The Role of Competition Law in Green Horizontal Agreements

 written by Hu Yi-Heng

Introduction

As living standards improve, people have gradually come to recognize that it is the close relationship between environment and human society. As a result, people’s demands extend beyond basic sustenance, they expect companies could provide green products to achieve sustainability. In order to respond the consumer’s demand, some firms have begun to invest in green products. However, while these green products have positive externalities effect, they often entail high production costs due to expensive green innovation. This not only places firms at a competitive disadvantage but also lead to higher prices being passed on to consumers.

Consequently, firms that take the lead in producing green products may face a first mover disadvantage, which may result in market failure. To address this issue, governments may consider implementing market mechanisms or economic incentives, such as permitting firms collaboration. Yet, this approach may raise potential concerns under competition law, especially about collusive behavior (commonly referred to as horizontal agreements). Therefore, when face to the above competitive issue, should competition authorities allow flexibility in the enforcement of competition law in order to achieve sustainability goals? And if so, to what extent should such compromises be made? Striking the right balance between competition and sustainability objectives remains a critical and complex challenge.

The following content will first explore the coexistence and conflicts between competition and sustainability, then conduct a comparative analysis of relevant policies in other countries and finally provides policy recommendations for Taiwan, which has not yet established relevant regulations.

Coexistence and Conflict between Competition law and Sustainability

The cost of tragedy of the commons and free rider behavior are difficult to factor into production cost, the above factors are the common reasons that lead to the market failure (Stiglitz & Rosengard, 2015). In the Stern Review commissioned by the UK government in 2007, Nicholas Stern emphasized that climate change is the result of multiple market failures. He emphasized the negative effects of greenhouse gas emissions on the environment will not manifest immediately but instead have more profound effects on future generations. As a result, most people overlook the external costs associated with greenhouse gas emissions. In most cases, consumers usually choose to buy green product based on ethical considerations. Yet, there is no strong economic incentive for either producers or consumers to engage in green activity, resulting in continued greenhouse gas emissions and market failure.

In addressing environmental pollution, traditional environmental law usually focuses on " regulating" and "eliminating" pollution such as establishing the specialized agencies and implementing the strict rule sanctions. Governments have often failed to control the source of pollution, instead, only prevent the pollution facts that it has seen. Most environmental regulations are based on minimum compliance standards, which still leaving much enough room for company to achieve better level than these minimum standards. Although government have invested heavily costs in setting environmental regulations, legislations are often lag behind technological developments, the result is that many environmental legislations have discouraged corporate investment in green technology.

It is undeniable that these environmental regulations have contributed to certain pollution control, they still fail to account for the different characteristics of industries. Within a rigid legal framework, the first mover is likely to face a competitive disadvantage. Relying only on the legal measures is insufficient in the face of a rapidly evolving market. This may even weaken international competitiveness due to improper supervision.

Therefore, we may think about whether this dilemma can be addressed through the market economy incentives and the market mechanism. Economic regulation focuses more on the particularity of the industry and can be adapted to each industry’s needs (Larouche, 2000). Within such a framework, the behavior of companies cooperation may help internalize external environmental costs. Considering the firms may use the green horizontal agreements to overcome market failure, from the view of the capabilities and resources of regulators, the competition law authority possess both legal expertise and economic analytical vision. As a low intervention legal tool, competition law can be used to assist in environmental regulation, correcting distortions in fair competition while simultaneously supporting broader goals of sustainable development.

From the view of sustainability, sustainability hopes firms not to overproduce but innovate green products. Yet, from the view of competition law, the aim is to increase output and reduce price. From the above perspective, competition policy and environmental protection seem to be in conflict.

However, this is not the case, the goal of competition law is to use market pressure to drive firms to increase output or reduce the price, but the goal is still to improve social welfare. In addition to focusing on price and output, competition law also addresses non-price dimensions such as increasing quality (using environmentally friendly materials can be seen as increase quality), stimulating innovation (green technology) and enhancing product differentiation (Philippe, Roland, Roland et al., 2023). From this perspective, the aims of sustainability and competition policy are not mutually exclusive. Competition law can, in fact, serve as a valuable tool in improving sustainability goals. According to Badea et al. (2021), the impact of sustainability-focused regulations on the market will be reflected in competition assessments. All shows that competition policy and environmental sustainability are inseparable. Competition policy can further protect the sustainable development of the planet and serve as a driving force in addressing climate change and promoting global sustainability.

