The European Commission continues to explore how competition policy can support the bloc’s increased focus on sustainability and progression towards climate neutrality by 2050.
On 10 September 2021, Inge Bernaerts, Director of DG Competition, delivered a keynote speech at the 25th IBA Competition Conference on behalf of Executive Vice-President and Commissioner for Competition, Margrethe Vestager. (The speech was complemented by a concurrent Policy Brief.) The European Commission (the EC) has often used the annual conference as a platform to announce new policy initiatives. This year, the Commissioner’s speech focused on how competition policy could be used to support the European Green Deal — a set of policy and regulatory initiatives intended to enable the bloc to achieve climate-neutrality by 2050. For more information, see Latham’s previous posts here, here, and here.
Competition law and the Green Deal: A work in progress
Tackling climate change and promoting sustainability continues to be a strategic objective for many governments around the world, and many competition authorities are reflecting on how competition policy might be deployed to support this objective.
Reflecting the EC’s ambitious sustainability goals, the EC’s competition service recently completed an extensive stakeholder consultation on whether EU competition rules effectively support green policy, which garnered more than 200 responses. Following the consultation, the EC concluded that it should produce additional guidance clarifying when and how companies may collaborate on sustainability initiatives without infringing EU competition rules that prohibit restrictive agreements and collusion between rivals.
Though the consultation has provided a useful starting point for this guidance, the Commissioner’s speech encourages companies to approach the EC to discuss individual projects. The EC hopes that concrete case studies will provide more precise and useful direction, and may also help the EC to navigate conceptual difficulties, such as how to reconcile the interests of direct and indirect consumers (see below).
Merger control in support of green innovation
The Commissioner’s speech expressed concern that, “big businesses could buy up green innovators, and kill their new ideas”.
The EC’s proposed solution is simple: more merger control. Specifically, the speech attempts to connect the theme of “sustainable competition law” to a major policy initiative of Commissioner Vestager’s second mandate, the attempted (and controversial) expansion of EU merger jurisdiction via Article 22 of the EU Merger Regulation. As discussed in Latham’s recent briefing, the EC recently announced that it will begin accepting referral requests from Member States to review deals even if the requesting Member State (like the EC) lacks jurisdiction to do so. The reform was originally intended to enable the EC to capture “killer acquisitions”, the moniker used to refer to deals in which an established industry player buys up a smaller, nascent rival.
The link between the two initiatives is unclear. The EC’s consultation apparently did not uncover extensive anecdotal evidence that established companies had been acquiring smaller rivals in order to suppress competing, more sustainable solutions. Nonetheless, the International Bar Association speech seemingly signals the EC’s intention to wield one of the most powerful instruments in its enforcement toolkit to promote the institution’s broader policy goals.
The uneasy tension between direct and indirect users
The EC’s consultation triggered a series of submissions from corporations, NGOs, academics, and practitioners, who argued that existing rules and guidance on restrictive agreements barred more sustainable business practices. They argued that it may be expensive to shift from established production techniques and product/service models to more environmentally friendly options, citing increased costs and lower demand. Companies considering such a shift must absorb these higher costs / reduced profits or transfer them to customers, unless their peers follow suit (the so-called “first mover disadvantage”). This approach leads to inertia, as each market participant acts in their own commercial interest, refraining from pivoting to more sustainable methods in order to compete with rivals on an equal footing.
Consequently, stakeholders highlight the need for cooperation between companies. If risk market participants could share risk by collaborating and committing to more sustainable solutions, they might overcome this inertia. But some respondents to the EC’s consultation argued that EU competition law prevents this, as, under EU rules, consumers must receive a fair share of the resulting benefits from any collaboration. Historically, EU competition law has therefore examined more closely effects on direct, final consumers, i.e., those purchasing the products or services. Less attention has been devoted to indirect consumers, i.e., those who do not purchase the goods or services but who may be positively affected by greener production methods (e.g., enjoying an environment with reduced emissions). Unless sustainable spillovers can be sufficiently credited, critics indicate that EU competition law is more likely to prevent than support worthy business collaboration.
The Commissioner’s speech acknowledges this uneasy tension, but offers no immediate solution. As Commissioner Vestager notes: agreements with such an outcome contradict a fundamental principle of competition rules, namely “that restricting competition for a product can only be justified if the consumers of that product are not worse off on balance”. (Other competition authorities are exploring reforms that may attach greater weight to such positive spillovers: see, e.g., the Dutch competition authority’s recent draft guidance on sustainability agreements.)
State Aid rules in the vanguard of green competition policy
The Commissioner’s speech also highlights that billions of euros will need to be invested in greening the EU’s economy in the coming years: “[State aid] rules need to give [governments] room to do that, while also making sure that we get the best results for the planet from the money that’s spent”. The EC is currently consulting on draft guidelines for climate, energy, and environment and aims to finalise them within the coming months. The EC expects these rules to “vastly expand the scope of using State Aid to help reach the goals of the Green Deal”.
This post was written with the assistance of Francesca Forzoni and Sabina Aionesei in the London office of Latham & Watkins.