The EU Commission’s evolving Green Deal strategy – more clarity please

On 4 February 2021, the European Commission’s long-awaited Conference on Competition Policy Contributing to the European Green Deal took place (see our previous blog on the consultation preceding the conference here).  The conference was opened by Commission Executive Vice President and Commissioner in charge of competition policy, Margrethe Vestager.

The European Green Deal, announced in December 2019, is the EU’s growth strategy focusing on the creation of new jobs and boosting innovation in sustainable areas of the economy, including transport, energy, agriculture and buildings. Its goal is for Europe to be the first climate neutral continent by 2050, where economic growth is decoupled from resource use.  Executive Vice President Vestager noted that, although there are more direct instruments than competition policy to make the economy greener (e.g. environmental regulation, taxation and green investment), competition policy nonetheless remains a vital component to achieve this goal.

The conference discussed the role of the three main limbs of competition – antitrust, merger control, and state aid.  In essence, competition policy has to play its part by ensuring that state aid rules encourage investment in the green economy and that antitrust and merger control rules favour green innovation.  There was often lively debate on the competing interests involved between stakeholders, and there was a wide range of inputs ranging from high-ranking Commission officials and officials from national competition authorities, to government officials, business leaders and academics.

In terms of concrete outputs and next steps Executive Vice President Vestager committed to:

• “In the weeks to come” set out how the Commission plans to update the rules on state aid for energy and the environment, and on regional aid for Europe’s less developed regions;
• “Before the summer” publish a report on lessons from the consultation process and the input to the debate; and
• “Later this year” consult on the options for an updated framework and guidance on horizontal co-operation between competitors and vertical supply agreements.

There were a number of common themes which came up time and again during the conference.  It was repeatedly noted that the “net zero” target will only be achieved by innovation, and that only comes from competition, but perhaps the most consistent and recurring theme was a demand for more clarity on the current rules on co-operation – this was explicitly acknowledged by the Head of the Commission’s Directorate-General for Competition (“DGCOMP”), Olivier Guersent.  M. Guersent acknowledged that “DGCOMP does not operate in a political vacuum – it also has an obligation to drive forward the Green Deal” and so it is to be hoped that this will result in some concrete and meaningful guidance in the near future.

We set out below some of the main themes as they relate to antitrust, merger control and state aid, with a particular focus on antitrust:

Antitrust

• It is important not to overstate the brake on co-operation which competition law might impose.  Most co-operation is benign or has only immaterial effects on competition.  However, some have said that co-operation is slowed down by a fear of infringing Article 101 TFEU.  For instance, a company may suffer from “First Mover Disadvantage” if it introduces a green product onto the market without co-ordination (an example was given of the introduction of a more compact packaging for a deodorant by a single producer – consumers perceived that they were getting less volume for their money compared to rivals even though it was identical and shunned the innovative product).  Another example is issues in the vertical supply chain – even if producers successfully co-ordinate to phase out harmful packaging, the upstream suppliers of the greener product need to be incentivised to increase such production as without it there will be shortages – so you need joint and binding off-take agreements.  It was acknowledged that these types of issues must be countered and so much more clarity is required for the rules on information exchange, joint purchasing and standard setting.
• That said, there is a balance to be struck: large scale co-operation may be needed to avoid First Mover Disadvantage but there is an equally important need to avoid “Cartel Greenwashing” – i.e. green claims acting as a camouflage for blatant cartels or more subtle forms such as disclosure of commercially sensitive information or commitments to specific sustainability aims acting as focal points for co-ordination.
• Exemptions under Article 101(3) TFEU: a key issue here is who are the beneficiaries? Should the “consumers” mentioned in this provision extend to “citizens or society at large”?  And what is a “fair share” of ensuing benefits from Green co-operation?  The Dutch Competition Authority has issued Draft Guidelines which suggest the ambit of its equivalent of Article 101(3) TFEU should be stretched materially in favour of a wider, longer term goal (see our previous briefing here).  But has this gone too far? It is a question of balancing competing interests.
• As to what we can expect from DGCOMP in terms of more clarity and guidance:
  • Many of the current Guidelines are currently being updated anyway – most notably the Vertical and Horizontal Co-operation Guidelines.
  • Increased use of “positive decisions” may be instructive – i.e. publication of decisions highlighting the non-applicability of Article 101 TFEU to act as helpful guidance.  This may become more common in the future.

Merger Control

• The key theme here was a need to avoid “killer acquisitions” of green innovation, i.e. acquisition of disruptive green start-ups.
• This is therefore consistent with a wider debate of similar issues relating to the tech industry.
• Nevertheless, it was felt that the EU Merger Regulation remains broadly fit for purpose in this respect.

State Aid

• The recurrent theme as regards state aid was that the economic recovery post-Covid will require huge investment – this should not be spent restoring parts of the economy that have no future and which will just create stranded assets.
• A clear nod was given to Hydrogen and Energy Storage as key planks of future innovation, and accordingly that state aid should be focussed on technologies that are too expensive currently to make use of this innovation.

Contacts