The Economic Times, November 19, 2022
By Pradeep S. Mehta, Sneha Singh and Nishant K. Upadhyay
Synopsis
Well formulated and enforced competition policies can act as catalysts and complements to efforts in mitigating and adapting to climate change. The world will discuss this on 5th December, the World Competition Day, so as to garner greater attention to one of most pressing problems humanity is facing today.
There is no denying that addressing the global challenge of climate change requires a radical overhaul of traditional pathways to sustainable and inclusive economic growth. In this endeavour to find pragmatic and equitable solutions, we need to revaluate, repurpose and reorient existing mechanisms to work synergistically towards our common goal in a whole of government approach deriving from a one world approach.
One such mechanism is Competition Policy. By itself as well as in conjunction with intellectual property, industrial and trade rules, a well-tailored competition policy can play a significant role in enhancing the pace at which countries attain green transition. The success of climate change related adaptation and mitigation is inevitably linked with the production and trading of green goods, services and technologies. In this regard, competition within and beyond borders can increase the efficiency of investment, reduce entry barriers, promote innovation and price competitiveness. This in turn can scale the creation and expansion of green value chains.
For instance, the shift towards renewable sources of electricity has thus far been characterised by uneven production, distribution and price patterns. Cross border trade in renewable electricity can help reduce carbon emissions in a competitive and broad-based manner. A study conducted by the U.S. National Renewable Energy Laboratory (NREL) examined possible trade agreements between Bangladesh, India, Nepal, and Sri Lanka for the exchange of wind, solar, and hydropower electricity. The NREL analysis noted that transmitting energy through cross border energy trade integration can lead to significant cost reductions. Going forward, India can also look at the unified and free market driven approach of the EU’s electricity market to guide its ambitious, multilateral One Sun, One World, One Grid agenda.
Apart from creating large competitive markets, the role of competition policies is paramount in dealing with policies related to intellectual property rights (IPRs), which are inherently antithetical to competition. One of the most pressing questions in relation to the global response for easy access to low cost vaccines to cope with the covid pandemic was on the role of intellectual property. Did IP enable or limit the pace and scope of vaccine and drug development? Going forward, what role can and should IP play in in the context of climate friendly technologies, given their indispensable role in enabling a timely green transition.
An accepted prescription is to balance IP led innovation (driven by legally conferred monopolies) and competitive access. Most domestic laws prevent the abuse of monopolies by remedying anti-competitive practices such as restrictive licensing. Competition law has also shaped the development of Standard Essential Patents (SEPs). These are patents on technologies essential for the standardised development of industry, and must be licensed on Fair, Reasonable, and Non-Discriminatory terms (FRAND).
Building on this, regulators could assume a more proactive role in dealing with emerging green technologies that are quickly becoming critical to reduce the environmental burden on the earth. Expanding upon the currently limited practice of SEP to such technologies would ensure that even competitors can access them on FRAND terms. Another course of action would be to revaluate the very nature and scope of monopoly conferred on such technologies. For instance, utility models, also called ‘mini patents’ are easier to attain but confer weaker protection than patents. This makes them ideal for incentivising innovation, especially by SMEs that are in the position to drive incremental improvements on breakthrough green technologies.
Even without reinventing the wheel, competition policies can be made more effective through cross border cooperation between regulators. This will facilitate the dissemination of information as well as best practices. In the long haul, a global competition framework should be envisaged to inter alia prevent regulatory arbitrage by IP owners and cross border abuses. The institutional experience of UNCTAD can be the starting point to guide such coordination.
More ambitious perhaps will be an enforceable multilateral framework to guide the transfer of green technology. Currently, some limited rules and mechanisms exist. For instance, under Art 66.2 of the WTO TRIPs Agreement, developed country Members are legally obligated to provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer. However, this is limited only to Least Developed WTO Members. Apart from binding rules, mechanisms like the Climate Technology Centre and Network (CTCN) under the UNFCCC Technology Mechanism aim to accelerate the development and transfer of climate technologies at the request of developing countries. A multilateral framework at the intersection of IP, trade and competition policies can build on the experience of such relevant mechanisms and provide impetus to market based transference of green technologies.
On the flip side, there may be instances where cooperation not competition is the need of the hour. Horizontal cooperation among firms is not only desirable but also necessary to de-risk the production and adoption of new green goods, services and technologies. Cooperation can allow firms to leverage complementarities and achieve enough scale and productivity in reaching their environmental objectives. Accordingly, authorities may incorporate considerations of sustainability in their competition assessments. Austria, for instance, completely exempts corporate agreements related to certain environmental sustainability initiatives from competition laws.
However, such steps may lead to concerns about anti-competitive agreements, mergers and possible abuse of dominance. Competition regulators will have to strike a balance between environmental objectives and effects on the competitive landscape. Studies are now available, including ones from the OECD, that provide clarification on how to handle issues related to the nature, scope and temporal extent of environmental effects that can be useful in making these assessments.
Enhancing awareness on the relationship between competition policy and climate change as well as building capacity is therefore of prime importance. Well formulated and enforced competition policies can act as catalysts and complements to efforts in mitigating and adapting to climate change. The world will discuss this on 5th December, the World Competition Day, so as to garner greater attention to one of most pressing problems humanity is facing today.
The authors work for CUTS International, a global public policy research and advocacy group.
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