“Green competition law”, one of the most important topics in contemporary competition policy, is starting to take more shape in the EU.
On 10 September, following around 200 feedback contributions from stakeholders and an international conference on the subject, the EU Commission published a new Policy Brief (the “Brief”), accompanied by an official speech at the 25th IBA Competition Conference. This marks the next stage in its review as to how European competition law can support a more sustainable, environmentally friendly economy, thus fostering not just the implementation of the EU’s Green Deal and “Fit for 55” package but also the battle against climate change more generally.
A generational project with huge and immediate consequences for all sectors of the economy, this challenge has to be taken on by companies and consumers alike. While its exact implications for competition law have been hotly debated in recent years and a lot of the specifics still appear uncertain, the Brief clearly underscores that its sees competition policy as something that “supports and complements” its broader Green Deal policies. It also sketches out its thinking on specific legal aspects of European antitrust law, merger control and state aid. This article focusses on the Brief’s antitrust implications and describes our views on the Commission’s reasoning what to expect going forward
First and foremost, the Commission is eager to stress how much weight it is going to continue to put on rigorous enforcement of European antitrust rules. So while climate change presents a monumental threat to deal with, companies must not expect to be able to get away with a “greenwashed defence” when engaging in cartels. At the same time – and this is a first clarification hoped for by many observers – the Commission explicitly acknowledges “that in order to encourage companies to jointly invest, identify solutions, produce, and distribute sustainable products, more guidance is needed on the circumstances in which such cooperation complies with antitrust rules”, meaning: yes, it is definitely possible for competitors to engage in “green cooperation” without automatically falling foul of antitrust rules.
However, there won’t be any automatic “greenlighting” either. Rather, as has been the case for joint production, R&D cooperation and other projects for many years now, companies will generally have to make their own specific assessment as to the compatibility of their plans with EU antitrust rules. The Commission has identified several “pain points” in the assessment process where it aims to improve its guidance in the future, thus decreasing legal risk for companies’ “green” projects. These are:
It’s also worth pointing out that the Commission reiterates the importance of its agricultural policy. Green farming methods can play a pivotal role in the bloc’s endeavour to become carbon-free and more environmentally sustainable (e.g. by lowering pollution from pesticides and carbon emissions by livestock or efforts to better protect biodiversity). For that reason, a new provision in the Common Market Organisation Regulation was agreed on in June this year, exempting from the application of Article 101(1) TFEU sustainability agreements that are concluded between producers and/or other actors from the food value chain and which are aimed at achieving higher standards than required by law in terms of environmental protection, climate change prevention, animal health and animal welfare (see here, Article 210a). This in an agriculture-specific derogation overriding the general rule in Article 101(3) TFEU and providing farmers with the opportunity to adopt greener practices in agriculture in exchange for various benefits such as higher prices for their proceeds and longer-term supply relationships. However, and similar to Article 101(3) TFEU, this also requires that the restrictions of competition resulting from the sustainability agreements in place are indispensable for the achievement of the desired outcome. The Commission will issue guidelines on the conditions of applicability of this derogation by the beginning of 2024.
From a “saving the planet” perspective, the Brief broadly suggests a welcome and useful update to antitrust enforcement that may result in more legal certainty for companies engaging in projects that seek to improve sustainability, minimise the carbon footprint or to create other environmental benefits with an effect in the EU. Through the lens of antitrust doctrine, however, a number of points seem elusive and need to be fleshed out further in the months to come:
Still, the question remains if truly promoting the Green Deal would not call for a more flexible approach also allowing for mere cross-market efficiencies or out-of-market efficiencies, i.e. to exempt cooperation where the benefits outweighing the disadvantages only occur on another market and/or where benefits clearly exist but cannot be pinned to a specific market at all. Notably, there is nothing in the wording of Article 101(3) TFEU that would keep the Commission from doing so – in fact, one may argue that other provisions in the Treaty concerning the consideration of any environmental impact in EU policies and principles (i.e., Articles 191(2) and 11 TFEU) even require a very flexible approach in this area. Indeed, the concepts of “in-market efficiencies” and specific apportionment of benefits to certain consumers are based on the Commission’s own guidelines and nothing in the law or the case law of the European Courts would appear to prevent the Commission from changing its view. In fact, before the publication of the aforementioned guidelines in 2004, the Commission had already adopted a decision concerning more eco-friendly washing machines where it found: “Such environmental results for society would adequately allow consumers a fair share of the benefits even if no benefits accrued to individual purchasers of machines”.
