Can sustainability play a role in antitrust enforcement? And should it? Lund University professor Julian Nowag explores the debate around that intersection of sustainability, climate change, and competition policy that has taken Europe by storm.
Can sustainability play a role in antitrust enforcement? And should it? Can competition policy be a viable tool to fight climate change, and should antitrust enforcers take climate change into consideration? In the past few years, these questions have been the subject of a growing debate among policymakers and scholars, particularly in Europe. In an attempt to answer these questions and more, we have decided to launch a series of articles on the relationship between antitrust and sustainability.
Beyond Covid-19, the last few decades have been marred by numerous tragedies: freak weather events caused by climate change, biodiversity loss, and general environmental degradation. These problems can be seen as part of a broader sustainability challenge faced by humankind. As such, sustainability— defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” by the UN in 1987—has been on the agenda of international organizations and countries for many years.
The concept of sustainability is also increasingly embraced by the business community, and we can observe a drive for more sustainable business activity. It is thus not surprising that competition authorities around the world are expecting more frequently faced with questions around sustainability and competition. Some agencies such as the Dutch, Greek, German, UK, and EU authorities have already become active. Similarly, the OECD’s Competition Division has discussed the issue and followed up with discussions about environmental protections and antitrust and the measurement of environmental benefits for antitrust.
But what is this debate about? The debate around antitrust and sustainability takes place on at least two levels: a normative level and a technical level. The normative debate focuses on the question of whether sustainability should play a role in antitrust. The technical debate, on the other hand, explores what role sustainability can play in antitrust.
At the normative level, we often see a simplistic, reductionist—one may even say sensationalist—view that reduces the debate to competition vs sustainability. This simplistic either/or view is often the result of a very narrow price-centric view of consumer welfare. At its extreme, it looks merely at potential costs and ignores any benefits, presenting the debate as consumer welfare vs sustainability, or low prices vs sustainability. Such a view might be entertaining and great for lively debates, yet it doesn’t do justice to the subject. It is unhelpful, since it suggests a clear dividing line and binary choice between these concepts. This oversimplification trivializes the sustainability challenge humanity faces. It also does not do justice to the challenges of enforcement, business demand, and the demand from consumers and citizens for more sustainable products.
In my recent paper for the OECD, I tried to detail a more sober approach. Such an approach acknowledges on the one hand that, from a competition perspective, regulation to achieve sustainability is the preferred option. On the other hand, it acknowledges that the question whether sustainability should play a role in antitrust is a moral/political question that is shaped by the institutional and legal context in the relevant jurisdiction. The more technical question in the antitrust and sustainability debate is one of overlap. It is a kind of Venn-diagram question:
Where do consumer welfare and sustainability overlap? Where are the boundaries, and where do we need to discuss the boundaries?
The European Origins of the Antitrust/Climate Change Debate
Much of the debate so far has taken place in Europe. One reason is certainly increased awareness of and demand for sustainability amongst European consumers. However, the EU’s specific normative setup also helps explain why debate may be more relevant there. EU competition law has two features that induce a European-wide debate: first, EU competition law is not found in a separate legal instrument like the Sherman Act in the US or many similar national competition laws. Instead, it is found within the EU Treaties that set out a constitutional order. There are numerous rules regarding the powers of the EU vis-a-vie its Member States, its aims, and the protection of fundamental rights which all form part of the framework in which the competition rules exist.
One part of this constitutional order is a requirement to “integrate” sustainability into competition policy. Thus, questions as to how this integration is to be done are bound to appear, explaining the debate with regard to sustainability and EU competition law. Yet, there is a second reason that helps explain why this debate occurs not only with regard to EU competition law but also at the national level in various European countries, and it has to do with the allocation of powers between the EU and its Member States. To simplify, EU Member States directly apply EU competition law and their national competition laws cannot contradict EU competition law. Thus, any debate around EU competition law also sparks a debate about national competition laws in EU Member States.
A Brief Look at the Antitrust and Sustainability Venn-Diagram
Antitrust and sustainability can overlap in two ways.
