COMPETITION LAW OBSERVER

A blog by Centre for Competition law & Policy, NLU Jodhpur

GREEN DEAL AND SUSTAINABLE DEVELOPMENT: ANOTHER WAY TO UNDERMINE EU’s ANTITRUST REGIME?

GREEN DEAL AND SUSTAINABLE DEVELOPMENT: ANOTHER WAY TO UNDERMINE EU’s ANTITRUST REGIME?


Shriansh Jaiswal and Akshat Tripathi

Background and Introduction

Our earth is going through a tremendous crisis of environmental deterioration and environmental change. Infact, environmental change is one of the most challenging problems of our time. Air pollution is one of the major causes of millions of premature deaths every year, largely as a result of increased mortality from stroke, heart disease, chronic obstructive pulmonary disease, lung cancer and acute respiratory infections. It contributes to 11.65% of the global deaths. In 2019, the estimated number of deaths caused by air pollution throughout Europe is estimated to be 3,70,500. Thus, in 2020, the European Parliament passed the ambitious Green Deal to deal with this problem of environmental degradation. The European Commission adopted a set of intermediate proposals to cut greenhouse gas emissions by 55 percent from 1990 levels by 2030 as part of a broader European Green Deal (EGD). Furthermore, the deal intends to make Europe a carbon neutral continent by 2050. The European Green Deal is not a law, rather it is a set of policy initiatives. It requires any law to be made in consonance with the objectives of this deal, i.e., sustainability. The EU’s antitrust laws are also not going to be untouched from the integration of the principles of sustainability in its policies. It can be inferred from the statements of Margrethe Vestager, the Commissioner of EU, where he stated that the antitrust law would also have to be changed in future in consonance with this deal. He believes that companies should come together to set standards for greener and environmentally efficient products in order to achieve the goals of the Green Deal. He also advocated the need for sustainability agreements in pursuance to make the green deal more successful. However, these agreements can lead to serious antitrust concerns. Apart from this, the EU Green Deal can also majorly impact the merger control framework. The article tries to explore the possible impact of the Green Deal on the antitrust and merger control regime.

The conundrum of sustainability agreements and antitrust regime

Sustainability Agreements refers to those agreements where the companies or business associations come together to set standards for energy-efficient production processes and produce greener products.  However, these agreements can often be exploited by business corporations as a disguise to cover their anti-competitive activities in a way that such agreements muster to develop green and be energy efficient in production also requires the companies to share the data relating to prices, supply, and other strategic information with each other acting as an umbrella disguise for anti-competitive practices. The case of Consumer Detergents (2011) dealt with the same issue. In this case, three major detergent producing companies collaborated to produce more environmentally friendly detergents. However, it turned out that companies indulged in price collusion under the guise of producing environment friendly and greener products. The case is a classic example of how companies can collaborate with each other under the umbrella of sustainability agreements to exploit the antitrust regime and affect competition in the market.  The Commissioner of the EU has regularly emphasized upon the need of sustainability agreements to meet the objectives of the green deal in his speeches. There is, however, no evidence that lower competition leads to increased sustainability and the manufacture of greener products. It is feasible, though, to go in the opposite direction. However, vice versa is possible. Furthermore, sustainability agreements require the sharing of commercially sensitive information with each other as discussed earlier. However, the exchange of commercially sensitive information is an anti-competitive practice under the Article 101 of the TFEU. Additionally, it has been seen in various cases, where the companies do not work to their full potential to produce green products. In the Car Emissions Case, three major car companies namely Daimler, BMW, and Volkswagen group collaborated to reduce the emissions of nitrogen dioxide detrimental to the environment. They did reduce the emissions but only to the limit of what was required under the EU Law. The companies possessed the technology to reduce emissions to a further extent. However, they did not reduce the emissions beyond the required limit despite their potential. Thus, the commission imposed a penalty of 875 million Euros on these companies. The Car Emissions case is a classic example of how reducing competition and allowing sustainability agreements can bring more harm than good to sustainability. These agreements can allow the companies not to use their full potential to build greener and sustainable products. We cannot deny that our environment is rapidly degrading, and that there is an urgent need to safeguard it from contamination. The Green Deal is a huge step toward achieving that goal of environmental protection. Integrating the Green Deal’s goals into antitrust rules, on the other hand, does not appear to be an effective strategy to achieve the goal of environmental preservation. The aforementioned precedents clearly demonstrate how this integration might have a negative influence on both environmental protection and the antitrust legal framework. Thus, due to all of these factors, sustainability agreements do not appear to be a viable approach to meet the goals of the Green Deal.

