Competition law and consumer protection in the UK’s net zero transition

Competition law and consumer protection in the UK’s net zero transition

Reported by Henning Zschietzschmann, PhD Student, Faculty of Economics, University of Cambridge

David Middlemiss, Director of the Sustainability Taskforce at the Competition and Markets Authority (CMA) and other members of the Taskforce, met with the Cambridge Zero Policy Forum to discuss current and future issues in UK markets relevant to the taskforce’s work in facilitating the UK’s net zero transition.

The CMA’s role in the net-zero transition

The CMA’s Sustainability Taskforce coordinates the CMA's strategic priority to support the UK's transition to net zero. The CMA champions the belief that open, innovative, and competitive markets, underpinned by well-informed consumers, have an important role to play in realising the UK's environmental goals. The Taskforce emphasises the need for an appropriate framework that ensures sustainable, low-carbon markets can emerge and deliver on their promise.

With this in mind, the taskforce has identified three areas of focus for its work:

1. Ensuring that markets aimed at addressing environmental concerns work in ways favourable to competition and consumers.
2. Helping consumers make informed choices when they are shopping for goods and services.
3. Supporting businesses to adopt more sustainable practices and technologies including through legitimate industry collaboration.

This summary delves into each area, providing an overview of some of the CMA's current initiatives and the key topics that emerged during the seminar discussions.

1) Functioning markets to address environmental concerns

The CMA aims to act early in shaping how markets for new sustainable technologies, products and services develop in order to avoid the need for more significant interventions later. A recent example includes the CMA’s market study on EV charging infrastructure, which led to a package of recommendations to UK and devolved government and regulators as well as a CMA competition law enforcement investigation resulting in commitments reducing the impact of exclusive contracts. Another notable instance was a report on consumer protection in the green heating and insulation sector earlier this year, which highlighted the need to enhance consumer understanding of available products to help build consumer confidence and enable the transition to green heating solutions. The CMA published a consumer guide and issued a short video to help people make decisions when buying and installing green heating products and insulation for their home, by setting out the key considerations and people’s main rights and protections under consumer protection law.

The seminar also emphasised the CMA’s broad mandate and the need to tackle challenges in market systems holistically.

Topics raised by participants in the seminar included:

Food production and distribution

One of the topics discussed, which links to work already carried out by the CMA in relation to the retail grocery market, was the UK’s food system, which is responsible for about 1/3 of carbon emissions. An important aspect is the relationship between suppliers and grocery retailers, with supermarkets accounting for 80% of consumer food purchases. The CMA noted that some of the approaches it has received as part of its open-door policy to offer informal guidance to businesses under its recent Green Agreement Guidance related to how businesses could lawfully cooperate to reduce emissions in the UK’s food supply chain. One participant raised concerns that the UK Grocery Suppliers Code of Practice currently encourages close collaboration between supermarkets and large suppliers, potentially leading to an anticompetitive advantage for the large supermarkets. It was suggested that this coincides with a tendency for major suppliers to produce less sustainable foods, thereby directly impacting the net-zero transition.

Facilitating legal advice on competition concerns

The seminar addressed the challenges lawyers face when advising businesses worried about violating competition law through collaborations for net zero. In the finance sector in particular, alliances and net-zero commitments might conflict with competition rules. The CMA has issued its recent Green Agreements Guidance to help businesses understand how they can collaborate on environmental sustainability goals without breaking the law and is actively engaging with businesses and their legal advisers to provide informal advice. It is interested in gathering more concrete initiatives, concerns, and case studies to refine its guidance.

2) Informed consumer choices

UK consumers are increasingly environmentally aware but need reliable information for informed purchasing. Practices like greenwashing can mislead consumers, leading to poorly informed choices or complete disengagement. The CMA is committed to identifying and addressing such misleading practices and has introduced the Green Claims Code, which is designed to assist businesses in accurately and transparently communicating their environmental credentials to consumers in a way that is compliant with consumer law. The CMA is taking necessary actions in various sectors, including fashion and fast-moving consumer goods, to ensure compliance with the Code and consumer law and protect consumer interests.

Behavioural interventions

Participants acknowledged that many consumers are willing to opt for more sustainable choices. However, the information that is available is often complex. Hence, there is a clear need for simple, accessible guidance on making environmentally conscious decisions, including information on the trade-offs involved. Participants expressed a willingness to collaborate and contribute further research on eco-labelling, and approaches such as online choice architecture and behavioural nudges.

3) Adoption of low-carbon technologies and business models

The CMA is keen to assist businesses in transitioning to more sustainable business models. However, it recognises that businesses can be hesitant to engage in green collaborations because of concerns about how compatible such cooperation is with competition law, particularly in light of potential penalties for businesses breaching competition law. To address such concerns, the Green Agreements Guidance clarifies guidelines for permissible collaborations. The CMA has also adopted an open-door policy offering guidance on sustainability issues to market participants.

Scaling-up Low Carbon Technologies

During the seminar, the emergence of new technologies and the need for a competitive edge to facilitate scaling was a key discussion point. In the example of EV charging infrastructure, the CMA had recommended that UK government rolls-out its Rapid Charging Fund as quickly as possible to increase charging capacity at motorway service stations and attach conditions to this funding to open up competition at individual sites. The CMA also recommended that the Office for Zero Emission Vehicles (OZEV) take into account principles to ensure transparency and interoperability within the public EV charging infrastructure when developing regulations. These recommendations were designed to foster open markets, allowing consumers to conveniently access and utilise the infrastructure. Seminar participants noted that fostering competition may not always be the definitive solution for sustainability. Nonetheless, the CMA retains an important role in advising governments on structuring interventions to prevent anticompetitive outcomes or lack of consumer protection in the future and where appropriate taking action itself.

Trade-offs Between Sustainability and Competition

Participants discussed scenarios in which reducing emissions might conflict with competition. In cases where agreements may restrict competition but product environmental benefits, the CMA’s Green Agreement’s Guidance refers to an established legislative framework, which includes a cost-benefit analysis, which can incorporate factors like emission rates and carbon pricing. As the CMA has set out in its Green Agreements Guidance, the benefits to consumers that can be assessed in such trade-offs can extend beyond traditional considerations of competition authorities such as price or output. To this end, participants expressed a willingness to work with the CMA to enhance assessments of consumer benefits. Avenues that participants highlighted for potential further consideration, include the economics of passing through carbon costs and examining trade rules and market mechanisms that could potentially skew the distribution of benefits within value chains.

At the end of the seminar, the CMA and participants at this Cambridge Zero Policy Forum discussion agreed to consider the potential for further collaboration in regard to the areas discussed.

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