Antitrust Alert: Australian Government Pushes Antitrust Authority to Firing Line in Battle with Businesses Over Greenhouse Cap-and-Trade

The Australian minority Labor government has deployed all the artillery at its disposal in its battle to save its new greenhouse emissions trading scheme, including enlisting the national competition authority, the Australian Competition & Consumer Commission (ACCC).  If the government succeeds, in future years when the scheme is fully implemented, it should enable European emissions permits to be traded for Australian permits and result in the beginnings of a global market for carbon.  If the government and its legislation falls, it could be years before there is any significant intercontinental emissions permit trading.

The government’s latest effort was unveiled this week by the ministerial spokesman for climate change, who warned businesses to tread carefully in what they say publicly about the scheme:

The Government has given the competition regulator, the ACCC, additional funding to prevent price gouging and to ensure that customers are not misled about the impact of the carbon price.

The current minority Labor Prime Minister Julia Gillard has been pressed to enact the scheme to repay a debt to the Greens Party, who helped her government cling to power after she lost her majority at the last election.  Law enforcement is a central plank in Labor’s fight to win back public opinion on the greenhouse issue.

Outlandish as it may seem in many other jurisdictions, the competition and consumer protection authority in Australia often is drawn into highly political debates, through the enforcement of competition law and the prohibitions against misleading and deceptive conduct, because the competition agency is popular among ordinary voters.  Although the agency is independent, governments can give it extra funding to take particular types of cases.

The ACCC is not a naive player in this game.  Once it has secured additional enforcement funding, the ACCC has the discretion to redirect funding to any enforcement action it considers worthy and, in the past, the agency has skillfully used such funding to run cases that further enhance its stature in the eyes of the voting consumers.

The conservative political parties cannot cry foul because previously, when they risked losing government, it was they who first employed the technique to help sell a deeply unpopular goods and services tax to voters.  They gave the ACCC special funding to hire a team of additional investigators to check if businesses were telling the truth about the costs of the new tax.  This resulted in costly investigations, consent decisions, and one litigated case.  This was considered a successful effort, and many businesses were intimidated by the compliance costs against speaking out about the full costs of the new policy.

This enforcement will significantly dampen the ability of business to speak out, because the laws enforced by the ACCC put a significant burden upon the party making the representation to ensure that every reasonable interpretation is correct and that there is a concrete basis for making representations about the future.  However, as the next election approaches, businesses may be able to use their constitutional rights to effectively override these constraints on free speech.  But this is a complex area; although there is no explicit constitutional right to freedom of speech in Australia, several constitutional court cases have recognized that an explicit right to an elected government implies a fair and effective voting process – including a broad freedom of political expression.

The first industry to be targeted has been the waste disposal industry.  The government spokesman said:

It is important that commercial landfill operators do not mislead councils and other customers about the impact of the carbon price on their operations. For example, reports that operators are suggesting to customers a carbon price of $40 per tonne of waste are deeply concerning.

In the same week as this statement, the ACCC issued its first competition law decision related to the emissions trading scheme – in the waste disposal industry.  Four local government councils located near Sydney, who must find landfill space for their residents’ garbage, proposed to enter into a buyers cartel to jointly tender for recycling services.  Under Australian law, the ACCC may grant immunity from competition law violations if the conduct has “public benefits” sufficient to outweigh the anticompetitive detriment.  This buyers’ cartel was justified by the applicants, and approved by the ACCC, on the basis that a single contract was needed to provide a sufficient revenue stream to underpin the significant new capital expenditure needed to substantially increase the capacity of the recycling system.

Although this first application was based on “conventional” procompetitive justifications, like those commonly raised before competition authorities in other countries, that is not always the case in Australia.  The Australian ‘authorisation’ mechanism differs from Europe’s Article 101(3) exemption (and U.S. antitrust precedent) in that the public benefits claimed to justify the anti-competitive conduct need not be limited to procompetitive efficiencies.  The public benefits that can be claimed extend broadly; for example, medical and pharmaceutical suppliers have been permitted to agree to restrictive arrangements in sales of their products to prevent over-promotion and over-consumption by the community.

In the future, collaborations among competitors that affect trade in high-carbon and low-carbon markets may require the ACCC to weigh the environmental effects of the conduct against traditional economic effects, and inevitably this will become politically contentious.

Shifting attention from competition law to the emissions trading system itself, the law provides for a powerful new Clean Energy Regulator to enforce the new scheme. The government has this week encouraged the Regulator too to take strident enforcement action.  The Regulator has been given the same powers as the ACCC to conduct dawn raids, interview witnesses, and seek substantial civil penalties for businesses emitting pollutants in excess of their permits or manipulating the trading in permits.  Given the nature of the new agency’s functions and powers, it is likely to recruit ACCC investigation staff with existing experience applying these look-alike powers.

With Australian regulatory snipers staking out their positions, businesses in Australia should hone their defenses concerning pricing policies, public communications, and corporate compliance strategies as they adjust to a carbon-priced Australian economy.  Business elsewhere may watch to see if governments in other jurisdictions seek to employ competition and consumer agencies to promote acceptance of such environmental or other legislation.

Lawyer Contacts

For more information, please contact your principal Jones Day representative or either of the lawyers listed below.

Nicolas J. (Nick) Taylor

Fiona A. Schaeffer
New York

Jones Day prepares summaries of significant antitrust enforcement, litigation, and policy events as a service to clients and interested readers, to provide timely insight on antitrust and competition law developments relevant to business, but not as legal advice on any specific matter.  Please visit our Publication Request form to add your name to our distribution list.