AGENDA 2025: Sustainability Agreement & Private Enforcement

AGENDA 2025: Sustainability Agreement & Private Enforcement

This article is part of the D’Kart Spotlights: AGENDA 2025, in which experts from academia and practice comment on aspects of the Competition Policy Agenda presented by the Federal Ministry of Economic Affairs and Climate Action (BMWK). The contributions already published can be found here.

“Sustainability” has become an integral part of the public debate. Accordingly, it is also of great importance for the competition policy agenda of the Federal Ministry for Economic Affairs and Climate Action (BMWK). Patrick Hauser takes a look at the possibilities of antitrust law to strengthen sustainability agreements and to reduce the danger of green-washing by strengthening private enforcement.

The German government has set itself ambitious goals. The coalition agreement is an “alliance for freedom, justice and sustainability”. Exaggerating one could speculate that each of the three coalition partners was allowed to choose one of these terms. However, this would probably not be fair. At the very least, sustainability is one of the most important issues of our time. Although what it covers in detail is not entirely clear. Though it undoubtedly includes the sparing use of limited resources, also to combat the consequences of climate change. The competition policy agenda of the Federal Ministry for Economic Affairs and Climate Action (BMWK) up to 2025 also clearly demonstrates the importance attributed to sustainability. It lists ”10 points for sustainable competition as the cornerstone of the social-ecological market economy” [emphasis added]. Aspects of sustainability are thus at the centre of the proposals for the further development of the Act against Restraints of Competition (GWB) (point 2 of the agenda). The Austrian competition authority has also recently published its guidelines regarding sustainability initiatives.

The crux of negative externalities

The advancement towards a more sustainable economy is costly. In a sustainable economy, negative externalities are eliminated or at least minimised. Negative externalities must be internalised, i.e. borne by the producer or consumer, rather than outsourced to society or other innocent bystanders. Products may become more expensive as a result, which is regularly disliked by consumers. This price signal may provide incentives to either mitigate the negative spill-over or to use the products more sparingly. Nevertheless, it is often disadvantageous for companies to be the first/only ones to strive for cost internalisation (first-mover disadvantage). Agreements or cooperation between different companies can therefore make sense. However, competition law may be an obstacle and industry representatives apparently perceive it to be (see e.g. towards the end of this report on D’Kart). 

This is where point 5 of the competition policy agenda should come in. The ”legal certainty for sustainability in competition law” shall be increased. In case of  industry cooperation to promote sustainability goals or human rights standards beyond the legal requirements ”competition policy must provide legal certainty as to how this can be done without violating competition law”. Therefore, the BMWK is examining 

”how the competition law framework can be adjusted. The objective is to give companies a clear legal framework for sustainability agreements – without facilitating greenwashing by cartels or other types of hidden restraints of competition”.

Need for a clear legal framework

Elena Wiese has already pointed out that consultations with authorities or clearance certificates under Sec. 32c GWB are not enough, however helpful they may be. The legislator must proceed courageously. The arguments shall not be repeated here, only a few small points be added.

Draft Horizontal Guidelines do not go far enough

The Commission rightly devotes a separate section to sustainability agreements in its draft of the new Horizontal Guidelines. The comments on the soft safe harbour (para. 572 et seq.) prove that at least sustainability standardisation agreements and competition law are not in conflict per se. However, if Article 101 (1) TFEU is infringed, an exemption is required. The second condition of Article 101 (3) TFEU (fair share of consumers in the efficiency gains achieved) appears to be particularly problematic. 

The Commission not only requires that the ”overall effect on consumers in the relevant market is at least neutral“ (para. 588). It also wants to take into account collective consumer benefits, which are of particular importance in sustainability agreements, only ”if the group of consumers affected by the restriction and benefiting from the efficiency gains is substantially the same” or at least  “consumers in the relevant market substantially overlap with, or are part of the beneficiaries outside the relevant market” (para. 602 et seq.). An exemption based on collective benefits is, therefore, conceivable if, for example, sustainability agreements eliminate or reduce environmental pollution on consumer markets and the associated benefits compensate the consumers in the relevant market themselves for the disadvantages (cf. para. 604). An exemption based on collective benefits, on the other hand, is ruled out if sustainability agreements instead eliminate environmental pollution elsewhere but result in price increases for local consumers. Irrespective of the competition law assessment, this distinction seems somewhat cynical, at least morally, and also outdated against the background of the increasing importance of environmental social governance or supply chain responsibility. 

The Commission’s focus on the appropriate participation in the efficiency gains of consumers in the market concerned is partly due to ECJ case law. Nevertheless, one would wish for the Commission to be bolder. The Dutch competition authority has argued for some time (and is by no means alone in this interpretation) that consumers affected on the relevant do not have to be compensated in full for the disadvantages. Instead (as also required by the wording of Article 101 (3) TFEU) it should suffice that consumers receive a fair share in the efficiency gains and collective benefits occurring outside the relevant market should be taken into account to a greater extent. Notwithstanding my sympathies for the approach of the Autoriteit Consument & Markt, this approach is unfortunately associated with considerable legal uncertainty for the companies concerned until the ECJ has had a chance to clarify this matter.

Specific exemption in the GWB?

The consultation period for the draft Horizontal Guidelines ended on 26 April 2022. It is true that in the final version the Commission could give even greater weight to the benefits of the general public over the disadvantages of the affected consumers. However, this does not seem likely in view of Margrethe Vestager’s statements last autumn. In order to promote sustainability agreements with benefits for society as a whole and to relieve companies of the existing legal uncertainty, the legislator should therefore take action (see already the call for action by Elena Wiese).

