Competitor collaborations: Working together for a greener future

The Commerce Commission (Commission) released its Collaboration and Sustainability Guidelines on 30 November 2023 (the Guidelines)¹. The guidelines are aimed at providing further guidance on the factors the Commission will consider when assessing collaboration between competitors for sustainability objectives.

While the publication of the guidelines is a positive and important step, this article considers whether assessing competitor collaborations aimed at emission reductions could be made more certain, timely and less costly, given the substantial potential economic benefits of decisive action on climate change and accelerated emissions reductions.

For infrastructure, this would provide the bright lines necessary to allow, for example, contractors to collaborate on ESG initiatives, or for electricity retailers to collaborate on energy efficiency initiatives with certainty.

The benefits of collaboration aimed at addressing climate change are potentially substantial

Collaboration offers several advantages over competition when it comes to addressing climate change and a reduction in emissions. Some of the benefits include pooling resources, knowledge and expertise to develop scalable solutions to combating climate change, fostering innovation and spreading risks across stakeholders. Another key benefit for New Zealand is accelerating emission reductions.

An example of such collaboration is AgriZero^NZ. AgriZero^NZ is a partnership between the New Zealand Government and major New Zealand agribusinesses. By pooling funds from its partners, AgriZero^NZ aims to deliver the step-change in investment required to develop emission reduction tools that will work on New Zealand’s pasture-based farms and grass-fed animals.

As shown in Deloitte’s Aotearoa New Zealand’s Turning Point report, New Zealand stands to gain an additional $64 billion in net present value terms to GDP by 2050 if New Zealand and the world collectively take decisive action on climate change and limit global warming to 1.5℃ above pre-industrial levels.

In our Turning Point modelling, New Zealand benefits from an Emissions Trading Scheme (ETS), which provides a price on emissions of all sectors in New Zealand’s economy, apart from agriculture, via the surrendering of ‘emission units.’² Faster emission reductions dampen demand for ‘emission units’, putting downwards pressure on the emissions price. Deloitte modelling suggests a lower emissions price leads to broader economic benefits. Collaboration aimed at accelerating emission reductions are also particularly valuable for businesses in sectors with high costs and other barriers to reducing emissions.

There are a range of other potential benefits associated with accelerated emission reductions in New Zealand, including trade benefits from the introduction of Carbon Border Adjustment Mechanisms (CBAM) by trading partners such as the European Union (EU),³ the ability to promote our exports as sustainably produced⁴ and better enabling New Zealand to meet internationally agreed emissions goals (e.g., Paris Climate Agreement).⁵

Competitor collaborations to combat climate change are being recognised internationally

Enabling the economic benefits of decisive action and accelerated emissions requires a joint effort among consumers, businesses, and government. Taking actions to combat climate change may require firms to bear substantial private costs, such as investment into renewable energy technologies. These costs may disincentivise firms from doing so in the first place, given the cost disadvantage it may create compared to competitors.

Competitor collaborations could alter incentives currently at play, which may act as a barrier to firms seeking to undertake investments aimed at reducing emissions. For example, a competitor collaboration might be between two or more firms, which agree to each invest in an emissions-free vehicle fleet at the same time, ensuring one does not face a cost (dis)advantage over the other.

It is timely to align competition policy and sustainability goals to provide more certainty and enabling competitor collaboration

Competition regulators can play an important role in creating a regulatory environment conducive to productive collaboration between firms looking to take climate-friendly actions. Regulators tend to be cautious – and for good reason – when it comes to permitting collaborations between firms, given the risk of collusion and reducing market competitiveness.

However, given the potentially substantial economic benefits of decisive action on climate change and accelerated emissions reductions, now may be the time to consider the extent to which trade-offs between competition and broader outcomes may be acceptable.

The legislative framework as set out in the Commerce Act enables the Commission to consider broader factors beyond competition through the collaborative activities and authorisation regimes. However, consideration of these broader factors typically involves a formal application under either the collaborative activities or authorisation regimes, which comes with cost and uncertainty, and places the burden of proof on businesses to assert why the benefits in their application will outweigh competitive harm.

