Antitrust at crossroads: Will the European Green Deal change the enforcement of Article 101 of the TFEU?

By Aleksandar Radan JEVTIC, Student in Sciences Po Economic Law master,

Competition law enforcement has seen substantial ideological reversals in the 20^th century. In the late 1970s, the basic premise of the Harvard School that competition law is embedded in a larger regulatory framework and pursues different public interests was gradually abandoned in favor of the allegedly non-political pursuit of consumer welfare favored by the Chicago School.[1] With the recent appointment of Neobrandeisian scholar Lina Khan as chair of the Federal Trade Commission, a more political approach to competition law aiming to restore competitive markets in order to prevent various societal problems arising through oligopolistic market structures could once again be introduced in the US.[2]

In the European Union, whose competition laws have been strongly influenced by US competition law doctrine, a change towards the pursuit of political goals through competition law enforcement could be on the rise with the adoption of the European Green Deal.[3] This policy package was introduced by the new President of the European Commission Ursula von der Leyen only eleven days after her inauguration on 1 December 2019.[4] Its overarching goal is to make the economy of the European Union “climate neutral” by 2050. For this purpose, the Commission proposed several policy measures. Among others, these include “mainstreaming” sustainability considerations into all EU policies, orienting the EU’s investment strategy towards sustainable investments and facilitating green finance, “greening” national budgets of member states and incentivizing research and sustainable innovations.[5]

Importantly, European competition law has a role to play in bringing about climate neutrality. This is why in the fall of 2020, the Directorate General for Competition (DG COMP) of the European Commission intensified its efforts regarding how European competition law could contribute to greening the European economy. Several roundtables on the topic have been organized, and scholars were asked to submit contributions on this topic. In a speech from 22 September 2020, the European Commissioner for Competition Margrethe Vestager set out the strategy to be followed, assigning a central role to the revision of state aid rules in order to facilitate sustainable investments, while maintaining that antitrust and merger control would best contribute to sustainability if they pursued market efficiency and were stringently enforced in line with conventional competition law concepts.[6]

However, the Commission’s efforts have given rise to an already emerging literature on the topic of how antitrust should be amended in order to make the European economy more sustainable. It has in particular been recognized that more opportunities should be created for potentially anticompetitive sustainable agreements to be exempted. An example for such an agreement was treated in the CECD decision, which concerned an agreement between several manufacturers of domestic appliances to limit the production and import of washing machines into the EEA that did not meet certain energy consumption standards.[7] While the Commission did not consider this particular agreement to give rise to substantial competition related concerns, this could be the case for many other environmentally friendly agreements. Hence, an approach favoring the “moderate flexibilization” of European competition law has developed in pertinent literature to provide ways in which anticompetitive sustainability agreements could be exempted. It can be summarized by the phrase“it’s not the law that needs to change but our approach to it” and favors the cautious reinterpretation of Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits anticompetitive agreements.[8] An often cited justification for this approach is that the TFEU provides a constitutional basis for environmental protection in Article 11 that can applied across policy areas, including competition policy.[9]

Two broad routes for reinterpretation antitrust provisions have been suggested, one based on Article 101(1), the other on Article 101(3). The first one relates to declaring certain agreements as falling outside of Article 101(1), which prohibits agreements that have as their purpose to prevent, restrict or distort competition within the internal market. According to Gassler, the basis for this argument could rest on the Albany judgment by the ECJ, in which the court decided that collective bargaining felt outside of the scope of 101 without applying a proportionality test because it contributed to the improvement of working conditions.[10] To enforce the societal benefit of environmental protection, European competition authorities could therefore rely on this judgment to argue that certain anticompetitive agreements contributing to environmental sustainability should per se be exempted due to the legitimacy of the goal that they pursue.[11]

The second approach for a more flexible enforcement of European antitrust provisions apart from declaring 101(1) inapplicable would be to exempt them under Article 101(3) of the TFEU. This article allows for exempting anticompetitive agreements on the basis that they (i) improve the production or distribution of a product, or that they allow for economic or technological progress while (ii) allowing consumers a fair share of the resulting benefit, without (iii) imposing indispensable restrictions and (iv) eliminating competition in a concerned product market.

In particular the conditions under (i) and (ii) would require new interpretations in order to be made more permissive for sustainable agreements. Regarding (i), Holmes argues that anticompetitive sustainability agreements would frequently fulfill the condition related to the improvement of production processes as carbon emission reductions should be considered an improvement of production.[12] Alternatively, it has been argued that condition (i) should be considered as fulfilled where sustainability coincided with an improved quality that consumers wish to pay a higher price for. For instance, the French competition authority acknowledges the possibility for more targeted antitrust action with foreseeable effects on sustainability. For instance, it fined two companies in the floor covering industry that had agreed to withhold environmental performance information in advertising their products. This would have decreased competition on these quality parameters.[13] Because lower quality was associated with lower environmental performance, the competition authority could thereby sanction two companies which pursued an “unsustainable aim”. The reverse interpretation would be possible for two companies that create a sustainable product if this is considered to increase its quality with respect to comparable products.

