As explained in our earlier blog post, there is a growing recognition among competition law policymakers in Europe, the US and elsewhere that competition law has a role to play in combating climate change and addressing other sustainability issues (e.g. labour conditions and animal welfare). Competition law, as presently formulated and enforced, risks precluding, rather than promoting, agreements between competitors (also known as ‘cooperation agreements’), mergers and state aid that have sustainability objectives.
Competition authorities currently interpret consumer welfare, the fundamental touchstone of competition law, relatively narrowly when assessing whether or not sustainability initiatives are anticompetitive. The focus of their assessment is often almost entirely on the economic impact of an initiative (e.g. in terms of price, quality and innovation), with little regard for its wider and longer-term environmental or societal effects. There is an increasing sense that this approach is at risk of ending up on the wrong side of history, and that future generations, who will bear the brunt of climate change, are likely to view the current interpretation of consumer harm as parochial and myopic.
To be clear, few would suggest that initiatives that eliminate or reduce rivalry between competitors should be permitted to sidestep competition law simply because they seek to achieve sustainability goals. The environmental or societal benefits of some green initiatives may be outweighed by their countervailing anticompetitive effects. However, putting the point that way around – whether legitimate sustainability objectives are outweighed by a reduction in competition, rather than vice versa – would constitute a meaningful shift on the part of competition authorities in recognising and ascribing value to environmental and societal benefits when assessing such initiatives, and appears to be the direction of travel in policy terms.
‘Green’ cooperation agreements
Companies are increasingly seeking to collaborate on sustainability initiatives. The desire to combine forces is understandable given that such initiatives are often investment-heavy and may be unprofitable for companies to develop and adopt in isolation, at least in the short to medium term (the ‘first mover disadvantage’).
Examples of green cooperation agreements include:
- Joint research into green technologies, such as those aimed at producing environmentally-friendly manufacturing methods and products.
- Committing to minimum standards, such as standards relating to sustainable manufacturing methods, supply chains and products (e.g. agreements between US carmakers and the State of California to comply with emission standards set by the State that are more stringent than national standards; and agreements in the Netherlands for more sustainable chicken farming).
- Combining resources, including cooperation on upstream logistics, such as the coordination of stock, transport and other ‘back office’ functions. (The COVID-19 pandemic has indicated that that competition policymakers are willing – albeit in grave and extraordinary circumstances – to permit horizontal cooperation aimed at achieving broader goals (e.g. collaboration between supermarkets to ensure the supply of essential goods), without carrying out a detailed assessment of the impact on consumer welfare – see our related blog post.)
Guidance on green cooperation agreements
Competition authorities are generally alive to the desire of companies to collaborate on sustainability initiatives. However, so far only very few authorities have sought to provide guidance to companies to assist them in walking the fine line between legitimate collaboration and anticompetitive collusion.
One notable exception, as reported in our recent blog post, is the Dutch national competition authority, the Authority for Consumers and Markets (ACM), which on 9 July 2020 published for public consultation draft revised guidelines on sustainability agreements (the Guidelines). The Guidelines, which represent a bold statement of intent by the ACM, are intended to provide guidance on, including examples of, the types of sustainability agreements that are permitted under Dutch and EU competition law. In a recent interview, Martijn Snoep, Chairman of the ACM, said that the Guidelines “clearly show our aim to increase the opportunities for businesses to collaborate in pursuit of sustainability objectives that help to solve the big environmental challenges our societies are facing.”
The European Commission subsequently issued a statement noting its support for ACM’s approach and “the need for clear guidance on agreements aiming at reducing greenhouse gas emissions that would be compatible with competition law”. The Commission also stated that it was considering similar issues in the context of its ongoing review of the two Horizontal Block Exemption Regulations and the 2010 Horizontal Cooperation Guidelines, and that it will liaise with European national competition authorities “to provide further clarity and arrive at a uniform approach”. The reference to “arrive at a uniform approach” indicates an apprehension on the part of the Commission that national competition authorities might seek to develop their approaches to this issue in isolation, thereby leading to inconsistent positions. It is possible that the Commission might therefore seek to ‘get ahead’ and publish its position before further national competition authorities issue guidance.
The UK’s Competition and Markets Authority (CMA) stated in its 2020/2021 Annual Report that it is “essential that in delivering our statutory functions, we act in a way which supports the transition to a low carbon economy”. Furthermore, Simon Holmes, a judge in the Competition Appeal Tribunal (the UK’s specialist competition court), has been a vocal proponent of the need for the application of competition law to evolve to meet sustainability goals. However, to date, the CMA has not taken any significant public steps relating to green competition law, including regarding its treatment of green cooperation agreements.
