Are Agreements to Address Climate Change Anticompetitive?

Abstract

On September 6, 2019, the Justice Department announced that it was investigating four automakers (Ford, Honda, BMW, and VW) to determine if they had violated the antitrust laws by agreeing with the state of California to adhere to higher standards for tailpipe emissions than those proposed by the Trump administration. This essay considers whether that agreement violates the antitrust laws.

Assuming that the right kind of agreement exists, a court would have to consider whether it qualifies for the “state action” exemption from the antitrust laws. The requirements for that exemption are that the conduct reflect a clearly articulated state policy, and that any private discretionary conduct be adequately supervised by a government actor. Both requirements appear to be met.

If a court did get to the antitrust merits, it would have to consider the antitrust law pertaining to standard setting. Agreements setting product standards are ubiquitous in our economy. While some standards are created by state or federal governments, others are developed and administered by private parties. Often standard setting is “cooperative,” in the sense that a government agency participates by proposing or enacting privately-created standards. Such agreements are usually lawful unless they either facilitate collusion or exclude other firms unreasonably. Here, no case can be made that the California agreement does either one.

Why would an antitrust enforcement agency conduct an investigation such as this? Many antitrust investigations are terminated without any enforcement action, but in most cases the agencies had at least a reasonable suspicion of an antitrust violation. Perhaps the Agency is aware of some facts that have not been made public, but for a high profile issue such as this one that seems unlikely. A more likely explanation is that this is an attempt to placate an Administration angered by California’s insistence on higher emission standards than the federal government requires. If so, it is only another waste of public resources for a harmful purpose.

Keywords: climate change, anticompetitive agreements, antitrust, state action doctrine, standard setting