Regarding the second condition under 101(3), various interpretations have been suggested for how anticompetitive sustainable agreements could satisfy the consumer welfare requirement under 101(3), which is today largely being interpreted restrictively as requiring efficiencies to outweigh price increases caused to consumers by the anticompetitive agreement.[14]

According to Holmes, there would be no basis for such a narrow interpretation of consumer welfare in Article 101(3). He suggests adopting the approach of the ECJ in Compagnie Generale Maritime, where the court considered the effects of an anticompetitive agreement not only on consumers on the relevant market, but also on consumers on other markets where the agreement might have positive effects.[15] Considering the effects on consumers on connected markets could allow for exempting agreements that bring about sustainable innovations that lower prices on those markets. Other authors have suggested not merely taking into consideration consumers on connected markets, but also on future ones.[16]

However, another possibility than changing which consumers are considered in order to integrate environmental considerations into antitrust enforcement is simply changing what is regarded as valuable in the eyes of consumers on the relevant market. In other words, consumers might simply value environmental protection independently from the effects that an anticompetitive agreement might have on the prices of the products they purchase. For instance, this can be the case because they care about future generations.[17] Schinkel and Spiegel estimate that production cartels could be specifically used for environmental protection and enhancing consumer welfare provided that consumer assign value to environmental protection.[18] Others have argued that it did not matter whether consumers actually valued environmental protection. Instead, competition authorities could adopt a paternalistic approach concerning this question, meaning that rather than judging what consumers preferences currently are, they could estimate what their preferences should be and take into consideration environmental parameters.[19] Either approach would give competition authorities a reason to permit anticompetitive agreements if they lead to such “sustainable efficiencies”.[20]

The “moderate flexibilization” of European antitrust enforcement has not only been buttressed by the aforementioned emerging literature, but also in expert contributions submitted to the European Commission. For instance, in a recent call for papers by Young Professionals on the topic how European competition policy can be “greened”, virtually all contributions on the topic of antitrust and merger control advocate the moderate reinterpretations of notions like consumer welfare to accommodate sustainability considerations.[21]

It is no wonder that the debate seems to have influenced the position of the Commission to some extent. In November 2021, more than one year after Commissioner Vestager’s first speech on the topic of greening European competition law, the Commission published a first official communication on how competition policy will contribute to the European Green Deal.[22]

The communication reflects a vision of competition as a flexible policy instrument that adapts to the crises facing the European Union with competition law “reacting to new market developments and changing policy objectives of the Union”.[23] Competition rules would have an “inherent adaptability”.[24] In that regard, the communication mentions the way competition law was used to address the challenges caused by the Covid-19 pandemic, for instance through the State Aid Temporary Framework from April 2020 that allowed for supporting European corporations facing bankruptcy during the pandemic.[25] Altogether, the communication reflects the idea of competition rules having the potential to be used as a flexible policy instrument “while allowing customers and consumers a fair share of the resulting benefits”.[26]

Regarding antitrust, the communication mentions a more flexible approach to interpreting consumer preferences. It says that “consumer preferences for sustainable products, services and technologies should be taken into account in the competition assessment, whenever appropriate.”[27] This could lead to an exemption on the basis of 101(3) if consumer benefits outweigh the costs, or to the amendment of current theories of harm employed by the EC in its analyses. However, the communication does not specify precisely in which cases such reinterpretations of consumer welfare could be adopted.

While many would favor such a flexibilization of the enforcement of Article 101 TFEU in order to allow for more environmentally beneficial agreements, there are risks attached to that approach. Loozen argues that “the flexibility policy misreads the constitutional fundamentals of the EU competition rules” as Article 3(3) would impose a primacy for securing the efficient workings of the market over any other value.[28] What is more, the Commission would not be empowered to balance competition and sustainability, which would exclude any broader interpretation of Article 101 TFEU. Furthermore, any flexible interpretation of the concepts mentioned in Article 101 risks to reduce legal certainty. That is why one might argue that efficiencies under Article 101(3) should continue to be interpreted as price reductions, while environmental regulation should be used for achieving the goals of the European Green Deal. This criticism exemplifies that the question of how far the European Commission can go in adopting a flexible approach to competition law enforcement, for instance by relying on a holistic interpretation of the TFEU and the aforementioned Article 11 as a basis in its decision-making regarding sustainability agreements, is very much debatable.

