Singapore Competition and Consumer Commission publishes Guidance Note on environmental cooperation agreements

Background

Sustainability initiatives and the green transition have led companies to query whether cooperation with competitors is compatible with competition law when it pursues a green objective. European competition authorities responded quickly by publishing revised guidelines. In June 2023, the European Commission added a sustainability chapter to its Horizontal Cooperation Guidelines. The UK Competition and Markets Authority published similar guidance in October 2023.  Regulators in Asia are now following suit.

On 1 March 2024, the Competition and Consumer Commission of Singapore (CCCS) published a Guidance Note on environmental cooperation agreements among competitors (Guidance Note). The Guidance Note seeks to provide greater clarity on how the CCCS will determine whether these agreements harm competition.  The Guidance Note also clarifies how the CCCS will apply the “Net Economic Benefit” (NEB) exclusion to environmental cooperation agreements. The NEB exclusion permits anti-competitive agreements that would otherwise infringe the Competition Act if they meet certain conditions.

Summary of the Guidance Note

The Guidance Note sets out three categories of environmental cooperation agreements: (i) those that are unlikely to raise competition concerns, (ii) those that are less likely to raise competition concerns and (iii) those where concerns could arise.

Unlikely to raise concerns.  Agreements that do not affect important parameters of competition—such as price, quantity, quality, choice or innovation—are unlikely to raise concerns. Examples include agreements among competitors to reduce the use of air conditioning or reduce reliance on paper documents.  They also include agreements to carry out joint activities that competitors could not or would not do independently, such as an agreement between a fuel manufacturer and feedstock supplier to develop a new form of sustainable fuel.

Less likely to raise concerns.  Agreements that do not have a nakedly anticompetitive object—such as price fixing or market sharing—and whose participants’ combined market shares are below 20% are less likely to raise concerns.  The Guidance Note gives examples of how these agreements can be structured to avoid restricting competition.  Setting environmental standards, for example, is unlikely to restrict competition if (among other things) the standard is based on objective criteria, the development process is inclusive and does not lead to the exchange of competitively sensitive information and the standard is voluntary and non-discriminatory.  Other agreements within this category include establishing a joint database of sustainable suppliers (which could risk developing into a collective boycott), joint commercialisation (which could lead to price fixing, output limitation and information exchange) and joint R&D (which could restrict innovation competition between the participants).

Could raise concerns. Agreements that use sustainability as cover to pursue anticompetitive objectives are likely to restrict competition. This includes agreements that are considered anticompetitive, such as price-fixing and output limitation. These agreements are almost never excluded or exempted from the Competition Act. It also includes agreements whose effect is to restrict competition. These agreements are unlikely to restrict competition if the participants’ combined market share is below 20%.

Net Economic Benefit exclusion

An agreement that restricts competition may still be permitted if it qualifies for the NEB exclusion.  The agreement must meet the following criteria:

• It leads to economic benefits—such as lower costs or new products—that outweigh its restrictions of competition.
• These benefits cannot be achieved without the agreement and its restrictions on competition.
• Competition is not eliminated in a “substantial part of the market”.

The Guidance Note explains how the CCCS will apply the NEB exclusion to environmental cooperation agreements.

Economic benefits. The Guidance Note interprets “economic benefits” broadly to include environmental benefits, noting that these may have an indirect influence on costs.  The examples provided include agreements to adopt cleaner but more costly technology, to phase out non-sustainable materials and to share delivery capacity to reduce the amount of half-empty delivery vehicles.  While economic benefits must normally arise in the same market as the agreement, the Guidance Note acknowledges that environmental benefits may be felt more widely.  This could justify a restriction of competition in a specific market even if the result—such as reducing emissions in Singapore—applies more broadly.

Indispensability. The NEB exclusion only applies if the environmental benefits cannot be achieved without the agreement and its restrictions on competition.  Normally, if the participants can achieve the benefits independently, the agreement is not indispensable.  The Guidance Note recognises, however, that even if the benefits can be achieved independently, they may be additional benefits in achieving them more rapidly or on a larger scale.  This makes the agreement indispensable to achieving these additional benefits and eligible for the NEB exclusion.

No elimination of competition.  The Guidance Note explains that the CCCS will consider the state of competition pre- and post-agreement to determine whether competition is eliminated.  Competition will not be eliminated if companies continue to compete on at least one important parameter of competition, such as price.

Conclusion

Although more jurisdictions are introducing guidance on environmental cooperation agreements, rules still vary. An agreement that is permissible in one jurisdiction may fall foul of competition law in another.  Companies should therefore conduct country-specific risk assessments before engaging in collaboration with competitors.