Although the above evident recognized competition law and sustainability are closely linked, it still comes several questions, such as how can competition policy work in practice to support sustainability goals? What role should competition authorities play to ensure that green development is promoted without undermining the core regulatory objectives of competition policy? The following sections will explore these questions in more detail, drawing on policy approaches in different jurisdictions.

Case study

-Chicken of Tomorrow

In 2013, Dutch chicken retailers and producers reached an agreement to exclusively produce and sell the sustainable chicken. The sustainable chicken was defined to included reducing the use of growth hormones, providing chickens with more space for movement, and using natural soy as feed. Since the participating firms accounted for 95% of the retail chicken market, the changes led to higher production costs, which in turn increased the retail price of chicken by €1.46 per kilogram.

The survey from Netherlands Authority for Consumers and Markets (ACM) found that consumers were only willing to pay an additional €0.82 per kilogram for sustainable chicken, far below the €1.46 increase. Accordingly, ACM concluded that the price increase substantially exceeded consumer willingness to pay and therefore ruled the agreement unlawful.

-Net Zero Banking Alliance (NZBA)

The Net Zero Banking Alliance (NZBA), composed of several large financial institutions including Bank of America, Citibank, Goldman Sachs, JPMorgan Chase, and Morgan Stanley, established with the aim to reduce investment in high-carbon companies. Consequently, the fossil industry became the first sector excluded from investment under this initiative.

At the time, Arizona Attorney General Mark Brnovich argued that “the biggest antitrust act in history is right on our eyes,” he explicitly indicated this violation the antitrust law. Similarly, FTC Chair Lina Khan and DOJ Antitrust Division Assistant Attorney General Jonathan Kanter underscored that antitrust law includes no sustainability exception, arguing that the NZBA’s conduct constituted unfair competition.

Although the organization later ceased requiring its members to endorse the UN’s net-zero climate initiative, certain state attorneys general, including Karl Racine of Washington, D.C., and other 17 chief prosecutors, took the opposite stance. They argued that such agreements may mitigate market failures and address climate change by lowering the costs associated with climate action, they enhance consumer welfare. Based on this, they recommended that courts and the FTC evaluate environmental considerations under the rule of reason.

- Five Coal Power Plants Collude Closing

According to an analysis by the Dutch Energy Research Institute (ECN), shutting down all five coal power plants would reduce carbon dioxide (CO2), nitrogen oxides (NO2), sulfur dioxide (SO2), and PM10 pollution, but this action would increase average annual wholesale electricity price by €75 million.

In 2013, ACM used shadow prices to calculate the annual value of the reductions in NO₂, SO₂, and PM₁₀ to be approximately €29.3 million (see Table 1). Although they result suggested that closing coal power plants might not be economically optimal, the Dutch Ministry of Economic Affairs nevertheless mandated the closures based on environmental protection considerations.

It is worth noting that the numerical standards set in the shadow price manuals vary significantly from year to year. This discrepancy can be seen in the net profit column, which can lead to uncertain evaluation results.

Table 1 Comparison of Annual Pollutant Reductions and Value Assessments of Dutch Coal Power Plants

	CO2	NO2	SO2	PM10	Benefit	Cost	Net Benefits
Annual Reduction	4,700Kt	1.5Kt	2Kt	0.1Kt	-	-	-
2013 ACM Estimate (€10,000 / Kt)	-	940	540	4,430	2,933	(7,500)	(4,567)
2010 Damage Cost Method (€10,000 / Kt)	-	1,060	1,540	4,100	5,080	(7,500)	(2,420)
2017 Damage Cost Method (€10,000 / Kt)	-	3,470	2,490	4,460	10,631	(7,500)	3,131
2017 Damage Cost Method + Waterbed Effect (€10,000 / Kt)	5.7	3,470	2,490	4,460	37,421	(7,500)	29,921
2023 Damage Cost Method + Waterbed Effect (€10,000 / Kt)	13	2,990	5,750	6,930	77,778	(7,500)	70,278

The three examples illustrate the tension between corporate sustainability activities and competition law. This is the reason that competition authorities need to face the sustainability immediately.

EU 2023 Green Horizontal Guidelines

Article 11 of the Treaty on the Functioning of the European Union (TFEU) provides that environmental protection requirements must be integrated into the definition and implementation of the Union's policies and activities, in particular with a view to promoting sustainable development. This integration principle provides a legal fundation for EU competition law to incorporate sustainability into assessments. Although the above does not indicate how sustainability should be integrated to competition policy, it raises a fundamental question: if the concept of sustainability is integrating into competition policy, does this imply that green cooperation among undertakings, even if it restricts competition, should be tolerates?