The balancing task required from the European Commission is therefore not an easy one. On the one hand, it has to cater to a substantial political pressure for making antitrust and merger control contribute to the European Green Deal in the best possible way. This pressure is the more present given that some national competition authorities, such as the Dutch NCA, have already started implementing their competition laws in a way that gives more leeway to environmental sustainability initiatives.[29] On the other hand, the Commission has to respect the constitutional framework provided for competition law enforcement by the TFEU and create sufficient legal certainty for European companies to be able to assess when they can hope for exemptions for anticompetitive behavior that pursues the legitimate aim of environmental protection. To what extent it succeeds in doing so will be made apparent with the publication of its revised enforcement guidelines, the new horizontal block exemption regulation (HBER), as well as its subsequent enforcement practice.[30]

[1] Andriychuk, O. (2017). The normative foundations of European competition law : assessing the goals of antitrust through the lens of legal philosophy. Cheltenham, UK Northampton, MA: Edward Elgar Publishing, p. 56.

[2] Khan, L. (2017). « Amazon’s Antitrust Paradox », The Yale law journal, vol.126 n^o 3. p. 710‑805.

[3] Giocoli, N. (2009). « COMPETITION VERSUS PROPERTY RIGHTS: AMERICAN ANTITRUST LAW, THE FREIBURG SCHOOL, AND THE EARLY YEARS OF EUROPEAN COMPETITION POLICY », Journal of competition law & economics. 2009, vol.5 n^o 4, p. 749.

[4] German Advisory Council on the Environment (2020), “The Future of European environmental policy”, p. 6.

[5] Communication from the Commission (2019): The European Green Deal.

[6] EC (2020), Speech – The Green Deal and Competition Policy, https://ec.europa.eu/commission/commissioners/2019-2024/vestager/announcements/green-deal-and-competition-policy_en (accessed: 19^th January 2022).

[7] Case IV.F.1/36.718.CECED, para 2.

[8] Holmes, S. (2020). “Climate change, sustainability, and competition law”, Journal of antitrust enforcement, vol.8 n^o 2., p. 355.

[9] Coates, K./Middelschulte, D. (2019). “Getting Consumer Welfare Right : the competition

law implications of market-driven sustainability initiatives”, European competition journal. 2019, vol.15 n^o 2-3. p. 322.

[10] Gassler, M. (2021). “Sustainability, the Green Deal and Art.101 TFEU: where we are and where we could go”, Journal of European competition law & practice, vol.12 n^o 6. p. 433.

[11] Wouters, D. (2021). “Which Sustainability Agreements Are Not Caught by Article 101 (1)

TFEU?”, Journal of European competition law & practice, vol.12 n^o 3., p. 265.

[12] Holmes, S. (2020). “Climate change, sustainability, and competition law”, Journal of antitrust enforcement, vol.8 n^o 2, p. 371.

[13] Autorité de la concurrence, Décision 17-D-20 relative à des pratiques mises en œuvre dans le secteur des revêtements de sols résilients.

[14] EC (2004), Communication from the Commission — Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements Text with EEA relevance, para 143.

[15] Holmes, S. (2020). “Climate change, sustainability, and competition law”, Journal of antitrust enforcement, vol.8 n^o 2, p. 375.

[16] Inderst, Roman and Rhiel, Felix and Thomas, Stefan (2012) Sustainability Agreements and Social Norms, https://ssrn.com/abstract=3887314 or http://dx.doi.org/10.2139/ssrn.3887314 (accessed: 19^th January 2022).

[17] Watson, N. (2021), “Measuring environmental benefits in competition cases”, OECD Roundtable on Environmental Considerations in Competition Enforcement, DAF/COMP (2021)14, p. 11.

[18] Schinkel, M./Spiegel, Y. (2017). “Can collusion promote sustainable consumption and production?”, International Journal of Industrial Organization, vol. 53, p. 374.

[19] Watson, N. (2021), “Measuring environmental benefits in competition cases”, OECD Roundtable on Environmental Considerations in Competition Enforcement, DAF/COMP(2021)14, p. 9.

[20] Coates, K./Middelschulte, D. (2019), “Getting Consumer Welfare Right : the competition

law implications of market-driven sustainability initiatives”, European competition journal. 2019, vol.15 n^o 2-3, p. 321.

[21] European Commission, Competition Policy Brief – Young Experts’ Views on the Greening of Competition Policy, https://ec.europa.eu/competition-policy/index/news/young-experts-views-greening-competition-policy-2021-12-10_en (accessed: 19^th January 2022).

[22] COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS 2021, “A competition policy fit for new challenges”.

[23] Ibid., p. 4.

[24] Ibid., p. 6.

[25] Ibid.

[26] Ibid.

[27] Ibid., p. 11.

[28] Loozen, E. (2019). “Strict competition enforcement and welfare: A constitutional perspective based on Article 101 TFEU and sustainability”, Common market law review, vol.56 n^o 5. p. 1281.

[29] Van Roosmalen, P. (2021). “Revised guidelines of Dutch competition authority confirm more leeway for environmental sustainability initiatives”, https://www.twobirds.com/en/news/articles/2021/netherlands/revised-guidelines-of-dutch-competition-authority (accessed: 19^th January 2022).

[30] EC 2021, COMMISSION STAFF WORKING DOCUMENT EVALUATION of the Horizontal Block Exemption Regulations, p. 103.