The Cooperatition Incubator

The final report of the Open Planet Economy Network “OPEN EU Action Plan for EU and EU National Governments” in October 2011 included the recommendation that:

“In accordance with existing EU Court case law, DGComp should launch a specialist unit to assess the public benefit of voluntary agreements that enable organisations to take collaborative action to internalise external social & environmental costs.  When the benefits of such cooperation agreements that cross-European national boundaries outweigh the costs of reduced competition the agreements should be formally authorised by DG Comp.”

BACKGROUND

The Cooperatition Incubator has worked closely with the OPEN:EU project over the past two years.  We believe the EUREAPA tool  provides a useful evidence base to inform and underpin future environmental voluntary agreements.  It breaks down territorial emissions into 57 GTAP sectors and 9 less detailed industry grouping (for example, agriculture, food manufacture, services). It breaks down consumption emissions into impact from consumption from the 57 GTAP sectors and 6 less detailed consumption themes (for example, food, transport, services).   Note however that the GTAP sectors are not detailed enough to assess the impact of individual products – only of a sector.

When users create scenarios themselves in the tool, they can change the total expenditure, the proportion of this expenditure on each consumption themes (e.g. food, transport) and also the proportion of expenditure on the more detailed sectors within each theme (e.g. meat, dairy, vegetables).

The scenarios the project team created were  constructed in the same way, with changes in consumption from each sector being estimated and used to calculate the corresponding reduction in environmental impact.  The scenarios were developed via a back-casting exercise on the basis of stakeholder input provided during a two-day workshop in September 2010. The four scenarios created were:

• Scenario 1 – Clever and caring – a future with a quality driven mindset towards development with dynamic technological innovation.
• Scenario 2 – Fast forward – a future with a quantity driven mindset towards development with dynamic technological innovation.
• Scenario 3 – Breaking point – a future with a quantity driven mindset towards development with technological stagnation.
• Scenario 4 – Slow motion – a future with a quality driven mindset towards development with technological stagnation.

The majority of the scenarios include policy interventions to internalise the cost of environmental harm, but there is not detailed analysis of the impact of this on business competitiveness. OPEN:EU discuss the high level business strategy likely to prevail in the narratives, but do not quantitatively analyse the cost implications of the scenarios.  This was outside the scope of the current project.

The final OPEN:EU quantification report leads us to the plain fact that we are all in this together and that simply working on a domestic approach (e.g. national or European) is not enough. All of these options also need to be replicated outside of the EU.

OUR REFLECTIONS

The focus of the EUREAPA tool/project is strongly on consumption and production efficiency.  This seems to leave very little room for ‘substitution’ – where, for example, one chemical input is substituted for a slightly more expensive one that is much more environmentally friendly.

In terms of the EUREAPA tool (providing scenarios on different sectors) it is useful in terms of providing information around environmental cost ‘per unit’ of that sector’s output.

The trouble with EUREAPA is that it does not seem to give much by way of solutions. Specific mechanisms are needed beyond just cutting consumption.

It’s not a viable solution just to say that only a certain amount, say, of perfume can be produced/purchased.  It seems like an extreme example of non-free-market behaviour, akin to the prohibition?

What is needed are ways of internalising the externalities through regulation or self-/co-regulation. Doing it that way means policy makers are not telling people they can not produce something, only that if they do then they will have to meet certain standards.

EUREAPA data will help target the most important areas.  What EUREAPA will not do is help target the most important areas where there are also good fixes that ‘substitution’-type solutions (which are clearly going to be more popular) instead of reduction-in-consumption-type solutions (gloomier). That additional research is important, because if we can get close to One Planet Living that way then it would be good to avoid too many drops in consumption (though of course they will be needed).

Of course, the GTAP sectors are obviously far wider than the ‘markets’ that stakeholders will ultimately be interested developing new voluntary agreements to cover.

