The market is turning green - what can competition law contribute to the implementation of the ‘Green New Deal’?

Both competition law and environmental protection form part of EU primary law. At first sight, they seem to have different, perhaps even contradictory objectives. However, when one takes a closer look, fair and free competition reconciles very well with the protection of the environment and the reduction of carbon emissions.

While Art. 101 and 102 TFEU provide for the protection of competition from restrictions of competition and abuses of dominant market positions, Art 3 (3) TEU defines environmental protection as one of the core aims of the Union. Based on Art 11 TFEU ‘environmental protection requirements must be integrated into the definition and implementation of the Union‘s policies, with a view to promote sustainable development‘. Hence, the Treaties clearly provide that sustainability and environmental protection considerations must inform all EU policies, which includes competition policy.

On the political level, President of the Commission Ursula von der Leyen has declared the implementation of the ‘Green New Deal’ the flagship policy of the Commission under her presidency (see here).

Commissioner for Competition Margrethe Vestager in her 22 September 2020 speech announced that competition enforcement too cannot afford to ignore the crucial role it has to play in the achievement of this core objective of the EU. The Commission just completed a consultation, seeking to gather ideas on how competition policy could help achieve the aims of the ‘Green New Deal’. The contributions are available on the Commission’s website (Link).

The Commission’s recent move to emphasise the promotion of sustainability in competition enforcement marks a significant shift in policy. It seem to be the pressing and urgent need to take decisive action to tackle the climate crisis that has led to a remarkable recognition of sustainability and ecological protection as goals of EU competition law.

As part of the so-called modernisation of EU competition law in the late 1990s and early 2000s, the Commission had adopted the ‘more economic approach’ and defined the maximisation of consumer welfare as the most important objective of EU competition law. Against this background, the current policy change could have important and far-reaching consequences for the realities of both the Commission’s and national competition authorities’ approach to competition enforcement in practice.

Horizontal co-operations between undertakings seeking to set higher sustainability standards in the industry/sector, which fulfil certain conditions, might not fall in the scope of the prohibition of cartels in Art 101 (1) TFEU at all. This approach would be consistent with the so-called “ancillary restraints” doctrine. This doctrine states that restrictions of competition that are indispensable to achieve an objective which is competitively neutral do not fall in the scope of the prohibition of cartels as long as they do not go beyond what is necessary for this goal. The CJEU accepted, for example in the cases Meca-Medina (C-519/04 P) and Wouters (C-309/99), that these competitively neutral objectives do not necessarily have to relate to competition (anti-doping in sports in Meca-Medina; legal professional law in Wouters).

Alternatively, courts and competition authorities could clarify their approach in applying the Art 101 (3) TFEU exemption. According to Art 101 (3) TFEU, restrictions of competition are exempt from the prohibition of cartels, if (i) they contribute to improving the production or distribution of goods or to promoting technical or economic progress (efficiencies); (ii) while allowing consumers a fair share of the resulting benefit; and (iii) do not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; and (iv) do not afford the participating undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

The European Commission, however, takes a strict approach in applying this exemption. It requires that the efficiencies occur on the same market the restrictions of competition occur on. In addition, it discounts the efficiencies over time so that long-term efficiencies can scarcely be taken into account (Commission, Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C101/97; para. 43 and para. 87 – 88).

We think that at least with regard to the reduction of carbon emissions as a superior public interest goal the authorities and courts should apply a broader interpretation of the exemption. They should examine whether an agreement results in a positive effect on the environment, even in a longer period of time. The environmental benefits, that should be quantified as far as possible, would have to outweigh the detriments of the restriction of competition. Thereby the authorities and courts should consider the positive effects for the economy (and the society) as a whole.

Greenhouse gas emissions represent quantifiable negative externalities not (yet) adequately compensated for through the current emissions trade. Thus, environmental agreements would reduce these quantifiable costs incurred by the economy and society as a whole and produce the efficiencies gain required for an Art 101 (3) TFEU exemption, that would have to outweigh the restrictive effects on competition.

In addition to this wider socio-economic benefit, environmental agreements can also produce a concrete benefit to consumers. In the CECED case (Case IV.F.1/36.718) consumers directly benefited from reduced energy costs as a result of producers agreeing to cease the production and import of energy inefficient washing machines.

As regards the Fairtrade initiative, which did not concern the reduction of carbon emissions, the Bundeskartellamt took a different approach in dealing with sustainability goals. The Bundeskartellamt exercised its discretion not to prosecute horizontal agreements seeking to set higher sustainability standards (Link). Yet basing exemptions on concrete quantified efficiencies gains or on the ancillary restraints doctrine would be preferable in our opinion.

The consideration of environmental objectives in competition law is not limited to the prohibition of cartels. They can also be taken into account in the provisions on an abuse of a dominant position. The German courts conduct a comprehensive balancing of interests when determining whether a certain behaviour constitutes an abuse. In this balancing of interests, the protection of the environment can be taken account.

In merger control as well, the reduction of carbon emissions should be taken into account as pro-competitive efficiencies.

In Germany, the special ministerial permission is another means of taking into account environmental aspects in merger law. Just in August 2019, the German Minister for Economic Affairs and Energy Peter Altmaier overrode the Bundeskartellamt’s prohibition of the Miba/Zollern joint venture (Link). Altmaier granted special ministerial permission to the hydrodynamic plain bearing manufacturer joint venture, based on the alleged desirable reductions of carbon emissions it would produce.  

It remains to be seen, which one of these routes the Commission, but also the national authorities favour in shaping a ‘greener’ future of competition law and enforcement. In any case, there seems to be a broad consent that the reduction of carbon emissions needs to be taken into account when applying competition law, no matter in which way.