Amendment of Austrian competition law strengthens role of sustainability

separate blog post. In this blog, we discuss the paradigm shift and sustainability’s increasingly important role in competition law assessments. This amendment is a – so far – unique legislative development internationally, with the Austrian legislator inviting the regulator to include (on a larger scale) sustainability-related considerations in its enforcement practice.

This month, an extensive amendment of the Austrian Cartel Act entered into force that brings about material changes. The changes relating to merger control, both in terms of jurisdiction and substantive review, as well as rules for digital platforms are discussed in a

Sustainability in competition law: a new exemption from the cartel prohibition

Whether and how competition law should have a role in advancing sustainability efforts has been hotly debated in recent months, especially with a view to the reinforced climate action agenda at European level (see for instance our recent blog post on the European Commission’s revised policy brief on its envisaged adaption of the competition law rules and enforcement practice due to sustainability considerations).

A key consideration is that real impact can only be achieved by industry collaboration, but this brings the risk for companies of falling foul of antitrust laws. With regard to the general cartel prohibition, the discussion has focused on the question of whether agreements between companies that may (partially) restrict competition can be exempted due to broader sustainability benefits. The Austrian legislator has addressed this issue and explicitly expanded the scope of the exemption from the cartel prohibition under section 2 (1) Cartel Act (which is the equivalent to Art. 101 (3) TFEU at EU level).

Under the pre-existing framework, agreements are exempted from the cartel prohibition if they “contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit” (while, as further criteria, anticompetitive restrictions imposed must be essential to achieving these objectives, and companies are not afforded the possibility of eliminating competition in respect of a substantial part of the relevant products). The amendment now explicitly states that “consumers are granted a fair share of the benefit resulting from the improved production of goods, its distribution or the promotion of the technical and economic progress if the agreement significantly contributes to an ecologically sustainable and climate neutral economy”.

Some competition authorities, like the Dutch ACM, have considered it within their power to take broader sustainability benefits into account when assessing “consumer benefits”, even in the absence of a clear wording of the law. Others have so far taken a restrictive stance on this issue, in particular the European Commission and the German Bundeskartellamt. Austria is among the first to formally tackle this issue in the law, ie beyond regulator guidance, with the legislator explicitly inviting the authority to take sustainability considerations into account in the assessment of cooperation agreements between companies. However, the concept of a contribution to an “ecologically sustainable and climate neutral economy” does not (yet) entail the full range of “ESG” in its broader meaning (environmental, social, governance), as it focuses on environmental aspects but not social or governance considerations.

Guidance in the legislative materials

While specific regulatory guidance is not yet available, the legislative materials provide for a helpful overview of the kind of environmental benefits that may be considered sufficient to exempt anticompetitive agreements from the cartel prohibition. To point out a few considerations:

• The environmental benefits do not need to be granted to consumers on the relevant market where a given product/service is offered, or lead to better, more innovative, cheaper or more sustainable products. Rather, the benefits can be completely unrelated to the market where the relevant measure (eg in form of a collaboration agreement) is implemented. It is sufficient if there is an environmental benefit for the broader society.
• It is not required that environmental benefits materialise immediately or in the short term – it is sufficient if a “future generation” will benefit from the ecological advantages of the cooperation.
• As examples of advantages that contribute to an “ecologically sustainable and climate neutral economy”, the legislative materials name climate protection measures in general, such as renewable energies and emission reductions, the sustainable use of natural resources, measures that contribute to the transition to a circular economy or measures that are directed at saving or restoring ecosystems and biodiversity.
• A “significant contribution” to an ecologically sustainable and climate neutral economy can be evidenced based on models that calculate the costs of environmental impacts on society. However, providing such evidence may not be necessary in every case. If the disadvantages resulting from the agreement on competition are minimal, while the environmental contribution is clearly material, an exact calculation of the environmental benefits will not be required.
• Hardcore restrictions captured by the cartel prohibition, such as price fixing agreements or allocation of customers / territories, cannot be exempted on sustainability grounds. By way of example, a territorial agreement pursuant to which one company only serves customers in area A and another company only serves customers in area B cannot be exempted, even if this may potentially lead to reduced emissions in the distribution space. However, a joint distribution set-up to reduce emissions may be assessed more favourably under the new provision.

Finally, the interplay between the “more generous” exemption under the amended section 2 (1) Cartel Act and Art. 101 (3) TFEU will likely be tested in cases where cooperation agreements may have cross-border effects within the EU. In such cases, the primacy of EU law generally requires that Art. 101 (3) TFEU is applied. It will be interesting to see whether the Austrian regulator and/or courts will take such broader sustainability considerations into account when applying EU law (which the wording of Art. 101 (3) in principle allows for, but which does not reflect the current position of the EU Commission on the interpretation of “consumer benefits”). Notably, in cases where there is uncertainty around the interpretation of EU law (including the scope of the cartel prohibition under Art 101 TFEU), the national courts can also refer this to the European Court of Justice for preliminary ruling – it would ultimately be for the EU Courts to define the scope of permissible sustainability considerations under the EU’s existing legal framework.

The legislator anticipates that companies will show an interest in engaging in sustainable cooperation and is also aware that a number of questions will arise with regard to real life cooperation. Therefore, the Austrian Federal Competition Authority has been invited to issue guidance on the new sustainability exemption from the cartel prohibition in consultation with the Federal Ministry for Climate Protection, once practical experience with this new provision has been gained.