(To check: Do EUREAPA sectors overlap? (e.g. food will incorporate transport costs). Perhaps SEI have somehow made them independent?)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN  PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS  – A renewed EU strategy 2011-14 for Corporate Social Responsibility, October 2011 (pg 9-10)
“Enterprises often participate in self- or co-regulation processes, for example sector-wide codes of conduct on societal issues relevant to the sector in question. When such processes are designed in an appropriate way they can earn stakeholder support and be an effective means of ensuring responsible business conduct. Self and co-regulation are acknowledged by the EU as a part of the better regulation agenda.*

“Experience suggests that self and co-regulation processes are most effective when they: are based on an initial open analysis of the issues with all concerned stakeholders, in the presence of and if necessary convened by public authorities such as the European Commission; result, in a subsequent phase, in clear commitments from all concerned stakeholders, with performance indicators; provide for objective monitoring mechanisms, performance review and the possibility of improving commitments as needed; and include an effective accountability mechanism for dealing with complaints regarding non-compliance.

“The Commission intends to:
5. Launch a process in 2012 with enterprises and other stakeholders to develop a code of good practice for self- and co-regulation exercises, which should improve the effectiveness of the CSR process. ”

* See the Interinstitutional Agreement on better Law-making 2003/C 321/01, and

Commission Communication “Better Regulation for Growth and Jobs in the European

Union” COM(2005)97.

Unpublished letter to The Times newspaper

Dear Editor,

Whilst Alex Spence and Robert Lea (“Supermarkets fined over fix that raised dairy produce by 2p”, The Times, 11 August 2011) suggest Tescos response to the OFT’s recent judgement is extraordinary, the true problem lies in the bigger picture. Tesco are indeed right that the competition system needs reform by the coalition government. This is a process that is already underway and should take effect in a year or so.

Our research and campaign of the past three years has highlighted that the OFT presently appears to be unable to integrate public interest factors into their analysis and decisions – even though this was the original intent of parliamentarians introducing competition law reform back in 1997/8. Whether the supermarkets acted collectively or unilaterally to increase prices at the farm gate, the reality is that UK dairy farmers were demanding price increases to survive and they had broad public support for a fairer deal.

It is now vital that new competition legislation provides a framework for the OFT’s successor body to balance public interest factors, supported by guidance, tools and ways of working with government departments expert in specific areas. There is now support for change from the Prime Minister and across the party political spectrum. The Food Ethics Council rightly say: “The UK government should work with the OFT and consumer groups to develop publicly accountable mechanisms whereby businesses can collaborate to make progress on sustainability that is in the public interest.” Without this action, improved coregulation and responsible business practice will continue to be stiffled.

Yours sincerely,

Andrew Dakers
Founder, The Cooperatition Incubator – www.cooperatition.org

Two recent pieces of media coverage questioning the effectiveness of the present design of Responsibility Deals/ voluntary agreements are worth reading.

A story that headlined the Daily Mail on 1 August 2011 revealed how the usage of plastic bags has once again start to rise despite the WRAP-coordinated Responsibility Deal.  In follow-up Marks & Spencer acknowledged on 9 August that charging for plastic bags was the only effective way of tackling the problem.  However as our Plastic Bags case study explains, under the present competition law framework supermarkets can only co-ordinate on charges, and their timing, if an exception is made by the Competition Minister at BIS.   The 2008 Defra-led Impact Assessment (see pages 103-4) sets out why the Competition minister needs to use his powers.  Alternatively legislation will be required, which would miss out on benefits available through business cooperation, such as increased flexibility of solutions and drawing more fully on businesses’ on-the-ground knowledge.

In the same week, criticism has also been mounted in the BBC’s Panorama programme ‘Dying for a drink’ regarding the effectiveness of the Public Health Responsibility Deal and government advisory groups.  Again many of the complaints come back to pricing controls and the present inability of the coregulatory initiative to use this tool.