To address this question, Chapter 9 of Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements (2023) from European Commission (EC) provides more detail principles about how such cooperation may be evaluated under EU competition law.

Generally, green horizontal agreements can be divided into the following three types: sustainability agreements that are unlikely to raise competition concerns, assessment of sustainability agreements under article 101(1) and assessment of sustainability agreements under article 101(3).

For the agreements that do not constitute restrictions of competition such as information sharing, internal operational cooperation, or an action that is undertaken in compliance with some law, such agreements are generally not warranted. However, in cases involving the exclusion of non-sustainable products, the setting of sustainability standards, or the designation of third parties to conduct carbon footprint certification, it is necessary to assess whether the restrictions satisfy the criteria of a legitimate objective, necessity, and minimal restrictiveness. If the agreement infringes Article 101(1), companies may seek an exemption under Article 101(3), but they have to provide evidence that the agreement improves economic efficiency, the restriction is indispensable to achieving those sustainability gains, and consumers can receive a fair share and the agreement does not eliminate competition in a substantial part of the market.

Overall, the EU policy framework focuses on verifiable efficiency and consumer welfare. Even if it is willing to accept non-price factors into consideration, it still maintains a strict economic measurement standard. This reflects the EU competition law tradition centered on consumer surplus and a gradual and cautious openness to green cooperation.

UK 2023 Green Horizontal Guidance

In light of the urgency of environmental protection, the UK Competition and Markets Authority (CMA) issued Green Agreements Guidance: Guidance on the Application of the Chapter I Prohibition in the Competition Act 1998 to Environmental Sustainability Agreements in 2023. The purpose of this guideline is to help businesses understand how they can work together to achieve without violating the action from CMA.

This guideline recognizes that companies undertaking sustainability initiatives individually may face first-mover disadvantages. Thus, CMA allows companies to cooperate under a clear regulation — UK Green Horizontal Guidance. First of all, the CMA classifies sustainability agreements into three categories, environmental sustainability agreements, climate change agreements, and mixed agreements.

The first type focuses on reducing the impact of economic activities on biodiversity, water resources etc., the effect scope is limited to a certain area. While the second type, climate change agreements, address more serious issue with broader impact such as carbon emissions, greenhouse gas emissions etc. Finally, if an agreement encompasses both environmental and climate-related dimensions, it is categorized as a mixed agreement.

In terms of compliance structure, CMA follows a structure which is similar to that of the EU:

1.     Environmental sustainability agreements which is unlikely to infringe the chapter I prohibition.

This includes nine scenarios such as information sharing and joint standard-setting.

2.     Environmental sustainability agreements which could infringe the chapter I prohibition.

Under this classification, the agreements require an examination of whether they have the purpose or effect of restricting competition, whether restrictions are ancillary and whether the agreement amounts to collective exclusion. These factors include market coverage, pricing power, and the nature of information exchange. If the above conditions are met, this agreement will be seen as illegal agreement.

3.     Exemption for environmental sustainability agreements generally

This agreement may still be eligible for exemption under Section 9(1) of the Competition Act. To qualify, four cumulative conditions must be met:

(1) the agreement must generate tangible economic benefits such as improved production, distribution, or innovation in sustainable technologies;

(2) the restrictive competition must be indispensable to achieving these benefits;

(3) consumers must receive a fair share of the benefits, including indirect consumers or future generations, with the possibility of quantifying benefits via shadow pricing or others estimates;

(4) the agreement must not eliminate competition in the market, though time-limited restrictions or maintain at least one key competitive parameter.

Compared to the EU, CMA adopts a more flexible approach in recognizing environmental externalities and collective benefits since they know that many green agreements like climate change agreement may impact groups beyond immediate consumers. CMA provides more leeway for climate change agreements. Recognizing the urgency and severity of climate risks, CMA considers benefits not only to directly affected consumers but also to “out-of-market” beneficiaries. This means, in some cases, people are not buyers for the green products, but because of the characteristics of external effect, they also enjoy the benefits from this agreement. Thereby, in some cases, CMA extending the scope of analysis to the broader UK population. This social welfare will bigger than the original.

This broader interpretative approach aligns with the position advocated by BEUC (The European Consumer Organization) during OECD Competition Committee discussions on sustainability and competition law in 2020. BEUC argued that because the external effects of such agreements extend beyond direct purchasers, competition authorities should take into account the environmental benefits experienced by the consumers in both related and unrelated markets.