How to assess green cooperation agreements in Europe?
Set out below are a number of measures that the European Commission – and, relatedly, competition authorities of EU Member States (including the UK) – could take to assess green cooperation agreements more appropriately in light of sustainability imperatives. Measures that competition authorities elsewhere around the world could take will depend upon the relevant competition law framework.
- Issuing guidance on those green cooperation agreements that do not restrict competition and therefore fall outside the scope of the cartel prohibition. The ACM’s draft guidance includes a number of examples of such agreements, including (i) agreements to adhere to codes of conduct; (ii) information sharing agreements regarding the introduction of more sustainable products; and (iii) agreements between competitors to ensure legitimate supply chain practices (e.g. bans on illegal logging, child workers and bribery). The European Commission will have the opportunity to provide similarly helpful direction once it has digested the results of the recent public consultation on the 2010 Horizontal Cooperation Guidelines, which clearly signalled that companies crave further guidance on competition law’s treatment of green cooperation agreements.
- Issuing guidance confirming the conditions to be met for green cooperation agreements to fall within the Article 101(3) of the Treaty on the Functioning of the European Union (TFEU) exemption. Article 101(3) TFEU provides an exemption to the Article 101(1) TFEU cartel prohibition in circumstances where the agreement (i) contributes to “improving the production or distribution of goods or to promoting technical or economic progress”; (ii) allows “consumers” a fair share of the resulting benefits; (iii) is no more restrictive than is necessary, and (iv) does not eliminate competition in the relevant market. The Commission has previously demonstrated a willingness to exempt environmentally-friendly agreements on the basis of Article 101(3) TFEU (e.g. CECED washing machine case (CECED, OJ 2000 L187/47)); however, further guidance from the Commission (following the ACM’s lead) on the application of the exemption to such agreements would be welcome. Such guidance could take the form of updated versions of the 2004 Guidelines on the application of Article 81(3) of the Treaty’ (i.e. Article 101(3) TFEU) and/or the 2010 Horizontal Cooperation Guidelines). In particular, companies would benefit from guidance on whether the “consumers” envisaged by Article 101(3) TFEU covers a wider range of consumers than those purchasing the relevant product or service, possibly including future generations of consumers and consumers based in countries beyond the EU. Such guidance would assist in determining whether, for example, a green cooperation agreement which leads to higher prices for purchasers but environmental benefits (e.g. cleaner air) for a wider group of consumers could be exempt under Article 101(3) TFEU.
- Horizontal block exemptions. The Commission could, in principle, introduce a new horizontal block exemption for a defined category of sustainability agreements. In practice, however, it might be difficult to define accurately the sustainability agreements that are intended to fall within the exemption, thereby resulting in the abuse of the block exemption if net is cast too wide, or the condemnation of what might be permissible sustainability agreements if the net is cast too narrow.
- Amending EU treaties to confirm the need to consider sustainability issues when applying competition law. However, amendments to the fundamental EU treaties appear unnecessary (and therefore unlikely) given that a number of the treaties already expressly refer to “sustainable development” (e.g. Article 11 TFEU and Article 3 of the Treaty on European Union, as well as Article 37 of the EU Charter on fundamental rights) and the apparent preference of competition authorities to work within the parameters of existing competition law.
The ACM’s Guidelines also include a number of draft provisions which are aimed at providing companies with clarity and comfort in relation to green cooperation agreements. For example, the Guidelines state that (i) companies can rely upon qualitative, rather than quantitative, evidence of sustainability benefits where the companies involved have a combined market share of up to 30% or it is “already sufficiently clear” that the benefits are greater than any harm to competition (which is important as it can be difficult to quantify accurately the environmental and societal benefits of some sustainability initiatives); (ii) the ACM is willing to provide companies with case-specific guidance; and (iii) the ACM will not impose fines for sustainability agreements that are later found to be anticompetitive in circumstances where the companies followed the Guidelines in good faith and the sustainability agreements were public.
There is an increasing consensus that the current application of competition law to green cooperation agreements is unsustainable, in both senses of the term. Various competition authorities have, accordingly, issued public statements regarding the importance of sustainability initiatives; and it seems that more will follow. While fundamental EU competition law provisions do not necessarily require amendment, there will be a need for the Commission and European national competition authorities, including the CMA, to publish further guidance on how companies can collaborate on sustainability initiatives without unintentionally breaching competition law. Unless and until such guidance is published, there remains a risk that competition law will inadvertently and unduly prohibit much-needed attempts to combat climate change and to address other sustainability issues.
There is an increasing consensus that the current application of competition law to green cooperation agreements is unsustainable, in both senses of the term.