How European competition law can contribute to achieving sustainability objectives

February 2021 | EXPERT BRIEFING | COMPETITION & ANTITRUST

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On 11 December 2019, the president of the European Commission (EC), Ursula von der Leyen, introduced the ‘European Green Deal’, a comprehensive roadmap with the overarching ambition to make Europe the world’s first climate neutral continent by 2050.

In this effort, which includes making the European Union’s (EU) economy sustainable, there has been a growing acknowledgement that competition law can play an important role in promoting and achieving sustainability objectives. This was highlighted by the EC commissioner for competition, Margrethe Vestager, in a 7 December 2020 speech during the Organisation for Economic Co-operation and Development (OECD) Global Forum on Competition, where she stressed that: “Competitive markets can support the green transition, by driving companies to make better, more efficient use of resources. [...] And competition means that businesses have no choice but to respond to consumers’ demand for greener products”.

There is an ongoing debate as to the different ways sustainability concerns may be taken into consideration in competition law policy and enforcement. On the one hand, competition law is perceived by some industry stakeholders as a deterrent to industry sustainability initiatives, as companies are under increasing pressure in their effort to strike the right balance between encouraging cooperation to promote sustainable business operations and ensuring that effective competition is not being hindered. In this regard, several industries seem to be asking for the adoption of a more flexible approach to competition rules.

On the other hand, while EU member states are encouraging the achievement of sustainable development goals through various regulatory instruments and guidance, but also stimulate the need for businesses to self-regulate, the absence of a harmonised approach at EU level leads to various – and sometimes divergent – approaches to how such goals can be effectively pursued under the provisions of the Treaty on the Functioning of the European Union (TFEU) relating to anticompetitive practices (Article 101), abuse of dominant position (Article 101) and state aid (Article 106).

EU member states’ approaches as part of the debate: national competition authorities’ initiatives

Over the past year, several national competition authorities (NCAs) in EU member states have paved the way by launching initiatives in order to assess the compatibility of sustainability initiatives with competition law and to better assess their own role in the transition to a green economy and supporting innovation.

On 9 January 2020, the French Competition Authority (FCA) stressed that sustainable development is a priority, indicating that it intends to develop its reflection on the links between competition law and the environment, for instance by targeting competition law infringements which also jeopardise the protection of the environment. In parallel, it has expressed its interest in participating in discussions at EU level on the revision of the Vertical Block Exemption Regulation (VBER), and on certain categories of research and development (R&D) and other specialisation agreements in light of sustainability objectives.

On 9 July 2020, the Netherlands Authority for Consumers and Markets (ACM) was the first NCA to publish draft sustainability guidelines containing a proposal for assessing the compatibility of sustainability cooperation with competition law. It is worth noting that the ACM’s approach differs from the EC guidelines on the application of Article 101(3) TFEU, which provide for exemptions notably when consumers are allowed a fair share of efficiency gains. The ACM’s guidelines feature a new standard for assessing environmental concerns on the basis of a broader consideration regarding the benefits for society as a whole. With this standard, the ACM argues that the benefits of a cooperation will outweigh the disadvantages more evidently compared to the current applicable exemptions under EU competition law.

On 17 September 2020, the Hellenic Competition Commission (HCC) also launched a dialogue on how to assess business practices while considering their impact on the environment. On the same date, the HCC published a staff discussion paper which analyses convergence areas and conflicts between sustainable development and competition law in all its aspects. This discussion paper describes the idea of a ‘green sandbox’ in which industries could experiment with innovative products, services, business models and delivery mechanisms without immediately risking a breach of competition laws. The HCC is currently aiming towards the adoption of further sustainability guidance, following a process of public consultation with the industry and other stakeholders.

On 1 October 2020, the German Federal Cartel Office (FCO) held a working group on ‘open markets and sustainable economic activity’. This working group discussed the extent to which it is the competition authorities’ role to find a balance between competition goals, public interest objectives and sustainability targets in the context of business cooperation. The outcome of this working group hinted at the adoption of a more conservative stance on this issue.