In the context of a wider study on behaviour change strategies, the House of Lords Science & Technology Select committee has published advice on voluntary agreements.

FINAL REPORT RECOMMENDATIONS ON VOLUNTARY AGREEMENTS (July 2011)

Chapter 5

5.13.  In general, the evidence supports the conclusion that non-regulatory or regulatory measures used in isolation are often not likely to be effective and that usually the most effective means of changing behaviour at a population level is to use a range of policy tools, both regulatory and non-regulatory. Given that many factors may influence behaviour, this conclusion is perhaps unsurprising.

5.14.  We welcome efforts by the Government to raise awareness within departments of the importance of understanding behaviour, and the potential this has for the development of more effective and efficient policies. We are concerned, however, that emphasising non-regulatory interventions will lead to policy decisions where the evidence for the effectiveness of other interventions in changing behaviour has not been considered. This would jeopardise the development of evidence-based, effective and cost-effective policies.

5.15.  We therefore urge ministers to ensure that policy makers are made aware of the evidence that non-regulatory measures are often not likely to be effective if used in isolation and that evidence regarding the whole range of policy interventions should be considered before they commit to using non-regulatory measures alone.

…..

5.25.  The involvement of other organisations to support the Government’s behaviour change initiatives may provide valuable opportunities to improve the effectiveness of behaviour change interventions, in particular by allowing a range of messengers to be used to deliver them. We welcome the Government’s intention to use such collaborations.

5.26.  However, we have major doubts about the effectiveness of voluntary agreements with commercial organisations, in particular where there are potential conflicts of interest. Where voluntary agreements are made, we recommend that the following principles should be applied in order to ensure that they achieve their purpose:

• The Government should specify clearly what they want businesses to do based on the evidence about how to change behaviour, and what steps they will take to achieve the same result if voluntary agreements are not forthcoming, or prove ineffective.
• Voluntary agreements should be rigorously and independently evaluated against measurable and time-limited outcomes.

5.27.  Given that these principles do not appear to have been applied consistently to the Public Health Responsibility Deal Network, we urge DH, in particular, to ensure that these principles are followed when negotiating further voluntary agreements. In relation to the current agreements, we recommend that DH should state for each pledge what outcomes are expected and when, and provide details of what steps they will take if the agreements are not effective at the end of the stated period.

SIGNIFICANT EXTRACTS FROM EVIDENCE TO THE SELECT COMMITTEE  

Pg 398 – “Professor Theresa Marteau: I’m not intimate with the Government’s policy on obesity, but my understanding is that, after the publication of the public health White Paper, there will be a separate report coming out in the spring. Part of it will be the responsibility deal that the Government are engaged in at the moment. Perhaps I could make a few comments about that. This is about government partnering with relevant industries for self-regulation. An interesting paper, which I will pass on to the Committee, is an analysis by Kelly Brownell in Yale of the history of self-regulation of the alcohol and tobacco industries. The paper compares that with marine fishing and forestry to try to see what we can learn about self-regulation for the food industry. In the analysis, the suggestion is that self-regulation has worked well for marine fishing and forestry because the threat is internal. In effect, if those industries don’t regulate themselves, they’ll have no industry. Where the threat is external, which is what the paper believes has been the case with alcohol and tobacco, and probably with food as well, self-regulation hasn’t necessarily worked so well. The report makes recommendations for how self-regulation by the food industry can be made to be most effective. It will come as no surprise to you that the emphasis is on the importance of transparency, objective evaluation and realistic goals.”

Also see pages 454-7 f0r evidence from ASDA.

Source: http://www.parliament.uk/documents/lords-committees/science-technology/behaviourchange/BCOralandWrittenEvCompiled180711.pdf

Dear Mr Lawson,

We are writing in response to ‘A competition regime for growth – A consultation on options for reform’ consultation questions: “Q.2 The Government seeks your views on the potential creation of a single Competition and Markets Authority (CMA); Q.19 The Government seeks your views on appropriate objectives for the CMA and whether these should be embedded in statute; and Q.20 The Government see your views on whether the CMA should have a clear principal competition focus.

