New EU Guidelines for Horizontal Agreements: A Changing Climate for Sustainability Cooperation?
As the climate and biodiversity crises loom, coherent efforts are needed in all fields to get to ‘net zero’. Just as public action is needed, cooperation in the private sector may also prove indispensable to achieve sustainability goals in the short time available.
EU competition rules, as currently interpreted, are unclear and risk hindering virtuous private initiatives (as in the case of the Net Zero Insurance Alliance, whose signatories purposely limited the scope of collaboration to avoid violating antitrust). In a blog post dated January 2021, the UK Competition and Markets Authority acknowledged that businesses and NGOs tend to abandon, on the grounds of competition issues, sustainability initiatives that are indeed unproblematic from a competition law perspective.
But there may be light at the horizon.
National competition authorities have begun to issue guidelines on sustainability-motivated cooperation:
- in October 2020, the Greek Hellenic Competition Commission published a Staff Discussion Paper on Sustainability Issues and Competition Law which upheld sustainability agreements under certain conditions;
- in January 2021, the Dutch Authority for Consumers and Markets published guidelines to explain how it plans to deal with sustainability agreements between competitors and a legal memo on the concept of ‘fair share for consumers’, advocating a more flexible interpretation of EU competition law;
- in January 2021, the Greek and Dutch authorities commissioned a joint Technical Report on Sustainability and Competition, to quantify social benefits resulting from sustainability agreements;
- in January 2022, the German Federal Cartels Office examined two industry initiatives to show how competition law does not stand in the way of private cooperation genuinely aimed at achieving sustainability goals.
At the EU level, the European Commission seemed initially focused on opposing greenwashing cartels, like in the Car Emissions case. Competition Commissioner Margrethe Vestager gave a speech on 10 September 2021 inviting companies to submit agreements for clearance, but also upholding the principle that consumers must be compensated (within the ‘relevant market’) for any price increases resulting from a cooperation agreement. Agreements benefiting society as a whole might not satisfy this condition.
This position is rooted in the idea that it would be unfair to make a limited set of consumers pay for a better environment. But if we consider greenhouse gas emissions as pollution, and apply the ‘polluter pays’ principle enshrined in Article 191(2) TFEU, then we should instead ask whether it is fair to allow producers and consumers to impose costs on those who do not consume.
Many observers anticipated (and several advocated) that EU policy should recognise the importance of industry cooperation, to implement the EU Green Deal. It now looks like the trend may be gaining ground.
It started quietly in December 2021, with an amendment of Regulation 1308/2013 exempting from the application of competition law horizontal agreements between agricultural producers that pursue certain sustainability objectives. In February 2022, the Commission then launched a consultation on new guidelines for sustainability agreements in agriculture.
Most recently, on 23 February, the Commission issued a Proposal for a Directive on Corporate Sustainability Due Diligence. If approved, Article 8(3)(f) will require companies to ‘collaborate with other entities, including, where relevant, to increase the company’s ability to bring adverse impacts [on human rights or the environment] to an end, in particular where no other action is suitable or effective’. This must be done however ‘in compliance with Union law, including competition law’.
On 1 March, the Commission published a much awaited draft of its new Horizontal Guidelines, which aim to provide greater clarity on how to assess sustainability agreements against competition concerns.
The Commission acknowledges in the Guidelines that sustainability is an EU policy priority (para. 542), and that sustainability agreements may fall outside the scope of application of competition rules when they do not affect price, quantity, quality, choice or innovation.
Firstly, a sustainability agreement must prove ‘necessary’ to attain its sustainability objective. Where there is enough demand for sustainable products for instance, cooperation may not be necessary, because companies will compete to be the greenest and cleanest. But the Guidelines recognize that cooperation agreements can also serve to reach the sustainability goal faster, or in a more cost-efficient way (para. 582; 585), or to overcome demand-side market failures (para. 586).
The Commission recognizes that individual production and consumption decisions can involve negative externalities — such as high emissions — that are not reflected in the price that is paid (para. 545). These externalities would ordinarily be addressed through regulation or taxation. Where public policies and regulations do not fully resolve such market failures, the Commission acknowledges that cooperation may become necessary (para. 546; 584).
Further, the Commission confirms that a restriction of competition can only be justified if consumers in the relevant market receive a fair share of the benefits. But what is a ‘fair share’? The Guidelines instate the principle that ‘the benefits deriving from the agreement [must] outweigh the harm caused by the same agreement, so that the overall effect on consumers in the relevant market is at least neutral’ (para. 588). This statement appears to be a compromise, in several respects.
First, the Commission no longer says that consumers in the relevant market should be fully compensated, within that same market. Instead, ‘where consumers in the relevant market substantially overlap with, or are part of the beneficiaries outside the relevant market, the collective benefits to the consumers in the relevant market occurring outside that market can be taken into account if they are significant enough to compensate consumers in the relevant market for the harm suffered’ (para. 603).
Second, the Commission acknowledges the existence of three kinds of relevant benefits:
- ‘individual use value benefits’, such as improvements in product quality or lower prices, which arise in the relevant market (para. 590);
- ‘individual non-use value benefits’, which include indirect benefits resulting from consumers’ appreciation of the impact of their sustainable consumption on others (para. 594); and
- ‘collective benefits’, such as positive externalities that benefit society as a whole (para. 601).
The recognition of individual non-use benefits and collective benefits in particular marks a change in the Commission’s approach. This appears consistent with the Court of Justice’s view in Mastercard (para. 234), that all ‘appreciable objective advantages’ should count. Climate change mitigation, the protection of biodiversity and pollution reduction would easily qualify as such.
Much will depend on the interpretation of ‘substantial overlap’, ‘significant’, and ‘neutral’. In principle, these benefits can be quantified (as per the Dutch-Greek joint statement). But the Guidelines are silent about which collective benefits can be seen as ‘related’ to the relevant consumers. Consider, for instance, an agreement requiring airlines to use sustainable fuel: should we take into account (i) all global collective benefits, (ii) the share of benefits that arises in the EU or (iii) those enjoyed by EU consumers? Use of non-sustainable fuels is a worldwide problem that affects everyone. All global collective benefits should count.
Another example: the Dutch competition authority proposed to allow companies to reciprocally undertake to comply with the law in countries where the law is not adequately enforced (deforestation rules in Brazil are one instance). The Guidelines do not include this example. Yet they should. An agreement to comply with laws that are not well enforced should be permissible, since firms are not supposed to compete on breaching the law.
It would be problematic if the Commission did not allow agreements that have benefits only outside of the EU. It creates the impression — which the Commission will want to avoid — that it is acceptable to cause harm so long as the harm does not affect EU citizens, and that it is appropriate to agree to limit serious harm but only if it benefits EU consumers. While private actors would benefit from global guidelines, the new EU Guidelines indicate a way forward. It will now be for private actors to propose creative initiatives to help reach and exceed the EU’s (and the world’s) sustainability goals.
Maurits Dolmans is a partner in the London and Brussels offices of Cleary Gottlieb Steen & Hamilton.
Clara Cibrario Assereto is a senior associate in the Rome office of Cleary Gottlieb Steen & Hamilton.
Elio Maciariello is an associate in the Rome office of Cleary Gottlieb Steen & Hamilton.
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