SECTION 19(4)(L), i.e., relative advantage in terms of economic development and ‘any other factor’ under Section 19(4)(M) are other broad provision enables the consideration of various factors, including sustainability-related aspects. Competition authorities can evaluate the contribution of dominant entities to economic development from a sustainable perspective, such as supporting green technologies, adopting environmentally friendly practices, or investing in sustainable initiatives.


Furthermore, expanding the definition of "abuse" under the Competition Act to include unsustainable practices can promote environmental well-being. Recognizing coercive tactics by dominant firms to choose environmentally harmful products as an "abuse of dominance" supports responsible business conduct, benefiting consumers and fostering sustainability. For instance, In the Sydhavnens Sten & Grus case in Denmark, the European Court of Justice addressed exclusive waste processing contracts, where a municipality excluded a qualified company. The court approved the contracts, considering environmental goals and efficiency, providing criteria for evaluating dominant firms claiming environmental justifications. These criteria include demonstrating efficiency gains, necessity, minimizing consumer welfare impact, and maintaining effective competition. This case sets criteria for addressing dominance abuse for environmental reasons, requiring efficiency gains, necessity, consumer welfare offset, and maintaining effective competition when justifying conduct based on environmental grounds.


3. Combinations


CCI has the authority to approve, impose conditions, or reject mergers. To enhance sustainability, evaluating competition should include consumer preferences, environmental factors, and green innovations, ensuring CCI safeguards sustainability in combination assessments. Following key provisions in existing law, like under SECTION 20(4), crucially consider innovation and economic development in assessing anti-competitive effects, promoting both competition and sustainability.


Assessing the Anti-Competitive Effects resulting from a combination under SECTION 20(4) involves considering various factors, including those related to innovation and economic development. The following provisions, in the existing law, play a crucial role in achieving competition and sustainability:


Firstly, SECTION 20(4)(L), i.e., the nature and extent of innovation is vital for economic growth, productivity, and consumer welfare. The CCI evaluates if combinations enhance or hinder innovation, favouring those that promote R&D and new technologies. These transactions contribute to competition and sustainability, driving consumer choice, efficiency gains, and improved products. By considering innovation theories of harm, CCI can address anti-competitive practices and barriers to sustainable development. This fosters a competitive landscape that encourages the adoption of environmentally friendly technologies and promotes innovation for a sustainable future.


Secondly, SECTION 20(4)(M) i.e., relative advantage and contribution to economic development aligns with sustainability goals, balancing economic growth, social progress, and environmental protection. Positive contributions from combinations can drive sustainable practices, investments in environmental protection, renewable energy, resource efficiency, and social responsibility.


Thirdly, SECTION 20(4)(N) i.e., by weighing these adverse impacts, such as hindering the adoption of environmentally friendly technologies or impeding progress towards sustainable goals, authorities can ensure that combinations do not undermine sustainability objectives.

The importance of evaluating the competitive implications of mergers in the context of environmental sustainability and ensuring that the claimed efficiencies align with consumer welfare and market dynamics can be well explained through the Aurubis/Metallo case, where the Aurubis-Metallo Group merger, scrutinized by the European Commission, was cleared in 2020 as the merger was deemed to have significant environmental benefits through green innovation and technology transfers resulting from the combined expertise of both companies. The case illustrates that the impact of a merger must be beneficial to consumers, directly linked to the transaction, and verifiable.


WAY FORWARD: CRITICAL ANALYSIS


It can be deduced that there is a lack of cooperation on sustainability and carbon neutrality, attributed to perceived competition law constraints. Despite recognizing the benefits, companies hesitate to engage actively. This hampers progress and requires the Competition Commission of India (CCI) to develop clear guidelines, fostering cooperation and addressing the issue effectively. The following measures can be taken in order to address the same:


Government Policy: Government policies can combat climate change through integrated approaches like emissions pricing, tech support, and pollutant bans. Despite challenges like high costs and lack of coordination, competition can thrive within regulated limits. Strengthening enforcement, research, and international cooperation are key solutions, urging governments to refine policies for sustainability, fostering both competition and innovation.


Creating Consistent Guidelines: To tackle the issue and effectively achieve sustainability goals, it is recommended that CCI, develops clear and uniform guidelines regarding permissible cooperation for sustainability within the framework of competition law. These guidelines can be modelled after European Commission's Guidelines on Horizontal Agreements. These guidelines must establish criteria for businesses to assess exemptions under competition laws, ensuring restrictions are necessary and proportionate. Following the EU's objectives of sustainable development and environmental protection, these guidelines can offer coherence in addressing environmental and climate concerns.


Block exemption: Proposed measures include introducing a specific block exemption (as given in A. 101(1) OF THE TREATY OF EU) for sustainability agreements, focusing on environmental and climate-related issues. This approach, seen in countries like South Africa and Australia, involves granting exemptions or authorizations within competition law frameworks. For instance, Australia's ACCC authorized a battery collection scheme, prioritizing environmental benefits and public welfare over potential negative effects, illustrating the importance of balancing inclusiveness and practicality in encouraging collaborative sustainability efforts.


Merger prohibitions: Ministerial exemptions from merger prohibitions, as seen in Spain and Germany, can consider sustainability concerns. An instance of this occurred in the Miba/Zollern case, where, the Minister justified the decision citing companies' innovative contributions to renewable energy, reducing CO2 emissions, and promoting environmental sustainability. Similarly, India can explore the possibility of allowing ministerial exemptions, under SECTION 54, in specific cases where sustainability goals outweigh potential competition concerns. This would provide flexibility for decision-making in situations where mergers or collaborations have significant sustainability benefits.


CONCLUSION

Competition law in India, recognizing the right to a healthy environment, can address the climate crisis by incorporating sustainability. The Competition Commission of India can promote green initiatives within the existing legal framework. Similar efforts in countries like the Netherlands, Greece, Austria, and the EU emphasize sustainability in competition policies. The UK's CMA combats greenwashing through the "Green Claims Code." These global initiatives foster innovation and aim to create a fair platform, combating climate change. Collaboration among regulatory bodies is crucial for a harmonized approach to achieving sustainability goals.

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