The EC Competition Policy in Support of Europe's Green Ambition

Background

After a summer of floods and heat waves around the world, the reality of climate change and the urgency of achieving the environmental goals set by the international community have never been more apparent.

In December 2019, the Green Deal policy, which aims to make Europe the first climate neutral continent by 2050, was launched. The Green Deal sets out a number of policy and regulatory proposals to achieve this goal, and it has been clear from the start that a workable competition policy will play an integral role in achieving this ambitious goal. Above all, companies need clarity regarding when and to what extent they may collaborate to achieve innovative solutions to combat climate change.

So where we are today, almost two years after the launch of the Green Deal?

At the EU level

In October 2020 a call was launched for contributions to gather ideas on how EU competition and sustainability policies can best work together. This consultation process ended in November and a debate around the key issues raised by the contributors was organised in February 2021 (Conference on Competition Policy Contribution to the European Green Deal).

Vestager’s introductory speech at the Conference centred around the need for a “total rethinking” of how we engage with environmental issues; whether this ambitious, and somewhat aspirational, sentiment transpired into tangible policy proposals is another question. A first attempt was made last week by the Commission in its Policy Brief, which aims to provide “examples of concrete policy reform across the competition instruments”.

Concrete policy reform?

The European Commission’s (Commission) key take-aways from the conference can be divided into three buckets of reform: state aid, antitrust and mergers. Despite sitting under the heading of “concrete”, the suggestions remain surprisingly vague and open-ended.

• Under state aid, the Commission has put forward the general idea of favouring aid to non-fossil fuel producers, clarifying the rulebook, and enhancing “possibilities to support innovation”. The main tangible take-away from these aspirations is that the Commission is likely to update the state aid rule book with the aim of simplifying it for clarity.
• Next, under antitrust, the Commission noted that respondents were also concerned about the issue of clarity, and how the pursuit of sustainability will actually affect antitrust assessment. Consequently, the Commission hopes to improve guidance and introduce an open door policy for businesses to share concerns.

The impact assessment of the revision of the two Block Exemption Regulations for horizontal cooperation agreements and the Horizontal Guidelines, which was published by the Commission on 5 July 2021, speaks to this and confirms that “the Commission intends to include in the Horizontal Guidelines guidance that would assist stakeholders in the self-assessment of (…) horizontal cooperation agreements that pursue sustainability goals.”

However, this revision is not expected before the end of 2022 and it remains to be seen whether the Commission will succeed in providing sufficiently clear guidance for companies to take the necessary leap of faith to engage in new types of sustainable cooperation.

• With regards to mergers, the focus was largely on protecting the loss of “green” innovation through “killer acquisitions”, whereby companies with a strong market position lacking adequate eco-credentials can acquire “green” undertakings, shielding them from scrutiny. This is of particular concern if a large proportion of “green” innovators are small players, allowing an acquisition to fall below the usual notification thresholds. The solution put forward by the Commission was to consequently “strengthen” enforcement in this area, although no details have yet been provided on the specifics of implementing this.

While these aspirations respond to the demonstrable appetite for more sustainable measures, there is little provided to tangibly sink your teeth into. This has already given rise to something of a backlash from other authorities and key stakeholders, most notably in the Netherlands, who are pushing for more to be done in this area, with an emphasis instead on collaboration as a way to provide greener societal benefits.

National divergence: the future of sustainable competition law?

Dutch antitrust enforcers set out a more ambitious position to the EU on how they might balance anti-competitive behaviour with sustainability goals. The EU position (as detailed in a speech by Vestager, is that there is a “fundamental principle” that the restriction of competition can only be justified “if the consumers of that product are not worse off on balance”.

Adopting a decidedly more utilitarian approach, the head of the Dutch competition authority, Martijn Snoep, set out his position that an agreement between competitors that benefitted society as a whole (through greener initiatives) could be allowed, even if the companies’ customers were left worse off.

Collaboration, therefore, between companies to fight climate change without fear of competition law has thus been presented as a viable solution to promote sustainable practices. Weight is instead given to the wider societal benefits of an agreement, rather than the customers directly affected by it.

This view is fully shared by the Hellenic Competition Commission, which has even proposed the setting of a competition law sustainability 'sandbox', allowing companies to experiment with sustainable cooperation formats and business models without immediately incurring all the normal regulatory consequences of doing so.

The two authorities have in fact such a common view on the issue that they published together last January, a Technical Report on Sustainability and Competition. This report aims “to spotlight the forms of quantitative analysis that can be used in competition assessments to account for broader social benefits, including benefits for future generations” (p. 53). At a glance, one can see that this approach has paid off based on the volume of proposals that are concrete, and which (finally) provide a real insight into the range of factors that should be taken into account by competition authorities when analysing agreements between companies.

The EU’s policy document issued does seem to lend some weight to these principles, stating that “benefits achieved on separate markets can possibly be taken into account” on the condition that “the group of consumers affected by the restriction and the group of benefiting consumers are substantially the same”. However, the Commission’s approach is still distinctly more cautious and emphasises the need to “fully compensate” consumers for any harm to competition.

An outspoken critic of the Commission’s stance is Simon Holmes, a member of the UK’s Competition Appeal Tribunal, who has taken a stronger stance on the matter. Holmes has repeatedly warned that the fear of unnecessarily restrictive competition and antitrust enforcement is dissuading companies from collaborating to operate their business in carbon-friendly ways. He uses the example of fast fashion, arguing that a change in approach that would necessarily result in higher prices for consumers is a price worth paying to battle the knock-on environmental effect of these companies.

The view that competition law must not stop companies cooperating over sustainability has become increasingly widespread, therefore, outside of the Commission.

Comment

The level of concern exhibited, as seen through the “rich feedback” provided by respondents to the Green Conference, reveals how pressing is the need for clear and tangible guidance on the issue of sustainability and competition law.

There is a growing recognition that collaboration is required for businesses to operate more sustainably, but the Commission’s overall tenor is that competition should drive innovation, not collaboration.

Looking to the Commission’s policy reform proposals, the unapologetic antipathy frequently vented towards “killer acquisitions”, particularly in the tech and pharma sectors, now seems firmly baked into the drive to protect green innovation.

Otherwise, the “concrete” policy reforms put forward by the Commission seem currently to be more promises to look into reform, rather than reformative acts in themselves. With pragmatic details yet to come, the risk of divergence from other national competition authorities grows.