Sustainability and competition law – From words to action?

Posted on

22 Jun

2022

Dittmar & Indrenius > Insight > Sustainability and competition law – From words to action?

Modern-day companies are increasingly aiming to incorporate sustainability objectives in their business models and engage in sustainability-enhancing agreements. Traditionally, however, horizontal competition rules might have functioned as an impediment for such agreements. The position recently taken by national competition authorities and the forthcoming EU rules on horizontal cooperation demonstrate increased attention in this realm and a shift from words to action.

For many, competition law might appear as a discipline focused on preventing as much cooperation between competitors as possible. The increasing news coverage of competition authorities heavily sanctioning such collaboration does not exactly encourage competitors to work together, even for a good cause.

Since 2020, responding to the increasingly weighty urges from the Intergovernmental Panel on Climate Change to keep CO2 levels in check, competition authorities around Europe have begun to raise their voices to say that competition law should allow competitors’ joint initiatives that promote sustainable development. The Dutch Competition authority (“ACM”) is the loudest voice in this choir welcoming such initiatives, and the European Competition Commissioner Margrethe Vestager has stated that competition rules have their part to play in the ambitious European Green Deal aiming for climate neutrality by 2050. Despite these promising signs, the business community has been under some uncertainty whether actual change is coming.

Recently, a shift from words towards action seems to have begun. The European Commission’s (“Commission”) revision of the horizontal (forthcoming at the end of 2022) and vertical rules (completed in May 2022), namely the relevant block exemptions and their accompanying guidelines, point towards the Commission being ready to integrate sustainability aspects in to competition assessment. More specifically, in the draft horizontal rules, the Commission introduces a category of “sustainability standard agreements” and provides a safe harbour for such agreements if they fulfil seven cumulative conditions.

Consumer-centric approach of the Commission

However, the draft horizontal rules continue to maintain the Commission’s traditional consumer-centric approach. Some stakeholders argue that the Commission’s approach does not sufficiently consider how the benefits of sustainability agreements often concern a larger group of consumers than what the Commission has traditionally seen as relevant beneficiaries. The proposed rules recognise collective benefits caused by sustainability agreements, i.e. benefits for other consumers besides the consumers of the product in question. However, such benefits are relevant only if they fully offset the harm suffered by the relevant consumer. In other words, if the consumer will pay a higher price for her green products due to the sustainability agreement and does not receive compensation that outweighs the higher price, it is a no-go from the Commission.

“If the consumer will pay a higher price for her green products due to the sustainability agreement and does not receive compensation that outweighs the higher price, it is a no-go from the Commission.”

Competition authorities’ broad interpretation of consumer benefits

While the Commission’s approach represents a more traditional understanding of consumer welfare, the national competition authorities of EU Member States have advocated for a broader approach. In the forefront of this discussion, the ACM has advocated for considering benefits for society as a whole rather than only the consumers buying the product in question. For example, the ACM gave green light to a joint proposal of two grid operators to agree on a joint purchasing price for CO2 emissions in their purchasing and investment decision. One of the main reasons why the proposal fell outside the national cartel prohibition despite the possibly higher tariffs was that not only the operators’ customers but all energy users would benefit from lower CO2 emissions.

The Austrian legislator has gone even further and amended their national counterpart of Article 101(3) TFEU to include out-of-market efficiencies. Meanwhile, the Finnish Competition and Consumer Authority is of the view that consumer benefits should be interpreted broadly and include future benefits to the society as a whole, but that only agreements combating climate change and environmental harm should be treated more leniently.

Position of the Commission and competition authorities

Even though the new rules concerning sustainability agreements would present much needed legal certainty, the Commission’s draft rules demonstrate that its stance towards collective benefits in competition assessment is narrower than that of many national competition authorities. The public consultation ended on 26 April 2022 and while the Commission reflects on the issues together with stakeholders and national competition authorities, it remains to be seen how these differences will be addressed in the final versions of the horizontal rules.

While genuinely benevolent coordination seems welcome, on the other side of the sustainability coin is the authorities’ tough stance against greenwashing of cartels and agreements that hamper the green transition. For example, the Bundeskartellamt (“BKartA”) prohibited the implementation of a financing model between agricultural producers aiming to ensure that milk producers could cover their costs, since it lacked any relevant link to sustainability improvements. The BKartA’s message was that sustainability initiatives may not entail agreements on pricing components. In its draft rules, the Commission considers sustainability standards that do not genuinely pursue sustainability objectives as clear restrictions of competition. In fact, the Commission recently fined European car manufacturers heavily for stalling the introduction of emission-reducing technology in diesel-powered vehicles.

“Despite some authorities having views divergent from the Commission’s, the bottom line will most likely remain the same: the consumer is queen, but only if she is in the relevant market.”

What does the future of sustainability agreements look like?

Overall, competition law’s chilling effect on sustainability initiatives seems to be fading, and competition authorities around Europe are encouraging businesses to bring forth their sustainability plans for assessment. Despite some authorities having views divergent from the Commission’s, the bottom line will most likely remain the same: the consumer is queen, but only if she is in the relevant market. This is even more so if the Commission keeps its current course, which is more likely than not. Moreover, even though the authorities have signalled their willingness to help, businesses wishing to promote sustainability will still need to perform a rigorous self-assessment and bear the burden of proof to show that their plans create the benefits required – with the addition of proving that they actually pursue sustainability.

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