The UK’s Competition and Markets Authority (CMA) plans to adopt a “more permissive approach” to the application of competition rules to agreements between competitors, for agreements that combat or mitigate climate change, according to new draft guidance released by the regulator on Tuesday.

According to the regulator, the proposals in the guidance aim to help businesses to address climate change and environmental sustainability “undue fear of breaching competition rules.”

Sarah Cardell, CMA Chief Executive, said:

“We hear increasingly that firms want to do more to co-operate and tackle climate change issues but are worried that competition law may prevent or impede them from working together to address them. We are committed to helping these businesses deal with the issue together, without unfounded fear of breaking competition rules.”

The document released by CMA explains how competition law applies to environmental sustainability agreements between firms, and aims to help businesses to lawfully collaborate without fears of breaching competition laws, according to the regulator. While the guidance establishes that “effective competition is important,” its states that the regulator “recognises that there are circumstances where collaboration between competitors may be needed to protect or enhance environmental sustainability,” such as a case in which a company might hesitate to switch to a more sustainable but costlier input if it’s competitors don’t also do so.

For agreements which are aimed at combatting or mitigating climate change, the document states that “a more permissive approach is adopted,” adding that this approach is “s justified by the fact that climate change represents a special category of threat.”

The CMA provided examples of the types of climate-focused agreements targeted by the guidance, such as businesses coordinating with its competitors a switch of energy use that will reduce carbon emissions, in order for the individual businesses to avoid the disadvantage of switching first and incurring higher costs in the interim, adding “Such coordination between competitors is to be encouraged.”

Cardell added:

“The draft guidance goes further than we have done previously. It gives firms greater certainty about when agreements that genuinely contribute to addressing climate change will be exempt from competition law. Businesses involved in agreements promoting environmental sustainability should also be assured that if they have concerns, they can speak to us, and we can provide bespoke advice.”

The CMA has set up a consultation period on the draft guidance until April 11, 2023. Click here to access the draft guidance.           

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