Greening Competition Law – Sustainability Agreements and Competition Law
Sustainability agreements between companies may be incompatible with competition law if this green cooperation simultaneously restricts competition. The European Commission has traditionally focused on economic efficiency in its competition law enforcement.
For example, if the Commission were to follow its traditional enforcement practice, it might prohibit any arrangement between companies that would raise the price of a product for consumers, even if such an arrangement would clearly benefit other (future) customers, e.g. by reducing air pollution or GHG emissions.
Actors in the field of competition law, however, have recognised that competition law, too, needs to better address the climate crisis and green objectives. Currently in the EU there is an ongoing debate on how competition rules and sustainability policies could work together in the context of the European Green Deal. The Commission has promised to provide guidance on how to cooperate in compliance with competition law and avoid ‘greenwashing’ practices having negative effects on competition and harming consumers.
The Commission’s Steps to Address the Issue
In autumn 2020, the Commission launched a discussion on the matter and published a call for contributions about how competition rules could support sustainability policies. Regarding antitrust, the Commission has concentrated on cooperation between undertakings but omitted questions regarding what dominant companies could do to further the sustainability of their business without abusing their position. However, in Castrén & Snellman’s reply to the Commission (all replies are available here), we also discussed the challenges sustainable dominant companies currently face.
On 10 September 2021, the Commission issued a Competition Policy Brief, in which it offered an overview of the debate concerning greening EU competition policy. In this context, the Commission promises to enhance the clarity and legal certainty of the horizontal and vertical guidelines in terms of sustainability initiatives.
What to Expect from the Commission?
First, the Commission intends to clarify the ways in which companies may cooperate to reach sustainability goals without restricting competition (Art. 101(1) TFEU). Secondly, as any agreement restricting competition may be exempted under EU competition law, the Commission aims to address how the exemption (Art. 101(3) TFEU) is applied to sustainability agreements.
Regarding the applicability of the exemption, the Commission will address at least following issues:
- Sustainability benefits may be seen as qualitative efficiencies, as consumers may value sustainable products more.
- Such sustainability benefits may not be immediately noticeable, but may relate to, e.g. the production or distribution method of a product as long as consumers are ready to pay for such sustainability benefits in the price of the product.
- When assessing benefits, the affected group of consumers is the key. The Commission considers benefits achieved on other markets only if the consumers benefiting are substantially the same as those who are affected by the restriction.
- Aspects of the market failures that make it indispensable for companies to cooperate to nudge consumers towards greener choices and override a first mover disadvantage. The Commission also notes that sometimes existing regulation incentivises companies in a way that no cooperation is needed.
The Commission may still provide individual guidance to companies in the form of guidance letters and by adopting decisions that the competition rules are not applicable to certain initiatives. It also welcomes all companies to bring real-life case examples for it to review.
Not Quite There Yet?
The Commission emphasises that well-functioning and fair markets facilitated by competition law and policy are a key to promote green ambitions, since, for example, companies on a competitive market have incentives to use less costly recourses and innovate more climate-friendly products for consumers valuing sustainability.
C&S as well as many other respondents to the Commission’s call for contributions have argued that the Commission should update its traditional enforcement practices and take green objectives into account better in its enforcement. EU law should not hinder this, since according to the TFEU, environmental protection requirements must be integrated into the definition and implementation of the Union's policies and activities in particular with a view to promoting sustainable development. (Art. 11). Further, the wording of the TFEU (Art. 101) does not obligate the Commission to follow a narrow consumer welfare standard according to which the consumer who pays for a product should benefit directly from the restrictive cooperation.
The Commission’s concessions to arguments emphasising the climate crisis do not seem as ambitious as some of us commentators would have hoped for. The European Court of Justice (the ECJ) may, however, pursue green objectives more boldly, as it has also done in the past in other contexts. For example, in the Finnish Concordia Bus case (C-513/99) the ECJ accepted that environmental factors were taken into account in the comparisons of tenders in the context of public procurement even though the Commission disagreed.
While waiting for the ECJ’s input, the discussion will surely continue. We welcome the legal certainty the Commission will promote around the topic through the clarifications mentioned above.