Competition Law and the Transition to Low-Carbon in Indonesia

Introduction

Competition law can play an important role in facilitating low-carbon transitions and be part of the solution to climate change and sustainability is relevant in the context of the analysis of mergers and dominance cases (Holmes, 2020). Competition law can take into account environmental and social priorities through substantive competition rules, exceptions, exemptions and exclusions, and enhanced the enforcement of competition law (Gehring, 2006). Competition law should not prohibit competitors from agreeing to produce more energy-efficient goods, as this could lead to higher prices for consumers. Dominant undertakings should not be allowed to abuse their dominant position by switching to pricier recyclable packaging (Kingston, 2021).

This paper investigates the possibility of policy in support of low carbon transition under Indonesia’s competition law. Our contribution is motivated by the fact that both competition and environmental policies are key drivers of innovation and their interplay need to be explored. The main question in this paper is: Can the competition law help to achieve Indonesia’s Net Zero and sustainability goals? Indonesia has set a goal of achieving net zero emissions by 2060, which requires large funds and competition between business actors and the government (Munadiya, 2022). In its Nationally Determined Contribution (hereinafter referred as “NDC”), Indonesia committed to reducing the emissions by 29% against a 2030 business-as-usual (hereinafter referred as “BAU”) scenario and reducing emissions by up to 41% below the 2030 BAU level, subject to international assistance for finance, technology transfer, and capacity building (Wijaya et al., 2017).

As an implementing rule to reduce national carbon emissions, the Government of Indonesia has issued Presidential Regulation no. 98 of 2021 as a specific climate financing instrument to achieve Indonesia's NDC, gives the Government of Indonesia effective control over carbon rights by introducing several carbon pricing mechanisms, including carbon trading. Despite efforts by the Indonesian government to transition to net zero by enacting climate law regarding carbon tax, there is not enough consideration for current policies, particularly policies to focus more on deforestation. This is mainly through the palm oil industry (Putri, 2023) as well as the significant expansion of coal mining (CNBC, 2023).

Previous research have agreed that the competition law has a crucial role in transitioning low-carbon energy, and presents recommendations for how competition policy can promote a successful transition (Moss & Kwoka, 2010). Luo (2016) finds that co-opetition can lead to more profit and less total carbon emissions in low carbon manufacturing (Luo et al., 2016). Chen also examines the impact of competition on low carbon manufacturing, and finds that market power structure can affect the achievement of low carbon manufacturing (Chen et al., 2017). Overall, the papers suggest that competition law can help incentivize low carbon practices and promote a successful transition to a low carbon economy.

Even there is no immediate response in the specialized literature regarding the interface between environmental requirements and competition law, scholars have argued that a certain dialogue between the environment and competition is possible (Nogueira & de Araujo, 2020). On the other side, others have argued that they are elements not compatible or even conflicting (Nogueira & de Araujo, 2020). In the end, environmental protection should be integrated into competition policy-making and how this goal might be achieved (De Stefano, 2020).