Only: A change in primary Union law does not seem to be within reach. While exceptions to Article 101 (1) TFEU in the area of agricultural policy can be regulated by secondary law (see Articles 42 (1), 43 (2) TFEU), as was recently the case with the insertion of Article 210a in the Regulation on a common organisation of the markets in agricultural products, this possibility does not exist in many other areas. 

However, the scope of the national legislator is limited (see Art. 3 of Regulation 1/2003). The exemption from the ban on cartels for sustainability agreements, which was included in § 2 (1) second subparagraph of the Austrian Federal Cartel Act in autumn 2021, was a courageous and important step. Quite rightly, the Austrian Federal Cartel Act thus takes into account the advantages for the general public and future generations that follow from an ecologically sustainable or climate-neutral economy. Only this approach allows for an appropriate consideration of the damage caused by negative externalities and a cost allocation to the polluters: the producers or consumers of the respective products. Benefits for society as a whole in the area of sustainability should be able to compensate for price increases on consumer markets. However, due to the primacy of EU competition law, the exception is not relevant in Austria regarding agreements that may affect trade between Member States. The scope of application is therefore likely to be limited.

Despite the limited scope of application of national competition law, the inclusion of a similar exception in the GWB would be welcome. First of all, the signal it would send out that sustainability agreements are politically desirable would be right and important. Companies would receive more legal certainty, at least domestically. Companies would also be encouraged to be more courageous in matters with possible effects on trade between Member States. In addition, it is to be expected that an exception in the GWB will also be taken up by the other Member States. This could at least increase the likelihood of an adaptation of Union law or at least of the Commission’s practice.

It is true that a national exception for purely domestic matters ends the synchronisation between § 2 GWB and Article 101 (3) TFEU, which is not ideal in practice. However, the government should concentrate on what it can in fact influence: the GWB, without losing sight of European developments. 

Preventing greenwashing: strengthening private enforcement

It cannot be denied that such an exemption (with a purely national scope of application) may increase the danger of greenwashing. However, despite the threat of fines for violations of Article 101 TFEU, § 1 GWB, this danger cannot be completely eliminated. The legislator should therefore not allow itself to be deterred from taking action. In addition, however, private enforcement should also be strengthened in this area:

Anyone who has leafed through the tables of contents of relevant legal journals in recent months could hardly help getting the impression that “climate change litigation” or “climate protection lawsuits” are currently booming or that the boom is at least imminent. Such lawsuits have gained momentum through various court decisions, of which only three should be highlighted. In March 2021, the Bundesverfassungsgericht [Federal Constitutional Court] forced the German legislator to attend detention to amend the Climate Protection Act. Shortly afterwards, the oil company Shell in the Netherlands was ordered to reduce its global CO2 emissions. The Higher Regional Court Hamm also attracted attention in 2017 when it entered into taking evidence on whether and to what extent RWE is causal for imminent damage by climate change. 

In view of this development, it suggests itself to rely on private enforcement also in the area of greenwashing of restrictions of competition. If the alleged sustainability agreement in fact served to enforce higher prices, there are no particularities compared to the usual cartel damages proceedings. In this respect, the well-known problems in the context of quantifying damages and enforcing claims remain, especially in the case of scattered damages (see the reform proposals by Christian Kersting).

However, the emissions cartel in particular revealed a potentially more pressing concern from a sustainability perspective. Under the cloak of sustainability agreements, anti-competitive agreements could also serve to prevent the market introduction of more environmentally friendly/sustainable products or services. In other words, sustainability innovations are prevented. In these cases, the quantification or attribution of loss is much more complex. The question of causality of which environmentally friendlier products would have prevailed but for the anti-competitive measures, could possibly be resolved, just as environmental damage could be quantified with the help of economic expert opinions. More serious, however, is the dilemma of negative externalities. The “general public” suffers damage. The “environment” or “nature” are not allotted to any legal subject though. No legal entity suffers loss that could be claimed by way of compensation, or the individual losses are too small so that it is not worthwhile to claim compensation.

This is where the legislator should take action. It is not necessary to consider ”nature as a legal entity” with its own rights and duties. Perhaps it is sufficient, as suggested by Advocate General Kokott in her opinion in Otis (para. 130), that a representative of the “general public” can sue for such damages. Referring to possible harm to the general public from a cartel-induced reduction in housing subsidies, she stated:

”However, in such cases, it is possible to consider having a representative of the public interest demand compensation for the harm sustained and making the injuring party pay the compensation into a fund that benefits the general public.”

Comparable to the fund for financing nuclear waste disposal, a public foundation could be set up and authorised to assert such claims for damages. Support from the Bundeskartellamt [Federal Cartel Office] is also conceivable. In fact,  disgorgement of profits by the Bundeskartellamt pursuant to § 34 GWB is already possible de lege lata in this constellation. However, especially in the case of negative externalities it may be unclear which economic advantages the competition law infringers gained by preventing environmentally friendly standards. The negative externalities were neither priced in nor charged to the customers. The costs were imposed on the general public. It is therefore unlikely that the economic benefits of the competition law infringers correspond to the damages of the general public. Disgorgement of profits is, therefore, unlikely to be sufficient to compensate for the damages incurred.

Conclusion

Strengthening sustainability in its various forms, but especially with regard to climate protection, is a concern for society as a whole, ultimately worldwide, and necessary to protect future generations. Competition law must not impose too high hurdles for companies wanting to tackle market failure and bringing about an internalisation of costs through sustainability agreements. Therefore, the effects on society as a whole should be taken into account, both in terms of possible benefits of sustainability agreements as well as in terms of the damage caused by restrictive practices.

Dr. Patrick Hauser is manager of the Institute for Competition Law at Heinrich-Heine-Universität Düsseldorf.

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