The European Commission sheds "greener" light on the relationship between Competition policy and the Green Deal objectives

On 10 September 2021, the European Commission ("Commission") published a competition policy brief in which it provides more detail on its policy approach in its upcoming sustainability guidance. Following a call for contributions last year and a conference bringing together relevant stakeholders in February 2021, the policy brief summarises the feedback received and outlines the Commission's current thinking on how competition rules can support the achievement of the objectives set out by European Green Deal.
Whilst the published document does by no means constitute formal guidance, the Commission does provide examples of its approach to sustainability arguments in State aid, antitrust and merger control enforcement.

State aid
Feedback collected in the consultation and conference
The vast majority of responses to the consultation acknowledged the key role that State aid rules play in supporting the Green Deal objectives. Nonetheless, respondents found several areas where the Commission can take further action:

• It was argued that access to State aid funding for fossil fuel producers should be drastically limited.
• Clearer and simpler State aid rules to guide Member States and stakeholders to take sustainable decisions.
• Increased transparency on environmentally harmful State aid initiatives.
• A stronger role for innovation to support the green transition, adapting State aid rules to increase the support for research, development and innovation ("R&D&I") opportunities.
• Strong enforcement of State aid control in order to preserve a level playing field and reward lean, innovative and resource-efficient companies.

On-going initiatives / follow-up
The Commission notes that several initiatives have been deployed in State aid policy:

• The new Climate, Energy and Environment Aid Guidelines ("CEEAG"), expected to enter into force on 1 January 2022, will introduce significant changes in support of the Green Deal, including:
  • Discouraging aid to projects involving the most polluting fossil fuels (e.g. coal, lignite, oil, and diesel).
  • Extending the application of the guidelines to new areas (e.g. industry, clean mobility, circularity, and biodiversity) and to all technologies that can deliver the Green Deal (e.g. renewable, and low carbon hydrogen, e-storage).
  • Higher levels of aid (100% of financing gap), new aid instruments (operating aid in new areas) as well as new forms of support (e.g. carbon contracts for difference, where the reference price is linked to the Emissions Trading System ("ETS") price).
  • Reducing the eligible sectors as well as the aid to intensive energy users.
  • Increased transparency with new public consultation requirements.
• The revision of the General Block Exemption Regulation ("GBER") will complement the CEEAG, by introducing State aid in areas that support the objectives of the Green Deal.
• The State aid rules on Important Projects of Common European interest ("IPCEI") facilitate cross-border collaboration between Member States and industry, thereby accelerating the growth of new technologies and production processes in line with Green Deal objectives. In the past two years, the Commission has approved two IPCEIs in the batteries sector. Moreover, the on-going revision of the IPCEI rules will further adapt these rules to the objectives of the Green Deal (e.g. by facilitating the inclusion of broader scope of participants).
• The Regional aid Guidelines will ensure that the "just transition" is adapted to the different economic realities across Member States.
• The revision of the already effective current State aid frameworks in agriculture, forestry, fisheries, and aquaculture will enhance their contribution to the objectives of the Green Deal.
• The Recovery and Resilience Facility ("RRF"), which aims to ensure an early and safe recovery from the Covid-19 crisis, is also aligned with the Green Deal objectives, requiring that at least 37% of allocation to national plans should support the green transition.

Antitrust
Feedback collected in the consultation and conference
There was strong consensus among respondents on the need to provide clarity on how the Commission intends to assess sustainability objectives in its antitrust assessment. This clarity is essential for companies considering investing in sustainable products or processes.
Respondents identified the following areas for further action:

• Need for more clarity in the assessment of key agreements for the achievement of the Green Deal objectives e.g. industry agreements for the use of more sustainable products or modes of production or joint procurement of sustainable input products.
• Respondents proposed different ways to provide greater clarity, including the adoption of an open-door policy by the Commission, allowing stakeholders to get clear guidance on the viability of their sustainable agreements, as well as regulatory sandboxes.
• Some respondents argued for an extension of the scope of the assessment under Article 101(3) TFEU to include non-economic benefits as well as efficiencies in other markets. It was also suggested that the notion of consumers should be adapted to consider society as a whole.
• On the other hand, a large number of respondents argued that an extension of the scope of the exemption under Article 101(3) could seriously undermine the incentives to innovate, as well as the effectiveness of enforcement.