We welcome the proposals for a new CMA. We believe it is vitally important that public interest factors are explicitly integrated into the objectives of the CMA, as was the intention of the previous competition regime. A new business unit with the specialist skills to balance public interest factors, supported by guidance, tools and ways of working with other government departments, should be a core objective and function of the new CMA – potentially embedded in statute. The advantages and disadvantages of this unit’s recommendations being approved by a minister or an official should be further examined.

The CMA should focus on competition, but also have the capability as described to balance public interest factors, particularly in the case of sector wide voluntary or co-regulated agreements where positive social and environmental impact could be gained. The new approach should build on: the Office of Fair Trading’s (OFT’s) 2009/10 research in this area; balancing of public interest factors achieved by other UK and international regulators; and the OFT’s existing experience in approving ‘consumer codes’.

We welcome the Prime Minister’s commitment to deal with this problem last December and urge all stakeholders to continue to work together towards a rapid resolution of the issues. The Prime Minister’s commitment was in response to a Business in the Community consultation of 500+ businesses which identified this area as warranting further investigation in order to scale up business engagement in communities. The approach set out above would also provide the certainty that greater investment in the UK demands. Investors will know that they can secure the comfort needed before they make long-term investments in areas where self-regulation/ collaboration on environmental and social issues is required.

In response to the Prime Minister’s call last December, Business in the Community and The Cooperatition Incubator look forward to continuing to work in partnership with the Department for Business, Innovation & Skills and the Office of Fair Trading in the months ahead to better understand and resolve this barrier to business action on social and environmental issues.

Yours sincerely,

Charlotte Turner, Director of Research, Business in the Community – www.bitc.org.uk
Andrew Dakers and Tom Linton, The Cooperatition Incubator – www.cooperatition.org

The Cooperatition Incubator is encouraging all our campaign partners to try and submit a response to the Department for Business, Innovation and Skills (BIS) consultation on the future of the UK competition regulation regime:

Consultation document: A competition regime for growth – A consultation on options for reform

Since 2008 Business in the Community and The Cooperatition Incubator have been actively researching – with the input of a number of experts – the competition law barriers to companies collaborating through voluntary agreements/standards to internalise the often substantial external social and environmental costs of doing business.   As Andrew Dakers’ article last Friday on The Guardian Sustainable Business Blog explained, given the huge reliance today on self-regulation, this is now more important than ever.

THE PROBLEM

Unfortunately cases such as the Dairy investigation and Laundry detergents have seen companies, trying to do the right thing by society and the environment, fined many tens of millions. Clearly the system needs to be fixed.   We believe resolving this problem is an integral part of shaping a responsible marketplace as we rebuild and strengthen the British economy.

In the past 12 months the problem has been recognised by Robert Peston (BBC), Jason Clay (WWF US) and the British Prime Minister David Cameron.   Work is now underway between the Department for Business, Innovation and Skills (BIS), Business in the Community (BITC) and the Office of Fair Trading to unpack and resolve the problem – but we still need your support to ensure the necessary changes are implemented.

A WAY FORWARD

Breaking down the competition law barrier to scaling up responsible business practice comes down to resolving fundamental problems with regard to how the UK competition authorities and EU DG Competition presently interpret the legal framework.  We believe now is the time for a change in approach if degradation of our natural environment is to be stopped and social challenges, such as obesity and alcoholism, tackled head on by business, NGOs and government working together through co/self-regulatory frameworks.

To help support the campaign please send a short email to Duncan Lawson (Consumer and Competition Policy, Department of Business, Innovation and Skills): cma@bis.gsi.gov.uk by Monday 13 June 2011.

