The Commission’s sustainability guidance: A green revolution or business as usual?

As climate change continues to rocket up the political agenda, so does the debate around how competition policy can, and should, be used to tackle climate challenges. Stepping up to the plate, the EC launched a public consultation and hosted a well-attended conference on the topic (see our reporting here). State aid rules have been advanced throughout as a key means of driving the green transition. However, as in the UK and US, the EC has thus far only taken a rain check in relation to both green collaboration between competitors and if and how merger control will accommodate sustainability considerations.

Against this background, last week’s publication of the EC’s Policy Brief on how competition policy can support the EU’s green ambitions was much anticipated. The Policy Brief offers important insights into the EC’s overarching strategy, with tougher enforcement at the forefront. But while Competition Commissioner Vestager calls for “a green revolution”, she does not appear keen to give the rules a real shake. Instead, the principles that have governed the bloc so far are given the upper hand.

State aid remains the frontrunner

The EU has pledged to become the world’s first climate-neutral continent by 2050, with a binding legal commitment to cut emissions by at least 55% by 2030. To meet these targets, the State aid rulebook remains the key tool.

In greening the economy, billions of euros in public funding will be required. The flagship rules to guide these investments will be the EC’s new Climate, Energy and Environment Aid Guidelines. Once adopted in 2022, the rules will open up for significant public support to reach the Green Deal’s objectives. The scope of the current guidelines will be vastly extended, including both new areas and higher sums. The rules will also steer support away from the more polluted end of the energy scale, such as coal, lignite and oil.

Green collaboration - the ball is still in the EC’s court…

In answering if and how the EU’s competition rules will facilitate green business collaboration, the main response is that detailed directions are yet to come. The EC acknowledges that legal clarity is needed and says that guidance will be included in the upcoming revisions to the bloc’s horizontal and vertical block exemption regulations.

At the heart of the document, the EC maintains that legitimate green cooperation is already possible under existing rules. Indeed, rather than relaxing rules or changing the approach to the assessment of efficiencies, Commissioner Vestager concludes that the green transition is best supported by the competition rules being enforced “more vigorously than ever.” To the EC, the best route to enable EU companies to become green leaders, on a global scale, is vibrant competition within the block.

Considering Commissioner Vestager’s overall vision, this should not come as a surprise. Tough enforcement and a rejection of a change in the approach to the assessment of efficiencies to facilitate political goals fit into the enforcement trends we have witnessed in recent years, where competition at home is viewed as key to make companies well placed to compete also outside the EU. This calls to mind the prohibition decision in Siemens/Alstom, where the EC resisted strong calls to adopt a softer approach and allow competition concerns in the EU to be traded off against increased global competitiveness.

The Policy Brief also points to the route where sustainability benefits are assessed as qualitative efficiencies. Experience tells us however that this bar is set very high. A 2019 study found that of the 45 attempts made between 2004 and 2017, none succeeded to sway the EC.

… but who will ultimately call the shots?

The Policy Brief points to clashing views on how to weigh the benefits of green collaborations. As we have previously reported, the Dutch competition regulator (ACM) has taken a more liberal stance on sustainability agreements. The ACM is keen to keep the door open to rewarding benefits of sustainability agreements for the society in a broader sense. A similar position has been adopted by the Hellenic Competition Commission. By contrast, the EC is reluctant to abandon established principles and favours a narrower view, focused solely on the benefits for the present consumers of the product or service concerned.

An agreement that benefits society as a whole, for example by cutting CO2 emissions, but where the consumers of the product end up footing the bill, would consequently be more likely to receive accommodating treatment in Amsterdam than in Brussels.

Catching killer acquisitions

In addition the Policy Brief comes with a promise of tough enforcement in relation to merger control. The EC reiterates that merger control is an important driver of efficient competition and green innovation. Sustainability is expected to become more prominent in future assessments and the EC will "go on vigorously defending innovation".

Consistent with the overall focus under Commissioner Vestager, the EC centres on the risks of reduced innovation. To this aim, the EC will remain vigilant when it comes to preventing so called killer acquisitions. These deals, where big businesses acquire nascent innovators without the deal being notifiable, allow acquirers to “fly under the radar” and eliminate competitive threats. In line with its recent guidance on how to tackle this, the EC encourages to use the referral mechanism under Article 22 of the EU Merger Regulation whereby national competition authorities can send deals of concern to the EC, even if they fall below merger thresholds. As explained in a previous blog post, the EC has thrown this net widely, thereby creating uncertainty about deal timing and outcome, where previously a deal was not reportable in the EU or member states.