Singapore 2024 Green Horizontal Guidelines

The Guidance Note on Business Collaborations Pursuing Environmental Sustainability Objectives from Singapore Competition & Consumer Commission Singapore (CCCS) (2024) is follows a similar structure to that used by most countries but adds one more category. It classifies agreements into four categories: those that will not or are unlikely to raise competition concerns, conditions under which competition concerns are less likely to arise, agreements where competition concerns may arise and net economic benefit exclusion (exemption).

For the green agreements that may potentially be anti-competitive, CCCS will assess according to the agreement object and the actual impact on market conditions such as exclusionary effects on competition. Even if an agreement is not intended to restrict competition, CCCS will still be assessed for its actual market impact, such as reduced innovation or fewer alternative choices, through a substantive analysis.

If an agreement is found to be restrictive, businesses may still seek exemption under the NEB framework. According to the CCCS guidelines, three conditions must be met:

1.        Claiming of economic benefits

CCCS stats that sustainability agreements may qualify for exemption if they can objectively enhance production efficiency, technological advancement, or economic development. Since green products often generate positive externalities, their impact extends beyond the immediate market. Under certain circumstances, CCCS will consider broader societal benefits. This means even if competition in the relevant market is somewhat reduced, the agreement may still qualify for exemption if it generates net economic benefit to Singapore remains positive.

2.        Indispensability

Under NEB framework, firms need to evident the restrictions on competition imposed by the agreements are both reasonable and necessary. In other words, the parties to the agreement cannot find a lower means of restricting competition to achieve the same purpose.

3.        Non elimination

The last NEB exemption condition is required the agreement participants must not eliminate core competition in the relevant market, the agreement must preserve at least one core competitive parameter in the relevant market. For example, the aim of an agreement is to phase out grey products, this indeed reduce consumer choice, but if the participants still compete on other dimensions such as price, quality etc., it still can be accepted.

An overview of Singapore’s approach to environmental sustainability agreements reveals that the CCCS emphasizes the external effects of sustainability objectives. It recognizes that the benefits of such agreements may extend beyond direct consumers of the products in question, and in some cases, the scope of beneficiaries may encompass the broader Singaporean public. Although the CCCS does not guarantee each case can always be expanded, its definition of environmental sustainability agreements and the principles it applies suggest that a more flexible approach to market delineation is often adopted. In other words, a broader market definition may be used in many instances.

This approach reflects Singapore’s recognition of the potential spillover effects of green agreements in terms of environmental benefits and social welfare. It also enables competition law to be more responsive and supportive to broader sustainability policy goals.

Comparative Analysis and Key Issue Discussion

Based on the above, while jurisdictions tend to adopt similar standards for green horizontal agreements, notable differences persist in their implementation. These discrepancies may reflect deeper institutional logics and regulatory value choices and further raise important question that warrant in-depth exploration.

-From Consumer Welfare to Social Welfare? The Transformation of Competition Law Concepts in Sustainability Generation

In traditional competition law, the concept of "consumer welfare" typically focuses on short term market outcomes such as lower prices, increased output, improved quality, and greater consumer choice. Yet, now, competition authorities are beginning to reconsider: if cooperative behavior among firms can effectively reduce carbon emissions and pollution, should these actions be exempted even if they result in higher price?

Siragusa (2024) noted that the 2023 EU Horizontal Co-operation Guidelines have begun to allow environmental and social benefits to be taken into account in the assessment of cooperation, provided they deliver tangible benefits to consumers in the relevant market. In addition, Iacovides (2025) also argued that EC competition law should not focus solely on consumer welfare, but should also integrate democratic values and sustainability as key objectives.

Although the EU has generally followed its original framework, 2023 Horizontal Cooperation Guidelines acknowledge that non price factor, such as environmental may be considered into the assessment. Nonetheless, in practice, such as the case of Chicken of Tomorrow, the agreement failed to pass ACM’s assessment due to the willing to pay was lower than the increasing price, while it is hard to determine how much price will consumers willing to pay for animal and environmental welfare. This outcome reflects the EU continued reliance on demonstrable efficiency gains as the central criterion, which limits the ability to move beyond conventional standards.

The UK, by contrast, has shown greater institutional flexibility. The UK’s guideline clearly points out that if the agreement’s environmental benefits can be passed on to consumers, even with corresponding price increase, such agreements may still be deemed compatible with consumer interests, thereby expanding the traditional understanding of consumer welfare.

Singapore extends this approach further by recognizing that environmental benefits of green products may extend beyond direct consumer. As long as cooperation generates “net national economic benefits,” it may be treated as a form of consumer benefit through an alternative assessment lens, even if benefits do not accrue directly to end-users.