Your message could be short and simple – perhaps along the lines of:

“Dear Mr Lawson, I am writing in response to ‘A competition regime for growth – A consultation on options for reform’ consultation questions: “Q.2 The Government seeks your views on the potential creation of a single Competition and Markets Authority; Q.19 The Government seeks your views on appropriate objectives for the [Consumer & Markets Authority] CMA and whether these should be embedded in statute; and Q.20 The Government see your views on whether the CMA should have a clear principal competition focus.

“We welcome the proposals for a new CMA.  We believe it is vitally important that public interest factors are explicitly integrated into the objectives of the CMA, as was the intention of the previous competition regime. A new business unit specialised in balancing public interest factors, supported by guidance, tools and ways of working with other government departments should be a core objective of the new CMA – potentially embedded in statute.  This will provide the certainly that greater investment in the UK demands.  Investors will know that they can secure the comfort needed before they make long-term investments in areas where voluntary self-regulation/ collaboration on environmental and social issues is required.

“We welcome the Prime Minister’s commitment to deal with this problem last December and urge all stakeholders to continue to work together towards a rapid resolution of the issues.  The CMA should focus on competition, but also have the capability as described to balance public interest factors, particularly in the case of voluntary agreements.  This should build on: the Office of Fair Trading’s (OFT’s) 2009/10 research in this area; balancing of public interest factors achieved by other UK and international regulators; and the OFT’s existing experience in approving ‘consumer codes’.

Yours sincerely…”

We appreciate this request is very close to the deadline, but hope you can take five minutes out to send a short email.

Thank you for your support – and if we can clarify any aspects of our research conclusions, please do not hesitate to contact us.

Writing for the Guardian Sustainable Business Andrew Dakers, founder of The Cooperatition Incubator, said:

“Many corporations have discovered that [weak global governance] leads to a “race to the bottom”. That can be to their detriment as natural resources and the ecosystems on which they depend continue to be depleted. Filling the vacuum is a vast spectrum of voluntary corporate responsibility initiatives and standards from Community Mark to Investors in People and ISO 14000.

“These have made great strides. They provide companies with a fairly rapid return on their investment – perhaps through increased resource efficiency or better people management – and the wider community often benefits too. The same cannot be said, however, when a business has substantial external social and environmental impacts – a “non-win-win” situation.

“The latest government-sponsored voluntary agreement, the public health responsibility deal, has received a distinctly mixed response, largely due to this problem. The British Medical Association and the Royal College of Physicians complain that substantial external impacts of business, such as alcohol misuse and obesity, have been ignored.

“Research by Business in the Community and the Cooperatition Incubator over the past three years has revealed that competition law is a substantial barrier to companies collaborating on voluntary standards that would deliver greater public benefit. Given the increasing levels of regulation already around climate change – at least in the UK and EU – this is preventing new voluntary agreements that internalise external costs on social issues and natural resources.

“More meaningful agreements have the potential to increase costs to producers, suppliers and consumers. To develop substantial self-regulatory changes might involve competitors in a given sector discussing pricing and coordinating the timing of a step-change in improvements. Companies taking part in such discussions risk being accused of collusion or price-fixing by the UK Office of Fair Trading (OFT), despite the public benefit they are seeking to achieve.

“Tesco has promised to review its alcohol pricing if its rivals do the same; it believes it would be commercial suicide to act alone. But Tesco points out that it is trapped by an approach to competition law regulation that prevents competitors discussing anything to do with price…

“Despite [the Office of Fair Trading introducing Short Form Opinions], Robert Peston said on his blog in November 2010 that the problem remained: “Britain’s biggest banks are talking to each about whether and how they can reduce the total amount of bonuses they would pay in the upcoming bonus season . . . [Yet] one great fear of bankers is that they’ll be seen to be colluding on a competitive issue and could be prosecuted by the Office of Fair Trading.”

“The prime minister, David Cameron, responded: “I get the message loud and clear, and we will do everything we can to tackle those barriers head on – whether it is the red tape you face, whether it is being able to collaborate as businesses without having the competition authorities throwing you in jail. I understand the barriers. We are going to work with you to get rid of them.”

