Competition policy and green growth : interactions and challenges : a joint report by the Nordic competition authorities.

Abstract

Green growth is a concept that involves rethinking economic growth. It is mainly concerned with how economies can grow in a more sustainable way. It evolved out of a strong and increasing policy emphasis on the development of a new economic and social framework designed to enable economic growth and development while preventing environmental degradation and enhancing quality of life. Thus, it has been argued that together with innovation, going green can be a long-term driver of economic growth through, for example, investment in renewable energy and improved efficiency in the use of energy and materials. Reflecting this new policy focus, the OECD has been given a mandate to develop a Green Growth Strategy.2

A successful shift towards the ambitions underlying the green growth strategy can only be achieved through cost efficient and coherent policies. Competition policy has an important role in this context. It is up to the competition authorities to ensure that this relationship receives due attention.

Economic theory and empirical evidence support the view that competition is desirable as it contributes to efficiency in economic activity, thereby increasing the welfare of consumers and society. Healthy rivalry between competing firms ensures that only the most efficient and innovative firms develop and stay in the market. While it is difficult to measure the degree to which effective competition affects productivity and the economy more generally, a number of extensive studies have found a link between stronger competition and higher productivity growth. So competition contributes to economic growth.

There are also important links between competition and environmental policy. Using market mechanisms is important in green growth strategies as it allows appropriate prices to be determined. Price signals reflecting environmental externalities ensure that the correct incentives are in place for pollution abatement and innovation in green technology. Ensuring effective competition is important in this context, since otherwise the price signals cannot be effectively transmitted.

Effective competition and low barriers to entry are also crucial to innovation and market dynamics, which again play an important role in achieving environmental goals at a lower cost. Thus, given a well designed environmental policy, competition supports the achievement of environmental goals in a cost-efficient way.

Environmental regulations, practices or enforcement may affect competition negatively. This in turn may increase the social costs of achieving environmental goals. However, pro-competitive legislation is becoming stronger and is being more effectively enforced in many countries. Thus, one of the challenges the competition authorities face in this regard is helping to ensure that green legislation will not affect competition negatively and that pro-competitive legislation is employed instead. Various advocacy channels can be used to achieve this aim.

Perhaps the most important conclusion to be drawn from the report is that competition policy has an important role to play in the development and implementation of a green growth strategy and in facilitating a successful shift to green growth.

The report is composed of three main chapters. In Chapter 3, the relationship between competition policy and environmental policy is explored. In the remaining parts of the report we have made a distinction between the application of policy instruments and practices. The former refers to tools and means as applied in policies in the environmental sphere. The latter refers to the behaviour and practices of companies in the markets. In some cases, these practices are endorsed by the authorities. Accordingly, in Chapter 4, a closer look is taken at certain aspects of environmental policies and some of the conflicts that have arisen or might arise between these and competition policy. In Chapter 5 an account is given of how environmental policies are reflected by the practices of market participants through different green schemes. The report concludes with some forward looking perspectives in Chapter 6.