Does the current legal framework provide room for green agreements?

In the current EU’s legal framework, Section 11 of the Treaty on the Functioning of the European Union [“TFEU”] requires the integration of principles of environmental protection into the laws of the EU and its policies. Reading Section 11 and Green Deal harmoniously, the principles of environmental protection and sustainability must also be integrated into the EU Competition Law policies. However, Section 101(1) of TFEU prohibits any agreements between corporations, which can restrict or reduce competition in the market. We have already discussed earlier how sustainability agreements have the potential to negatively impact the EU’s antitrust regime. Furthermore, the Car Emissions Case and the Consumer Detergents Case elucidated how sustainability agreements can be used as a disguise to cover their anti-competitive activities. Thus, the position of both sections of TFEU, ie, Section 11 and Section 101 is contradictory concerning the sustainability agreements. However, Section 101(3) provides room to engage in sustainability agreements in the following conditions:

  • The consumers must receive the fair share of resulting benefits
  • The agreement must contribute to promoting some sort of technical and economic progress
  • The agreement is necessary to promote this progress and achieve the desired objective of sustainability
  • The agreement must not eliminate the competition from the market

The first condition under Section 101(3) requires the consumers to receive a fair share of the benefit. However, it is quite difficult to assess the fair share of the consumers as the benefits of the sustainability agreements cannot be measured in a purely economic sense. The sustainability agreements are primarily for the welfare of the whole society. For instance, if two companies collaborate to produce green and sustainable products. One of the conditions for them to get the exemption from Section 101(1) of TFEU is that consumers receive a fair share of benefits for such collaboration. However, the benefits of producing green and sustainable products are received by the whole society rather than by any particular class. Thus, it would be difficult to ascertain the fair share of customers of those corporations engaging in these agreements. The National Energy Agreement (2013) was denied an exemption under the Dutch cartel laws identical to TFEU by the Dutch Authority for Consumers and Markets[“ACM”]for the very same reason as it provided few sustainability benefits as compared to the price paid by the customer.

The second condition requires the agreement to promote some technical or economic progress. Although it can be assumed that sustainability agreements can contribute to technological progress. However, there is still no concrete evidence that sustainability agreements are the only way to promote technological progress and obtain the objective of sustainability as required under the third condition. The sustainability agreement does not fulfill the requirements to be exempted under Section 101(3) of TFEU. Thus, the current legal framework of the EU does not provide any room for green exceptions. However, the recent statements of Vestager suggest that there might be a  possible integration of sustainability in the antitrust law. Therefore, the only plausible way for this seems to be an amendment in the EU’s antitrust legislation.

Impact of the green deal on merger control regime

The onset of the Green Deal might also increase the role of sustainability in the merger control regime. The Aurubis/Metallic merger case is a clear illustration of this. Here, both the parties were the purchasers of copper scrap. The EU was concerned about the fact that a merger could lead to an increase in purchasing power of both parties, and consequently, the parties would pay less for the copper scrap, making it less incentivised to collect. The case was a typical merger case, which could lead to parties being in a dominant position in the market. However, Vestager’s comment tying this case to sustainability elucidates the commission’s position in future cases. He stated that Copper is a critical component of electric transportation and digitalisation. In the framework of the European Green Deal, a well-functioning circular economy of copper is critical to ensuring sustainable use of resources. In another case of acquisition of Van Dam by Van Drie, the ACM launched an in-depth investigation into the merger. The Commission was concerned that the merger of both the companies could lead to degradation in animal welfare and less sustainability in dairy farming due to insufficient competition in the market. The above cases suggest the inclination of the authorities to include factors such as sustainability and environmental pollution in the upcoming merger cases in the wake of the Green Deal. However, integration of sustainability will also incur some costs to companies, which would be ultimately passed on to the consumers. Therefore, the success of sustainable mergers will depend upon the consumers’ willingness to pay for such sustainable benefits.

Conclusion

To conclude, sustainability is likely to be a major factor in merger control and antitrust regime. Furthermore, the stance of the commission in the recent Car Emissions Case and acquisition of Van Dam by Van Drie also points the same. In the current situation, sustainability is the need of the hour. However, the feasibility of incorporation of sustainability in the corporate laws is ultimately in the hands of consumers. It would be interesting to observe how the commission incorporates sustainability without harming the businesses and the competition in the market.

Shriansh Jaiswal is a third-year student at Dr Ram Manohar Lohia National Law University and Akshat Tripathi is a third-year student at NMIMS, Kirit. P. Mehta. School of Law, Mumbai.

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