The EC’s contribution to the debate: ongoing developments in antitrust, merger control and state aid

On 13 October 2020, following the above-mentioned initiatives, the EC published a call for contributions inviting feedback from interested stakeholders on how EU competition rules can better support the European Green Deal. This call focused on the interplay between competition rules and sustainability policies, and whether such interplay could be improved. On 7 December 2020, Ms Vestager announced that an EC conference would take place on 4 February 2021 to discuss the various contributions.

While reiterating that competition policy is not in the lead when it comes to promoting the European Green Deal’s objectives, this call for contributions aimed at assessing how EU competition law enforcement can, within its clearly defined boundaries, better complement the transition to a green economy.

Regarding antitrust, the call clarified that the EU antitrust framework already contributes to the European Green Deal objectives by sanctioning restrictions in the development or roll-out of clean technologies and by foreclosing access to essential infrastructure, such as power transmission lines. It further outlined that EU antitrust rules currently facilitate energy flowing freely across borders based on competition between energy operators and a more efficient use of natural resources. The greening of the industry and economy can also be fostered by taking enforcement action in the field of transport.

In this context, the EC sought to identify whether there are any remaining barriers to agreements supporting European Green Deal objectives, and, if so, how such barriers can best be addressed. The EC invited feedback notably on: (i) examples of desirable cooperation between companies to support European Green Deal objectives that could not be implemented due to EU antitrust risk; (ii) the circumstances in which cooperation, rather than competition between companies, could lead to greener outcomes; (iii) any further clarifications and comfort that could be given to sustainability cooperation; and (iv) the circumstances that would justify restrictive cooperation beyond current enforcement practice.

Regarding merger control, the EC sought input as to how merger policy and environmental and climate policies could work together. The main questions involve the assessment of situations when a merger between companies could be harmful to consumers by reducing their choice of environmentally friendly products and technologies, and ways that merger enforcement could better contribute to protecting the environment and the sustainability objectives of the European Green Deal.

What are the key takeaways from the EC’s public debate?

The EC’s call for contributions is closely connected with a broader debate on the reform of competition law at EU level. It raises the issue of how EU businesses will be well-placed to become world-leading climate efficient businesses, able to succeed in tomorrow’s green economy.

On the antitrust side, it can be expected that the debate will focus on whether the EC should adapt its approach allowing ‘out of market’ efficiencies to be taken into account in the assessment of sustainability cooperation with significant beneficial environmental effects. Within this framework, the updated Horizontal Block Exemption Regulation (HBER), expected in 2022, will likely consider, among other issues, cooperation between competitors on sustainability objectives.

On the merger control side, the call for contributions was less detailed, not raising any specific questions as to how merger enforcement could better contribute to achieving environmental and sustainability objectives. However, it could be expected that such objectives may be taken into consideration in future merger assessments. In recent years, the EC has implied, in the context of two prominent investigations, that there may be room for an assessment of sustainability objectives.

These early signs indicate that we are only at the beginning of a vigorous debate which will continue to be highly relevant in the years to come. That said, companies should ensure that they comply at all times with competition rules. Indeed, the EC has affirmed on multiple occasions that cooperation between competitors cannot, under any circumstances, serve as an excuse to infringe competition rules. Therefore, any potential collaboration between competitors to achieve sustainable and environmental objectives should be closely monitored and regularly reviewed at business and legal level in order to mitigate any associated competition risks.

Melanie Bruneau is a partner, Antoine de Rohan Chabot is a senior associate and Antonia Rountou is a legal consultant at K&L Gates. Ms Bruneau can be contacted on +32 (0) 2 336 1940 or by email: melanie.bruneau@klgates.com. Mr de Rohan Chabot can be contacted on +32 (0) 2 336 1941 or by email: antoine.derohanchabot@klgates.com.

Melanie Bruneau, Antoine de Rohan Chabot and Antonia Rountou

K&L Gates