The Case for Recognition and Regulation of Green Cartels
With no mention of terms such as “environmental improvement,” “sustainability,” or “societal welfare” appearing in the scheme of the Act, Indian competition jurisprudence appears largely tone-deaf to green collaborations. Even the Competition (Amendment) Act, 2023, which purports to make a major overhaul to the antitrust framework, contains no discussion or recognition of green agreements. There exists little to no literature in furtherance of any policy changes in this direction.
While greenwashing has become the buzzword in the Environmental, Social, and Governance (‘ESG) literature, green collaborations are unspoken of. The current framework looks at competition and development in isolation in relation to the climate change imperative. There is no space for a confluence between the two through an interdisciplinary approach. Section 19(3), due to its rigid structure, acts as a barrier against innovation. In cases where markets fail to internalise environmental costs, the challenge is not whether sustainability must be recognised, but how to carefully navigate the terrain of environmental protection without eroding the core principles of competition law.
A recurring objection to legitimising green cartels is that cooperation between competitors might curb innovation and affect the optimal allocation of resources. It has been argued that forces of competition can themselves push for sustainability, and legitimising green collaborations would lead to ‘cartel greenwashing’. We cannot completely negate the role of competition as a disciplining force in the market. Therefore, it becomes imperative to strike an optimal balance by regulating green cartels effectively, through a qualified and properly structured framework, rather than offering them carte blanche exemptions.
When firms adopt innovative processes such as standardising low-carbon production processes or developing closed-loop recycling infrastructure, collective research and investment are required. This transformational shift often might lead to an increase in short-term operating costs and put restrictions on production technology choices. For example, airlines working together on sustainable aviation fuel would require coordination and investment with no immediate output or price efficiency or electronics firms working together on reducing e-waste would increase operating costs in the short term. These restrictions do not fall in the definition of “improvement,” which is seen only through the lens of cost savings or output maximisation grounds.
Indian courts have also applied the “parallelism plus” approach, which is used by European and U.S. courts, and requires the investigating body to look at additional circumstantial evidence to prove collusion, beyond the mere presence of a collusive agreement, which by itself cannot be the sole basis for deeming a practice anti-competitive. However, even this modern approach fails when applied to green collaborations, as even when the contextual factors are examined, they are assessed on the inflexible benchmarks of efficiency in the traditional sense. These expansive enough to accommodate pro-societal agreements.
Towards a Sustainable Competition Framework for India
The Securities and Exchange Board of India (‘SEBI’) has mandated the Business Responsibility and Sustainability Report (‘BRSR’), along with the more rigorous BRSR Core framework, for the top 1,000 listed companies. This is a welcome step in the ESG field, as it establishes common metrics and thresholds and encourages coordination among competitors to achieve supply chain uniformity. This is also in line with the National Green Hydrogen Mission, which aims to transform India into a global hub for green hydrogen by targeting 5 million metric tonnes of green hydrogen production capacity. Achieving this overarching objective requires massive and coordinated infrastructural improvements.
However, with strict antitrust laws in place, firms lack incentive for engaging in joint infrastructure, information exchange and firm coordination, all of which are essentially if India aims to reduce carbon emissions by 45% by 2030.
To solve this dilemma, we need to turn to the neo-classical microeconomic theory of welfare economics. A market imbalance caused due to production can be corrected if the firms factor in the social costs of the negative externalities i.e. damage to the environment, public health etc. in their production costs. This will push the firms to opt for practices that are sustainable and efficient in the longer run.
We also need to take note of the first-mover disadvantage, i.e., if a single firm chooses to shift to greener alternatives, the firm has to face cost asymmetries, making its product less competitive as compared to its counterparts made with cheaper processes. Thus, the law must allow for collective action that distributes these short-term losses to ensure that there exists some incentive for such innovations. This helps remove cost differentials between firms, addresses the investment shortage, and leads to positive spillovers such as improved public health and sustainable development in the longer run. Sustainability has been recognised as a qualitative dimension of competition law, and this must be kept in mind while assessing green cartels, to understand that their objective is to facilitate competition rather than distort the competitive process itself.
Regulating such agreements would require India to model its law on a modified rule of reason model, as modelled after the European Union, which takes efficiency gains, restrictions on competition, necessity, and consumer benefits into account while assessing whether a collusion is anti-competitive or not. Soft safe harbour provisions could be drafted with safeguards of transparency, limited restrictions, and a de minimis threshold to ensure that enterprises do not face an insurmountable burden of proof and that there is a presumption of legality in such limited cases.
The courts must make this assessment only on objective grounds through scientific data collection, and a more liberal approach needs to be taken while interpreting the term ‘efficiency’ under Section 19. This would essentially make sustainability a quality-based dimension within the traditional consumer welfare model.
While the concerns regarding greenwashing are well placed, they can be assuaged by assessing green cartels on the strict yardstick of necessity and proportionality. For this, India can refer to the EU’s guidelines on Horizontal Co-operative Agreement. Firms must submit ex-ante notification of their agreement to the authorities. This must be backed by technical certification from an independent reviewer based on quantifiable benefits through recognised metrics like life-cycle assessments or reduction in emissions. The immunities granted must only be for clearly specified conduct and must be time-limited, subject to sunset clauses and mandatory independent periodic review, with the authorities retaining powers of monitoring and access to data.
The law must also contain penalties for fraudulent or misleading claims. An automatic presumption of AAEC must be mandated in such cases. With such provisions in place, India will be able to create its own ‘Sustainability Sandbox’ inspired by the Greek model, to nurture an environment where innovators can test their technologies in a controlled set-up before launching them in the market.
Bottom Line
Institutional mechanisms can play a major role in bringing about this change. India can choose to adopt a pre-consultative mechanism similar to the one followed in the United Kingdom, which allows enterprises to seek ex-ante guidance from the CCI. This reduces uncertainty and curbs the chilling effects. A similar mechanism already exists under Section 5 for combinations. Green cartels must be assessed through the CCI’s public interest powers to allow environmental and public health considerations to be balanced against the competitive effects. Recently, Austria has amended its competition law to recognise sustainability benefits, including those accruing to society at large and to future generations.
In this evolving regulatory landscape, India cannot choose to remain static. The recognition of green cartels is not a demand for complete deregulation, but a need for calibrated and effective regulation, one that carefully balances two extremes: doctrinal rigidity that stifles legitimate sustainability-driven cooperation, and unrestrained immunity for anti-competitive conduct in the garb of environmental protection.
Part I can be accessed here.
Vaibhav Pratap Singh is a fifth-year student at National Law University, Jodhpur and Krishna Ravishankar is a graduate of National Law University, Jodhpur.
