On 10 September 2021 the European Commission released a policy brief on the role of competition law in realising the European Green Deal (a topic we previously considered here). The primary goal of the Green Deal is to make the EU’s entire economy carbon neutral by 2050. This will require a drastically more sustainable and – according to the Commission – more competitive economic model. In light of this, the Commission published a call for contributions to explore the ways in which competition policy could be harnessed as a tool for green transformation.
The brief recognises that the success of environmentally ambitious policies depends on markets responding to regulatory change and incentives without distorting competition. Innovation must be a product of intense but fair competition between firms. The brief notes that innovation is key to Europe’s ‘smart industrial policy’ as it will enable European companies to become global leaders in green technologies and production processes.
The responses to the public consultation identified issues for further examination and clarification by the Commission for antitrust, merger rules and state aid. This article summarises the points raised by stakeholders and the Commission’s response in respect of antitrust and merger rules within the context of Europe’s Green Deal objectives.
Companies flagged the need for more clarity on the types of cooperation agreements that are considered essential for pursuing sustainability objectives, perhaps a predictable point of concern following the recent ground-breaking Commission decision to fine BMW and the Volkswagen Group €875 million for colluding on technical cooperation (a decision we previously discussed here). The Commission accepted that more guidance should be provided, with concrete examples that illustrate how sustainability objectives can be pursued safely through cooperation agreements without infringing Article 101(1) TFEU.
Article 101(3) TFEU
There was also debate over whether the scope of benefits considered under Article 101(3) TFEU should be expanded to include non-economic benefits or, more broadly, whether the concept of ‘fair share’ should be expanded to allow benefits from an agreement to be credited even if they do not fully compensate for the harm suffered by consumers in the market.
In response, the Commission emphasised the importance of anchoring antitrust enforcement to a consumer welfare standard and acknowledging that sustainability benefits, by their far-reaching nature, accrue to society as a whole. In particular the Commission noted:
- Sustainability benefits can be assessed as qualitative efficiencies under Article 101(3) TFEU. For example the replacement of a non-sustainable product by a sustainable alternative that is longer-lasting and of higher quality may represent greater value to the consumer.
- Sustainability benefits do not necessarily need to take the form of a direct or immediately noticeable quality improvement or cost saving. It could be, for instance, that consumers might prefer a certain brand of coffee because it is produced sustainably, for which they will be prepared to pay more.
- In assessing a practice’s anticompetitive benefits and effects, benefits on a different market from the conduct may be taken into account if the group of consumers affected by and benefitting from the restriction are substantially the same, thus ensuring that consumers are fully compensated for any harm suffered.
- There is also room for clarification as to when and how market failures would prevent the free market from generating such benefits, thereby rendering an agreement subject to the Article 101(3) TFEU analysis “indispensable”. For example, sometimes it may be essential for companies to work together to encourage the use of more expensive sustainable products. However, where consumers already value such products the Commission expects firms to develop these independently rather than through cooperation.
- It is open to requests for individual guidance letters in relation to sustainability initiatives that raise novel issues, whilst there is also the power to adopt decisions finding that competition rules are not applicable to sustainability initiatives.
Green ‘killer’ acquisitions
Recognising that much green innovation is undertaken by smaller market players, respondents to the consultation flagged the importance of stronger enforcement against green ‘killer’ acquisitions. Such acquisitions take place where dominant companies with a lesser focus on green technology buy up smaller, green innovators in transactions falling below merger notification thresholds. The Commission believes its guidance on referrals under Article 22 EUMR will increase the number of cases it reviews, thereby tackling any enforcement gap that might lead to a loss of innovation in this space.
Consumer preferences and green remedies
Other points raised under the merger control regime included calls to reflect consumer preferences for sustainability in market definition and whether out-of-market efficiencies would be considered in merger rules. Stakeholders also suggested sustainability issues should form part of a greener approach to remedy design. In response, the Commission observed that consumer behaviour is already adequately measured either in market definition or as part of the competitive assessment but expects increasing consumer preferences for sustainable products to inform market definition analyses in the future.
The Commission acknowledged that it has previously accepted remedies that have had a positive effect on the environment and that environmental aspects may be reflected in the remedy proposals going forward. Under the Horizontal Merger Guidelines, efficiencies should in principle occur within the markets where competition concerns are found and must “have benefit to consumers, be merger-specific and be verifiable”. However, the Commission reiterated that it does not have a mandate to intercede in a proposed merger solely for environmentally-related concerns.
The brief emphasises the importance of environmentally-friendly innovation to the Commission’s agenda and the role of competition policy to further a pan-European greener economic model. Whilst the brief reflects the Commission’s stance that existing competition policy is fairly well-equipped to further this agenda, the brief indicates a recognition that there remains room for further clarification on certain issues. It potentially foreshadows more explicit guidance on the application of Article 101(3) TFEU, specifically with regard to how environmental considerations could be factored into analysis of horizontal cooperation agreements and market definition. It will also be interesting to see whether there will be any merger referrals under the Article 22 guidance that relate specifically to environmental concerns.
It is also worth noting that the CMA published an ‘information sheet’ on environmental sustainability agreements and competition law earlier this year. The guidance focuses on the environmental aspect of sustainability agreements, in line with the CMA’s strategic priority of tackling climate change. The guidance outlines the legal framework behind sustainability agreements and provides some practical information which businesses should consider before entering into such agreements, particularly in terms of using fair standard-setting processes. It also sets out available allowances and exemptions that businesses may benefit from, whilst flagging the danger of ‘by object’ restrictions and other anti-competitive behaviour. The guidance does not, however, provide substantive explanations of how environmental efficiencies will be factored into market definition and the technical legal analyses behind sustainability agreements. However, on 29 September 2021, the CMA launched a call for inputs to help inform advice that the regulator will provide to government on how competition and consumer regimes could better support the UK’s net zero and environmental sustainability goals, signalling a next step in its efforts of clarifying the legal framework for firms seeking to enter a greener space.