On 14 March 2022, the UK’s Competition and Markets Authority (CMA) published its advice to Government on how the competition and consumer protection regimes can better support the UK’s transition to Net Zero. The advice follows a request from the Secretary of State for Business in July 2021 and the CMA’s subsequent ‘call for inputs’, which solicited over 40 responses including our own (see here). The CMA’s advice comes two weeks after the European Commission (Commission) published its draft revised guidelines on horizontal cooperation agreements (the Draft Horizontal Guidelines), which include a new chapter on how ‘sustainability agreements’ should be assessed under EU competition law (see our blog).
We have set out below the key issues to consider from a competition law perspective. Please get in touch for more details.
For our analysis on the CMA’s advice relating to consumer law, see our blog post here.
Competition law and the UK’s transition to net zero
- The CMA has not seen evidence that the legal framework for assessing restrictive agreements is an impediment to sustainability initiatives: In line with the position adopted by the Commission, the CMA concludes – based on the evidence it has received - that there is sufficient flexibility in Chapter I of the Competition Act 1998 (CA98) to take into account environmental benefits when assessing agreements that restrict competition but that more specific guidance would help provide certainty for business. The CMA also leaves the door open for future changes to the legal framework (for example, by way of a block exemption for certain types of sustainability agreements, or even the introduction of a public policy exclusion order).
- New guidance will set out the criteria to use when assessing whether sustainability agreements restrict competition and could benefit from exemption: This will be welcomed by businesses having to self-assess whether a sustainability agreement falls within the scope of Chapter I of the CA98 and, if so, how sustainability benefits may be weighed against competition concerns when considering whether an agreement qualifies for exemption. One key aspect of this debate is how to assess whether consumers are receiving a ‘fair share’ of sustainability benefits as compensation for higher prices or reduced choice.
- Pending this guidance, the advice provides some insights into the CMA’s approach: In short, the CMA’s view is that environmental benefits can be taken into account in the ‘fair share’ assessment provided that: (1) the consumers harmed by the agreement’s restrictive effects on competition form part of the broader group of consumers that receive the environmental benefits; and (2) those consumers are fully compensated for the harm they suffer. The CMA goes on to note that, in line with previous case law and practice, these concepts can be applied flexibility in light of the specific circumstances of each case.
- For the most part, the CMA’s emerging position is aligned with the position set out by the Commission in the Draft Horizontal Guidelines:Both authorities recognise that consumers that are harmed by a restrictive agreement must be fully compensated for the detriment they suffer, although the CMA helpfully notes that the ‘fair share’ criterion has been applied flexibly in practice, that case law may evolve and that (post-Brexit) there is scope for the CMA and UK courts to depart from EU precedent. However, there are some areas of potential divergence. For example:
- While the CMA’s advice is focused on the UK’s Net Zero goals, the Commission’s Draft Horizontal Guidelines extend to economic and social (including labour and human rights) development as well. It is unclear whether the CMA would apply the same criteria adopted for environmental agreements to arrangements that, for example, raise prices for UK consumers but improve labour conditions abroad – even when consumers are willing to pay more for those goods.
- It is also currently unclear whether the CMA intends to adopt the Commission’s proposed ‘soft safe harbour’ for standardisation agreements and, if so, how closely it would follow the Commission’s qualification criteria or the CMA’s guidance published in January 2021. For example, the CMA’s current guidance does not consider the impact on price or choice when assessing whether a new standard complies with competition law, whereas the Draft Horizontal Guidelines make clear that standard-setting agreements that lead to a significant increase in price or reduction in choice will not qualify for safe harbour treatment. Similarly, where the standard setting involves intellectual property rights (IPR), the CMA guidance requires participants to disclose in good faith any IPR they hold that might be essential to the implementation of the standard. This is not replicated in the Commission’s new safe harbour.
- The CMA will launch at least one market study in a ‘Net Zero-relevant market’ in the next financial year: This follows the CMA’s electric vehicle market study in 2021, which resulted in eight recommendations to Government and regulators, and an investigation into exclusive arrangements for the supply of charge points at motorway service areas, which recently concluded with commitments.
- The CMA will establish a new sustainability taskforce: Amongst other things, the Sustainability Taskforce will be responsible for developing formal guidance in the consumer and competition space, including in relation to restrictive agreements, and leading engagement on the subject with relevant stakeholders.
As noted above, for the most part the CMA’s emerging thinking on sustainability and competition law appears to be broadly aligned with that of the Commission. Consistent approaches between authorities are welcome as many sustainability initiatives impact businesses and consumers across borders. The CMA’s planned guidance may of course reveal areas of divergence around issues such as the benefits that may be taken into account in the assessment and when cooperation agreements may be deemed ‘indispensable’ to achieve sustainability goals. The impact of any such shifts in policy, as well as the growing influence of sustainability considerations in the CMA’s market and merger decisions, need to be carefully understood by all stakeholders investing in sustainable solutions. For more information on these developments globally, please see our Global antitrust in 2022 - 10 key themes report: antitrust and net zero.