By not reverting to that stance, the Commission objects to more progressive views expressed as part of its call for contributions. Respondents argued, inter alia, that the scope of relevant benefits needs to be extended to benefits that occur outside the relevant, investigated markets, that the notion of “consumers” needs to be expanded to encompass not only users of the products but also citizens and society as a whole and/or that a more flexible interpretation of the notion of “fair share” is warranted (in order 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). Notably, the Dutch Competition Authority – which had published respective (recently renewed) draft guidelines last year already – is one of the most prominent proponents of such approach, with similar views being taken in Greece and the Austrian legislator having adopted a reform of its national competition law to the same effect.
This deflates a bit the “green cooperation”-friendly notion that, generally, consumer preferences alone can be sufficient to generate the “benefit” required for an exemption under Article 101(3) TFEU. If the interpretation of “indispensability” set out in the Brief prevails, companies seeking to defend their cooperation based on consumers’ willingness to pay more for eco-friendly products may very well face an uphill battle, having to argue that despite consumer interest (and resulting lack of any first mover disadvantage) they still need to band together with competitors to achieve the desired outcome. Conversely, if consumers are showing no discernible interest in a sustainable product, an important potential “benefit” that might warrant an exemption under Article 101(3) TFEU – and which the Commission advocates in its Brief – could not credibly be achieved by any cooperation (hampering its implementation under antitrust rules). In that regard, it would help if the Commission were to give more specific guidance and in particular communicate clearly that proven consumer inertia (i.e., tentativeness to actually buy more sustainable products despite a general interest in them) can already be sufficient to exempt competitor cooperation from Article 101(1) TFEU – at least if it is clear that only a concerted change of product features or product ranges will actually change demand in a way promoting the “Green Deal”. This would be a meaningful way to navigate market failures while maintaining the integrity of competition law and supporting the EU’s green ambition.
On the other hand, that line of thought may just underscore that competition law – of which market definition, effects analysis and consumer welfare are core elements –simply has its limits when combating climate change.
The above shows that there is still a lot of work to be done, with antitrust implications just being one angle considered in the Brief. There will likely also be significant developments in state aid and merger control laws. Concerning the latter, the Commission in particular discusses strengthening its enforcement whenever a transaction concerns possible harm to “green” innovation (including tackling green “killer acquisitions” where an incumbent industry player with no eco-friendly business buys smaller companies that innovate in sustainable products, technologies etc.) and reflecting on the impact of sustainability aspects and related regulations on consumer preferences, competitive effects, and market definition; in order to review green “killer acquisitions”, the Commission suggests to rely on its new referral policy under Article 22 EUMR. In state aid, the favouring of funding of non-fossil fuels and enhancing possibilities to support innovation are envisaged, based in particular on the Commission’s new Climate, Energy and Environment Aid Guidelines and its revision of the General Block Exemption Regulation.
With regard to antitrust law, the above has shown there are important changes to come and that the Commission can be expected to reflect on these issues together with national competition authorities, stakeholders and experts. Companies should be on the lookout to see whether and how more progressive stakeholders such as the Dutch competition authority will shape further discussions and result in a re-thinking on the Commission’s part.
But in any event, the need for more guidance remains. The Commission intends to continue down this path with a two-pronged approach: It seeks to provide more guidance in the context of the revisions of its block exemptions and guidelines on horizontal cooperation and vertical agreements, which are currently ongoing and are supposed to result in new rules by the end of December and May 2022, respectively. And to inform the policy revision and ensure that guidance can be as concrete as possible, the authority also encourages companies to approach its officials with their projects. In particular, the Commission would like to shed more light on when existing (environmental) regulation already incentivises companies to produce in a sustainable manner and therefore obviates the need for cooperation, and when such incentives are not sufficient to do so.
It is important to note that the Commission has clearly voiced its intention to consider requests by companies for individual guidance letters even before it has finalized further general guidance. So whenever companies envisage any kind of “green cooperation” or consider sustainability initiatives that raise novel issues, they should now more than ever think of proactively approaching the Commission to gain legal certainty. In that regard, the Commission has also stressed that, where the public interest so requires, it will consider adopting decisions pursuant to Article 10 of Regulation 1/2003 finding that the competition rules are not applicable to certain sustainability initiatives.
A lot is at stake here: Companies need more clarity on how the pursuit of sustainability objectives affects antitrust assessment, as the risk of breaching competition rules can deter from investing in sustainable products or processes, such as industry-wide agreements to phase out unsustainable products and/or unethical modes of production, joint procurement of sustainable input products, joint R&D, innovation and production agreements, or the setting industry standards for the use of sustainable products and green technologies.
One can only hope that companies and regulators take on this challenge whole-heartedly and that the seeds they’re going to plant will yield the fruit needed to take on this massive task.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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