The need for transformational change
With its ‘European Green Deal’ and proposed Climate Law, the European Union is at the forefront of initiatives to tackle climate change and decarbonize industry. Its ambitious target of net-zero greenhouse gas (GHGs) emissions by 2050 (and a 55% reduction by 2030 compared to 1990 levels) has profound implications for the EU economy and will require transformational change across many industrial sectors, especially for energy intensive industries such as chemicals, steel, glass and paper which make up more than half of the energy consumption of all EU industry and around a quarter of GHGs. Similar challenges will arise across the world as more countries and blocs commit to decarbonize their economies.
Industries will need to develop new breakthrough technologies and processes if they are to reach net-zero by 2050. McKinsey have estimated that reaching net-zero would require investing an estimated €28 trillion in clean technologies and techniques over the next 30 years. Broken down, this represents around 4 percent of current EU GDP annually. However, a large part of this investment can come from redirecting investments that would otherwise have funded carbon-intensive technologies.[i]
Collective industry action on sustainability
It is expected that rapid transformational change will require industry to move collectively towards more sustainable business models (individual action is not always likely to sufficient or effective), for example by (i) working together to develop new cleaner technologies, (ii) sharing test results and other sensitive data to allow environmentally-friendly alternatives to be introduced more quickly, (iii) collaborating to reduce waste, improve recycling and lower the carbon footprint of the supply chain or (iv) setting new products standards that commit to higher environmental goals.
Many of these initiatives are already taking place and trade associations are often closely involved in activities that will lead industry down a more “sustainable” path; one according to the European Commission that meets the needs of current generations without compromising the ability of future generations to meet theirs. But associations (and their legal advisors) are often reluctant to sign off on cooperation between members that is closely connected with the commercial sphere without clear evidence that the competition rules will not be infringed.
Competition rules cast their net widely
This is hardly surprising. The EU competition rules (and equivalent rules in many other countries) are very far-reaching and sanctions can be severe. The prohibition on anti-competitive arrangements (Article 101 TFEU and equivalent national rules) casts its net widely and requires strong evidence of economic benefit to allow potentially harmful agreements to meet the conditions for exemptability. Deciding that cooperation between competitors is not caught by Article 101 in the first place can be challenging, but it is a particularly complex exercise when it involves balancing the pro- and anti-competitive effects of an agreement.
Moreover, competition authorities are generally suspicious of cooperation between competitors, especially in concentrated industries, and have taken action in the past against cooperation arrangements that appear at first sight to bring long-term benefit to the environment.
The Dutch Authority for Consumers and Markets (ACM) took action in 2015 against an arrangement between supermarkets, poultry farmers, and broiler meat processors regarding the sale of chicken meat produced under enhanced animal welfare-friendly conditions (the so-called ‘Chicken of Tomorrow’). One particular element of the proposed arrangements was for Dutch supermarkets to remove “regular” chicken meat from the shelves. The ACM believed such cooperation was contrary to the competition rules as there was insufficient benefit to consumers due to higher prices and fewer options.
Resetting the competition rules
Competition authorities are realising that whilst competition law may not be the optimal instrument to address climate change (environmental laws, green investment measures, tax rules and even state aid are better mechanisms), it should not act as a break on cooperation that will enhance sustainability. There has, therefore, been a number of initiatives to start resetting the status quo.
The European Commission carried out a consultation on “Competition policy and the Green Deal” in autumn 2020 as a precursor to conference on the same topic in February this year. Many European trade associations were closely involved in the debate and highlighted the difficulty of engaging in collective sustainability initiatives due to antitrust concerns. For example cefic (representing the European chemical industry) highlighted, amongst other things, an urgent need for EU and national competition authorities to adopt clear and detailed sustainability-specific guidelines, including examples to assist business to self-assess legitimate industry cooperation.[ii] Cepi (representing the European paper industry) called for an exemption to be introduced for cooperation that is necessary for the relevant industry to achieve the goals in the European Green Deal where less stringent measures could not achieve the goals as effectively.[iii]
The European Commission is currently in the process of revising its antitrust guidelines that address cooperation between competitors and it is expected that the new guidelines will specifically address sustainability agreements and take a more flexible approach.[iv] However, as EU Commissioner for competition, Margrethe Vestager stated “what we can’t do – not even in the name of sustainability – is to turn a blind eye to agreements that hurt competition and consumers”.[v]
Other competition authorities have also taken steps to move the debate forward and provide industry with greater predictability. The Dutch ACM conducted a public consultation in July last year on draft guidelines on sustainability agreements.[vi] The draft explained in what situations competitors are able to work together in order to help combat the climate crisis, and to realise other sustainability objectives. The Greek competition agency issued a staff discussion paper and proposed, amongst other things, a radical solution – a sandbox[vii] – allowing industry to experiment with new business formats that aim to quickly achieve sustainability goals, and which involve cooperation between competing undertakings or even more permanent changes in market structure.[viii] Other authorities such as the UK Competition and Markets Authority has also published high-level guidance.[ix]
There is also a need to provide practical guidance to industry based on real life examples and the European Commission and other competition authorities are looking for test cases to be able to set out in concrete terms how their new thinking will apply to sustainability initiatives. Although understandably, there is a reluctance to be the first case (or one of the first cases) to go before an authority, especially if there is any doubt as to the compatibility of the cooperation with the competition rules.
Recalibration of competition will allow more sustainability initiatives
A resetting of competition authorities’ approach to collaborative arrangements between competitors and especially sustainability initiatives combined with clear and practical guidance and readily applicable safe-harbours should provide industry (and their advisers) with the legal certainty to engage in wider forms of cooperation to tackle climate change without competition law acting as a brake. The antitrust rules will continue to be highly relevant, especially as they are ideally placed to keep markets open and competitive and ensure that consumers benefit. However, a new approach will allow antitrust compliance to be better calibrated to the competition risk.
[i] McKinsey: How the EU could achieve net-zero emissions at net-zero cost, 3 December 2020.
[ii] Cefic response to the European Commission call for contributions Competition Policy supporting the Green Deal, 25 November 2020.
[iii] Cepi, Contribution to European Commission regarding the European Green Deal, 19 November 2020.
[iv] The European Commission carried out a consultation as part of its review of the competition rules applicable to horizontal agreements between 6 November 2019 and 12 February 2020.
[v] Speech Margrethe Vestager ‘Competition and sustainability’, GCLC Conference on Sustainability and Competition Policy, Brussels, 24 October 2019.
[vi] Dutch Authority for Consumers and Markets, Draft guidelines ‘Sustainability Agreements’, 9 July 2020.
[vii] A sandbox is defined as ‘a safe space where both regulated and unregulated firms can experiment with innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in such activity’: Financial Conduct Authority, “Regulatory Sandbox”, (2015) Research Paper.
[viii] Hellenic Competition Commission Staff Discussion Paper on sustainability issues and competition law, 17 September 2020.
[ix] UK Competition and Markets Initiatives ‘Environmental sustainability agreements and competition law’, 27 Janaury 2021.