The aggregate consumer welfare of each consumer can affect the overall social welfare. Thus, these guidelines suggest that the definition of "consumer welfare" is evolving toward a broader concept of social welfare. This shift is not merely a technical matter but also reconstruction of legal philosophy. Whether environmental benefits should be count into the concept of welfare will significantly influence the ability of competition law to contribute meaningfully to sustainability goals.

Taiwan's current legal framework remains ambiguous regarding whether “consumer interest” encompasses environmental externalities. Should the TFTC seek to establish modernized guidelines for green cooperation, it must first clarify whether it accepts this expanded conception of consumer welfare. If so, the TFTC must also develop supporting evaluation tools, such as shadow pricing, estimated economic value of carbon reduction, or social discount rates to ensure that the environmental value of cooperative behavior can be accurately assessed during enforcement.

Policy Recommendations for Taiwan

Although the Taiwan Fair Trade Commission (TFTC) has not yet promulgated dedicated guidelines addressing sustainable development. This article suggests that the existing Fair Trade Law has already possesses sufficient flexibility to support sustainability policy. Evidence from international cases such as Netherland’s chicken of tomorrow case, five coal power closing case, Net Zero Banking Alliance (NZBA) case in the USA, these cases reveal that green collaboration may still be deemed in violation of competition law since consumer benefits fail to outweigh associated price increase.

In Taiwan, concerted actions are subject to an ex ante approval process. Companies that consider their sustainability initiatives to fall within the ambit of “overall economic benefit and public interest,” as stipulated in Article 15 of the Fair Trade Act, may apply for an exemption accordingly. Therefore, even in the absence of a specific regulatory framework for sustainability, firms retain the capacity to proceed under existing legal provisions. Thus, whether it is necessary to establish separate assessment principles for sustainability deserves careful evaluation.

In this context, competition law emerges as a potentially effective legal tool for resolving the tension between market behavior and sustainable development. This article suggests that the adoption of green principles should not be construed as a relaxation of legal standards, but rather as a means of providing normative clarity and operational guidance for market participants. A clear framework issued by the TFTC would help reduce legal uncertainty and promote informed compliance across the industrial sector. Consequently, this article recommends that the TFTC establish specific guidelines for concerted actions focused on environmental protection. The proposed framework is divided into three categories, aligning with practices in most other jurisdictions.

This article recommends TFTC could established specifically for concerted actions and focus on environmental protection. The principal framework is divided into three categories as in most countries.

Green agreements that unlikely to rise concern

1.     Does not involve core competitive parameters such as price or quantity

2.     de minimis rule

3.     The agreements that only doing information gathering without imposing trading restrictions or exchange business sensitive information.

Green agreements that may rise fair trade law concern

These should be assessed under the rule of reason, by examining their potential impact on competition, including:

1.     Does the agreements restrict the key competitive parameters

2.     Does the agreement create market foreclosure or exclusivity

In the analysis, this study suggests that it is possible to examine whether the purpose of the agreement is legitimate and whether the restrictive measures are necessary and minimal.

The Exemption for Green agreement

If the agreement is found an illegal agreement, companies may still can apply for an exemption under article 15 of Fair Trade Act. This article suggests that TFTC can follow the guidelines from EU or the UK, evaluating whether the agreement meet the following aspects

1.     Whether the agreement can increase the efficiency or not

2.     Does the green benefits seen as economics efficiency

3.     How can the green benefits be quantified

This article suggest TFTC can through the way of revealed preference and shadow pricing to estimate environmental effects.

4.     Whether the agreement is necessary and reasonable

5.     Is the market still preserve competitive

6.     Do the consumers get the benefits

Although the effect of sustainability needs to take time to develop, as long as consumers can get the benefits from other aspects, such as products quality or environmental increase, the benefits can be recognized. However, this article also suggest that the time discount and the environmental spillover can be take into account the framework.

In conclusion, this article emphasizes that the TFTC should maintain a consistent stance toward green agreements. Sustainability is merely one factor among many and should not be overemphasized. To avoid regulatory overreach and excessive administrative costs, the TFTC should intervene only in environmental cases that have clear implications for market competition.

If sustainability guidelines are to be established in the future, this article suggests that they focus specifically on green agreements and be categorized into three tiers: (1) agreements unlikely to raise competition concerns, (2) agreements that may violate the Fair Trade Act, and (3) exemptions for green agreements. This framework should be supplemented by ancillary restraints and quantitative assessments to ensure that both competition and sustainability values are balanced.

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