Putting the “eco” into economics: small steps in the right direction for green collaboration between business?

The European Commission’s much-anticipated conference on Competition Policy and the Green Deal featured lively discussion. But did it help companies looking for legal clarity?

Well, not hugely, no. But what we do know is the following:

  • The EC acknowledges that while competition policy is not the main tool to reach the goals of the EU Green Deal, it must play its part.
  • The EC continues to see State aid as its most important tool. €280 billion is earmarked for green investment. The challenge will be balancing incentives to ensure continued private investment while protecting the level playing field.
  • The EU antitrust and merger control rules are seen as important drivers of efficient competition and green innovation. The EC is rightly wary of both cartel greenwashing – cartels disguised as sustainability agreements – and green killer acquisitions.
  • The EC is planning to clarify (not reform) the law on green collaborations. Its view (and ours) is that legitimate cooperation is already possible under the existing legal framework, but greater legal certainty is needed to facilitate future progress. Similarly, the EC believes the current merger control framework is broadly fit for purpose when it comes to promoting innovation.

The question is, with no firm date on the horizon for clarity and a pressing need for action now, what can companies do?

It is our view that a careful risk assessment combined with a regulator that is likely to be constructive to those pursuing legitimate aims, means that there are good odds for a robust self-assessment which can conclude that the benefits of legitimate collaboration outweigh the risks.

State aid leading the way

The EC’s ambition – for the EU to become the first climate-neutral continent – is bold. It will require major shifts in the block’s energy, consumer and travel patterns. This will require massive public investment – €280 billion will be invested in Green Deal projects according to President Von der Leyen.

But European State aid rules generally prohibit public investment of this kind because it gives the subsidised company an advantage over its competitors. Under the State aid rules there needs to be a justification for such public investments to be allowed. This is why the State aid rulebook will be critical in the EU achieving its bold ambition.

One clear example is emissions-cutting technologies such as green hydrogen and energy storage, which will only become competitive if enough public funding is provided. The State aid rules are not currently up to the task. But the EC confirmed that we can expect this to be addressed as part of the revised State aid rules that are to come this year.

The EC also offered teasers on potential “green bonuses” where the State aid rules will induce green investments.

Legitimate business collaboration: clarifying existing opportunities

Many green collaboration projects can go ahead under the existing framework. This is the consensus from all sides. But as evidenced in our survey results, a lack of clarity as to how the rules will apply in practice where existing block exemptions do not apply and where the criteria for individual exemption would be needed can discourage companies. The good news is that the EC has heard these calls and will provide clarification of the framework for assessing green collaborations.

(a) When can we expect guidance?

No clear timeline for guidance was set out.

Executive VP Vestager has promised a “report” before the summer on the learnings from its recent consultation – which resulted in 189 public contributions. The message from businesses is that more certainty is needed to encourage collaboration on sustainability initiatives. Respondents highlighted numerous examples where competition law discouraged sustainability initiatives, including commitments to respect labour law standards and initiatives to reduce plastic usage.

The report will be followed by another consultation later this year on options for updated frameworks and guidance on horizontal cooperation agreements and vertical supply agreements, expected in 2022. This suggests that we won’t see any concrete guidance for some time.

In the context of these reforms, the EC should find it relatively easy to provide tailored guidance on particular risk areas including information exchange, joint purchasing, standard setting and R&D. But we don’t yet know if, when or how the EC will take a position on more controversial areas including:

  • In an efficiencies assessment, what is the relevant class of consumers that must benefit from the agreement? Over what timeframe? Director-General Olivier Guersent acknowledged that this thinking would be a priority area for the EC.
  • Will the EC take into account “out of market efficiencies” (the benefits felt by non-purchasers of the product e.g. because the production process is cleaner)?
  • How will the EC quantify environmental benefits when carrying out its Article 101(3) balancing exercise?

We hope that the EC will take a clear position soon. Diverging approaches from different Member States could create a patchwork approach in Europe which will be detrimental to business certainty. We have started to see this already, with the Dutch authority leading the charge for enabling green collaboration and the Hellenic Competition Commission planning its own guidelines, while the German FCO remains more sceptical.

(b) What can companies do in the meantime?

The absence of clarification is not fatal to legitimate green collaboration. We now have a clear message from the EC: it will be more supportive of sustainability collaborations, but fundamentally the assessment remains as “strict” as for any cooperation. This means companies can proceed if they engage in careful risk management. The main elements will be:

  • Articulating why companies have to collaborate – why they can’t do it alone;
  • Managing information flows to reduce risk of illegal information exchange;
  • Quantifying the benefits of the collaboration to consumers using reputable economic tools (see the joint Technical Report on Sustainability and Competition Law commissioned by the ACM and Hellenic Competition Commission);
  • Minimising any detrimental impact on competition as far as possible;
  • Considering constructive dialogue with the EC and member states to stress test the key areas of risk – the EC has said it is open to such discussions and may issue (and perhaps publish) comfort letters in the right case to give guidance to businesses (similar to comfort given in the pandemic in the context of horizontal cooperation).
Mergers: Killer acquisitions in the crosshairs

With State aid the poster child and collaboration the focus area of debate, very little time was devoted to how the merger control framework can accommodate sustainability considerations. This is surprising (and perhaps unfortunate) given that the right deal could lead the EC to take a position on some important issues much faster, in a merger review context.

The main message from the EC is that they are on the look-out for “killer acquisitions” – the practice of acquiring innovative nascent players to eliminate a competitive threat. While clearly important, this is just one aspect of a broader debate which may soon crystallise given the anticipated volume of green M&A.

Coming soon

Find out more in our forthcoming paper on mergers in Competition Law, Climate Change & Environmental Sustainability.

And look out for more insights on State aid and hydrogen in our upcoming LinkingCompetition post.