The Guidelines released by the Commission explain factors to assess collaboration, using traditional frameworks and approaches. While the guidelines are a positive step, they could be potentially enhanced by considering whether assessing collaboration could be made more streamlined and less resource intensive. Such changes could help realise the substantial economic benefits of decisive action on climate change, accelerated emission reductions and wider economic benefits.

Initiatives by counterparts around the globe, such as the CMA, highlight how New Zealand can provide greater certainty, clarity, and timeliness to businesses with respect to climate collaboration.⁶

The CMA has developed a Sustainability Task Force advising the UK government on how competition laws can positively contribute to environmental objectives. It also outlined four criteria constituting exemptions to restrictions on collaborative agreements even when factors like price, quantity, customer allocation, and product quality are adversely affected.⁷  Furthermore, the CMA’s ‘open-door’ policy invites and encourages businesses or representative bodies to approach the CMA for informal guidance on a proposed collaboration agreement. This may help give UK businesses the confidence, clarity, and certainty over the permissibility of environmental collaborations necessary to take decisive action on climate change and accelerate emission reductions.

The local debate is only in its infancy and further considerations are required

Based on evidence in the local market, environmental collaboration is critical for the business community and a rapidly emerging subject of interest in the fields of competition law and economics – and the conversation is only getting started.⁸

The fundamental question is how competition law might balance the need to ensure well-functioning competitive markets with the environmental and legislative imperative to drastically cut emissions in this decade and beyond.

To ensure a more transparent and certain environment for companies to pursue sustainability goals jointly, some questions to consider from a New Zealand perspective are:

• Can New Zealand adapt its approach from counterparts overseas such as the UK’s open-door policy or Sustainability Task Force, or is a more tailored approach required for New Zealand’s unique context?
• For businesses looking to pursue collaborations with each other to meet environmental goals, what sort of bright lines would ensure the clarity and certainty required to pursue collaborative agreements?
• Would an exceptions-based authorisation regime for environmental collaboration be preferred, allowing firms to register proposed arrangements and proceed if no objections are raised?
• Is a more detailed discussion with the business community required to understand the barriers to the adoption of initiatives to achieve environmental sustainability goals more efficiently?

Providing more clarity and certainty to firms regarding collaboration is crucial. Given the opportunities that can be unlocked by decisive action on climate change and accelerated emission reductions, there is a strong case for the Commission and legislators to continue developing its approach to regulating collaboration agreements.

To conclude; while competition can drive innovation and efficiency in some contexts, collaboration is often more effective for addressing complex, global challenges like climate change. By working together, stakeholders can leverage their combined strengths, scale their impact, and develop more comprehensive and sustainable solutions to meet New Zealand’s goal of Net Zero by 2050.

The race is on for businesses, the economy, and the wider global community to reduce emissions – a race in which co-operation matters as much as competition.
 

Endnotes:

1. Collaboration-and-Sustainability-Guidelines-30-November-2023.pdf (comcom.govt.nz)
   
2. About the New Zealand Emissions Trading Scheme | Ministry for the Environment
3. EU Carbon Border Adjustment Mechanism (CBAM) | Deloitte Netherlands
4. An example of this is AgriZero^NZ, a partnership between the New Zealand Government and major agribusiness companies working to help farmers reduce emissions sooner while maintaining profitability. They state that while our farmers are some of the most efficient producers of meat and milk in the world, global customers are setting ambitious targets and “if we can’t meet these targets, critical export revenue is at risk” – see AgriZero NZ | AgriZero NZ
5. Ngā Kōrero Āhuarangi Me Te Ōhanga: Climate Economic and Fiscal Assessment 2023 (treasury.govt.nz)
6. We note in recent months similar guidelines have also been issued by competition authorities in, for example, the Netherlands, Greece, Japan, and Singapore.
7. Environmental sustainability agreements: final UK guidance to cooperating competitors - Allen & Overy (allenovery.com)
8. Evidence for environmental collaborations being critical is conversations with New Zealand businesses, submissions made on the Commission’s latest collaboration guidelines, and increased recognition by overseas competition regulators.