On-going initiatives / follow-ups
The Commission confirmed that strong antitrust enforcement is the best way to incentivise innovation in terms of efficiency and sustainability. However, the Commission acknowledges that more guidance is needed in order to incentivise companies to jointly come up with more sustainable solutions.
The Commission intends to provide further guidance in the context of its on-going revisions of the guidelines on horizontal cooperation and vertical agreements. The Commission also provides a number of clarifications in the policy paper:

• Companies can engage in sustainability initiatives in a number of ways without infringing Article 101(1) TFEU, such as cooperation agreements on joint production or joint purchasing agreements which meet the criteria set out in the horizontal cooperation guidelines.
• The Commission notes that sustainability benefits may be considered as qualitative efficiencies, e.g. a sustainable product that offers higher quality or longevity, thus increasing the value for consumers. In addition, sustainable agreements can also have related cost efficiencies that can be passed on to consumers.
• Sustainability benefits do not necessarily need to have a direct or immediate impact on product quality or cost, as long as the effect is appreciated by consumers who are willing to pay a higher price for these benefits.
• Even though the antitrust assessment focuses on each relevant market, the benefits obtained in separate markets may also be relevant as long as the group of affected consumers is substantially the same. The Commission emphasises the importance of striking a balance between the consumer welfare standard and the benefits to society as a whole.
• The Commission appreciates that there are circumstances in which companies need to join forces to overcome the pitfalls of being the first to offer a more costly sustainable product. Yet, if there are sufficient consumers of such sustainable products willing to pay the price, companies are expected to offer them independently.
• Further clarification is needed in order to assess when existing environmental regulation already gives companies sufficient incentives to produce independently in a sustainable manner, and there is therefore no further need for cooperation.

The Commission, with the assistance of the National Competition Authorities, will continue to reflect on these issues and will seek to provide the clarity requested in the revised guidelines.

Informal guidance and non-applicability decisions
At the same time, the Commission is open to considering individual requests for guidance letters in relation to sustainability initiatives that raise "novel issues". Moreover, the Commission is also prepared to issue decisions under Article 10 Regulation 1/2003 declaring that the competition rules do not apply provided that there are compelling reasons of public interest.

Merger control
Feedback collected in the consultation and conference
There is a strong consensus that the application of the European Merger Regulation ("EUMR") and its enforcement by the Commission is aligned with the European Green Deal objectives. However, respondents reported a number of issues relating to merger control enforcement:

• Numerous contributions pointed to the importance of considering consumer preferences for sustainable options in defining the relevant market.
• Increased enforcement pursuing as much as possible "green" theories of harm to prevent the loss of green innovation. One key obstacle to enforcing sustainability objectives is the potential of killer acquisitions in which incumbents target smaller competitors which are invested in "green" projects.
• With regard to efficiencies, as is the case for antitrust, some respondents indicated that longer-term efficiencies, as well as benefits for the society as a whole, should be considered.
• A need to incorporate "green" remedies into the merger control system as a method of creating a comprehensive framework which would reduce damage to the environment.

On-going initiatives / follow-ups
The Commission noted that there are already a number of initiatives that deal with the issues raised by respondents, namely:

• The on-going revision of the market definition notice.
• The guidance paper on the application of the Article 22 referral mechanism between Member States and the Commission.
• The Commission is already taking into account consumer preferences for sustainable products in both the market definition and the competitive assessment.
• The Commission is currently enforcing "green" innovation theories of harm, as was done in the Dow/Dupont case.
• Some of the remedies enforced by the Commission have had positive effects on the environment, as in the GE/Alstom case.