By Liza Van Der Merwe, Jane Fraser-Jones, Mayuresh Prasad and Ayden Dickins, Deloitte Access Economics
The Commerce Commission released its Collaboration and Sustainability Guidelines on 30 November 2023. The guidelines are aimed at providing further guidance on the factors that the commission will consider when assessing collaboration between competitors for sustainability objectives.
While the publication of the Collaboration and Sustainability Guidelines is a positive and important step, this article considers whether assessing competitor collaborations aimed at emissions reductions could be made more certain and 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 environmental, social, and governance 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 emissions reductions.
An example of such collaboration is AgriZeroNZ. AgriZeroNZ is a partnership between the New Zealand Government and major New Zealand agribusinesses. By pooling funds from its partners, AgriZeroNZ aims to deliver the step change in investment required to develop emissions 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 gross domestic product by 2050 if New Zealand and the world collectively take decisive action on climate change, and limit global warming to 1.5 degrees Celsius above pre-industrial levels.
In our modelling, New Zealand benefits from an emissions trading scheme, which provides a price on emissions of all sectors in New Zealand’s economy, apart from agriculture, via the surrendering of ‘emission units’. Faster emission reductions dampen demand for emission units, putting downwards pressure on the emissions price. Deloitte modelling suggests that a lower emissions price leads to broader economic benefits. Collaboration aimed at accelerating emissions reductions is also particularly valuable for businesses in sectors with high costs and other barriers to reducing emissions.
There is a range of other potential benefits associated with accelerated emissions reductions in New Zealand, including trade benefits from the introduction of carbon border adjustment mechanisms by trading partners such as the European Union, the ability to promote our exports as sustainably produced, and better enabling New Zealand to meet internationally agreed emissions goals (e.g., the Paris Agreement).
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 enable 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. But 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 1986, 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 Competition and Markets Authority (CMA), highlight how New Zealand can provide greater certainty, clarity, and timeliness to businesses with respect to climate collaboration.
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. 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 that is 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 is a rapidly emerging subject of interest in the fields of competition law and economics – and the conversation is only getting started.
How can competition law balance competing needs?
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 United Kingdom’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 cooperation matters as much as competition.