Competition Policy and Net-Zero Transitions

1. Introduction

The net-zero transition requires economies to reduce greenhouse-gas emissions while maintaining economic development, energy security and affordable electricity. It involves major changes in electricity generation, transport, industry, hydrogen, batteries, electric vehicles, carbon markets and renewable energy.

Competition policy has an important role in this transition. It must encourage investment and innovation in clean technologies while preventing new forms of market concentration. South Africa's Competition Commission has recognised sustainability and climate change as emerging dimensions of competition policy.

2. Meaning of Competition Policy

Competition policy consists of laws and government measures designed to maintain effective competition between businesses.

It generally addresses:

cartels and price fixing;

abuse of market dominance;

exclusionary conduct;

restrictive agreements;

mergers;

barriers to entry; and

public-interest considerations.

The South African Competition Act 89 of 1998 establishes a framework for restrictive practices, abuse of dominance and merger control.

3. Why Competition Matters for Net-Zero

The transition to net-zero requires enormous investment in:

solar and wind generation;

batteries;

electric vehicles;

charging infrastructure;

green hydrogen;

transmission networks;

smart grids; and

low-carbon industrial technologies.

If these markets remain competitive, firms have stronger incentives to reduce costs and develop better technologies.

Competition can therefore support innovation, efficiency, consumer choice and lower technology costs.

However, the transition can also create new concentrated markets because some clean technologies depend on scarce minerals, specialised equipment, intellectual property and large infrastructure investments.

4. Renewable Energy Markets

Renewable-energy markets demonstrate the relationship between competition and decarbonisation.

In Okavango Biology Luxembourg SARL v Sonnedix Solar South Africa Holdings (Pty) Ltd (2022), the Competition Tribunal considered a merger involving companies active in solar photovoltaic electricity generation.

The parties had investments in renewable-energy projects and participated in South Africa's Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). The Tribunal approved the merger because it was unlikely to substantially prevent or lessen competition.

This case shows that the development of renewable energy does not automatically justify approving every green merger. The competitive effects of each transaction must still be examined.

5. Green Mergers

Net-zero markets may experience significant consolidation because companies need capital, technology and infrastructure.

Competition authorities should therefore examine:

market concentration;

control over renewable generation;

access to electricity networks;

battery manufacturing;

charging infrastructure;

technology ownership;

supply-chain dependence; and

barriers to entry.

A merger may produce genuine efficiencies, but environmental benefits should be supported by credible evidence rather than simply being asserted.

6. Sustainability Agreements

Companies may want to cooperate to achieve environmental objectives.

Examples include agreements to:

develop common charging infrastructure;

establish recycling systems;

reduce carbon emissions;

develop green technologies; or

create common environmental standards.

Some cooperation can produce genuine environmental benefits. But competitors cannot use “green” objectives as a justification for ordinary price fixing or market sharing.

The European Commission's horizontal cooperation guidelines specifically provide guidance on sustainability agreements and explain how competition law can assess agreements pursuing environmental objectives.

7. Competition and Innovation

Competition is particularly important for clean-technology innovation.

If one company controls an important technology, patent or infrastructure facility, it may potentially restrict competitors.

Competition authorities may therefore examine:

refusal to supply;

discriminatory access;

exclusionary licensing;

tying;

exclusive agreements; and

acquisition of emerging competitors.

The purpose is not to prevent firms from earning returns on successful innovation, but to prevent unlawful conduct that unnecessarily excludes competition.

8. Senwes Case

The Constitutional Court decision in Competition Commission v Senwes Ltd (2012) provides an important principle concerning dominance and exclusionary conduct.

The Court considered conduct involving a dominant firm and important grain-storage infrastructure. The case demonstrates that control over an important facility can have consequences for competition in related markets.

This reasoning is relevant by analogy to net-zero infrastructure such as electricity grids, hydrogen pipelines, battery networks and charging infrastructure.

9. Affordable Clean Energy

Net-zero policies must also consider affordability.

A dominant company controlling an important input may potentially charge prices that harm downstream industries.

In Sasol Chemical Industries Ltd v Competition Commission, the Competition Appeal Court examined excessive pricing under section 8(a) of the Competition Act. The case demonstrates the complexity of determining when prices charged by a dominant firm become unlawful excessive prices.

For the net-zero transition, this principle can become important where essential clean-energy inputs are controlled by a small number of suppliers.

10. Public Interest and Just Transition

Competition policy in South Africa also operates within a broader public-interest framework. The Competition Commission identifies economic participation, employment, ownership and inclusive growth among important objectives of the competition regime.

This is relevant to a just transition, because decarbonisation can affect workers, communities, small businesses and historically disadvantaged groups.

Competition policy can therefore support the transition by opening markets to:

small renewable-energy producers;

community energy projects;

new technology companies;

black-owned businesses; and

innovative suppliers.

11. Preventing Green Monopolies

The transition should not simply replace fossil-fuel concentration with concentration in clean technologies.

Competition authorities must monitor possible dominance in:

lithium and other critical minerals;

batteries;

solar equipment;

wind technology;

hydrogen infrastructure;

electricity storage;

EV charging; and

transmission infrastructure.

The South African Competition Commission has itself highlighted the risk that decarbonisation could create concentration in green technologies, energy infrastructure and related supply chains.

12. Role of Regulation

Competition policy cannot achieve net-zero alone. Climate regulation, carbon pricing, renewable-energy procurement, electricity regulation and industrial policy are also necessary.

The European Commission similarly describes competition policy as complementary to regulation and taxation in achieving environmental objectives.

Competition authorities and sector regulators should therefore coordinate their policies.

13. Conclusion

Competition policy can become an important legal tool for achieving a competitive and just net-zero transition. It can encourage innovation, reduce costs, prevent green monopolies and open clean-energy markets to new participants.

The Okavango/Sonnedix, Senwes, and Sasol Chemical Industries cases provide useful principles concerning renewable-energy mergers, infrastructure-related market power and excessive pricing.

The central principle is that environmental objectives and competition objectives should work together: net-zero policies should promote rapid decarbonisation without unnecessarily creating new forms of monopoly, exclusion or market concentration.