“Work is now under way on the problem between Business in the Community, the Department for Business, Innovation & Skills and the OFT.

“For too long corporate responsibility has focused on the laws governing individual company practices. By revisiting how competition authorities regulate public interest collaborations between firms, the UK has the potential to become a global exemplar. Reform in this area will build the solid foundations for the new people and planet-friendly era in capitalism we need.”

Read the full article…

Jason Clay, senior vice president of market transformation at WWF, has written on Guardian Sustainable Business the issues arising from consumer goods giants Procter & Gamble and Unilever being fined €315.2m (£280m) by the EC on 13 April 2011 for breaching competition law in the laundry detergent market in eight countries.

“Here lies the challenge in defining what is precompetitive versus what is collusion. While the companies crossed the line of the EC’s antitrust rules, they also accomplished much in reducing the impact of producing, delivering, selling, using and disposing of their products.

“The firms were motivated by shifting the market to greater sustainability, while making it easy for consumers to choose a sustainable product. The new products were better because they were concentrated and worked in cold water. But both of these traits were in conflict with consumer perceptions. Most consumers, for example, think that more detergent means cleaner clothes, and that hot water is more effective for washing laundry than cold.

“This posed a dilemma for manufacturers. The companies believed that if any one of them introduced concentrates independently they would risk losing market share. A consumer confronted with a choice between a 5kg box of powder at €10 and 2.5kg box of a concentrated version at the same price is going to be tempted to go for the big box.

“To avoid this first mover “disadvantage,” the companies co-ordinated the timing of their launches so that all the new product formulations would arrive on the market at the same time. They did this without publicly stating the virtues of one product over another.

“The moral of this story is that such initiatives are essential, but caution must be exercised. As an environmentalist, I applaud companies that work together to put better products on the shelves and take away the ones with the worst impact…

“We can better understand the complicated balance between what is precompetitive behaviour addressing legitimate sustainability issues, and what is collusion around fixing prices or market share. The key component to striking this balance is multi-stakeholder participation. The project should be inclusive of other stakeholders, including regulatory officials and perhaps even NGOs, many of whom don’t have a direct financial interest. This is how successful global sustainability round tables have avoided these issues.

“In light of more companies working together in a precompetitive fashion to improve sustainability, wouldn’t it be forward-thinking for regulators in the EU and elsewhere to invest in the creation of a legal group that defines boundaries? It would be money well spent, because precompetitive sustainability is working, and it’s essential to market transformation.”

The 9th Annual Conference of the International Competition Network (ICN) received a paper by the Turkish Competition Authority on the Interface between Competition Policy and other Public Policies.  Key points of note:

Pg 34– “European Commission mentions that the impact assessments, by listing all the policy options according to certain criteria such as effectiveness and efficiency together with their positive and negative impacts, enable the policy makers to consider trade-offs between economic, social and environmental impacts. However, it is emphasised that an impact assessment supports and does not replace decision-making – the adoption of a policy proposal is always a political decision.”

Pg 37-8 – “In the EU, DG Competition may use its advocacy powers within the European Commission during the work of an “impact assessment steering group” or in the course of a subsequent interservice consultation to verify whether competition assessment for the policy proposal, which should be part of a comprehensive impact assessment, is conducted and whether the proposal does not restrict competition disproportionately. During the process, DG Competition may propose amendments to the relevant proposal to alleviate competitive concerns. Moreover, it is compulsory to consult DG Competition by way of an inter-service consultation in case a policy proposal prepared by another DG may impact on competition. It should be said that although a negative opinion expressed by DG Competition may not block a policy proposal, it can put significant pressure on the relevant DG to amend the proposal.”

Source : http://www.icn-istanbul.org/Upload/Materials/SpecialProject/SP_BackgroundReport.pdf