First, there are cases where competition authorities can foster sustainability through targeted enforcement, where anticompetitive practices are similarly detrimental from a sustainability perspective—for example, cases in which cartels prevent consumers from buying sustainable products. The French competition authority investigated a cartel where companies agreed not to compete on the environmental performance of their products by ensuring that their environmental performance would not be used in advertising/sales campaigns. Similarly, there are cases where enforcement can help protect sustainability innovation: Last year, the European Commission fined car makers that colluded to hamper the rollout of more effective filtering techniques for emission of diesel cars.
The question of sustainability innovation is at the heart of the European antitrust/sustainability debate. It centers around the following question: when using innovation-based theories of harm:, how far can such innovation-based theories be pushed?
The debate whether competition authorities should focus on exploitative abuses (if such a prohibition exists in the relevant jurisdiction). Such rules against exploitative practices, for instance, can be used to protect the social dimension of sustainability—namely with regard to poverty (as opposed to the broader question of inequality).
Antitrust and the Consumer Welfare, Sustainability Balance
The second area where antitrust and sustainability can overlap is in cases in which a company wants to move in a more sustainable direction. The main debate in this context in Europe concerns how to balance potential restrictions of competition against potential sustainability improvements. Examples that might be relevant in this context are numerous and range from agreements not to use forced or child labor (even in countries where such practices are legal), complying fully with the applicable laws in a country with weak enforcement records, commitments to net zero, joint develop of cleaner products, to complying with more stringent emission standards, or phasing out polluting products.
When looking at these and other examples, it is important to keep a basic legal principle in mind: not every restriction of commercial freedom is considered to be restricting competition and thus does not fall under the scope of the antitrust rules. Only where such activities are restricting competition to a sufficiently substantive degree, they are within the scope of the antitrust rules. And only where they are within the scope of the relevant antitrust rules, an act of balancing may be required. Yet, even where balancing may be required, the balancing is not always controversial, especially in jurisdictions that have (general or specific) public interest exceptions, like Australia. In such jurisdictions, sustainability can readily be considered in antitrust cases by relevant courts or authorities.
It seems that balancing sustainability and competition and/or consumer welfare can become contentious, mainly in jurisdictions that do not have such public interest clauses. The question that is raised in such systems is: How can the established economic frameworks of consumer welfare and efficiency be applied in cases where sustainability is involved?
Yet even in jurisdictions that only use the consumer welfare and efficiency frameworks, balancing antitrust and sustainability does not need to be contentious. Sustainability can be integrated into these frameworks—for example, as a quality parameter. However, the debate about sustainability and efficiency and consumer welfare can become more contentious when considering how far the dynamic nature of sustainability as a quality parameter can and should be pushed. For example, how to treat efficiencies that occur in other markets; a debate that can occasionally overlap with the concept of multisided markets.
In other words, the question is: How—and to what extent—can the benefits of sustainability innovation be taken into account by agencies and courts, in particular when those benefits are expected to occur in the future and/or in other markets. Overall, economics is currently not too helpful in answering this question: there are only a few economic studies in this area, but some studies have started to appear.
What Can Agencies Do?
Matters of substantive antitrust law, such as those discussed above, are typically decided by the courts. What roles can antitrust agencies have in these matters?
For agencies, sustainability or climate change can play a role when it comes to objectives and setting enforcement priorities. The UK’s Competition and Markets Authority (CMA), for example, lists climate change as part of its priorities. Moreover, given that this is an emerging area, formal and informal guidance is important. The European Commission has announced that it would welcome individual requests by businesses for advice and will address such questions in the upcoming revision of its horizontal guidelines. Furthermore, agencies can become active with regard to approval procedures, sandboxing, admissible evidence, capacity, fining, and international cooperation.
Overall, a broad consensus exists that antitrust rules do not require the abandonment of established principles, such as the consumer welfare standard, where sustainability can be considered part of the quality and innovation dimension of competition. However, this consensus is sometimes obfuscated by the debate about the contentious issues described above. Yet, it should be noted that these debates only become relevant in extreme (and often hypothetical) cases where all the other (commonly agreed) options do not apply. In other words, where an entity is found to restrict competition to a substantial degree, and the benefits in terms of quality/innovation do not outweigh the harm (and the parties are not willing to amend their arrangement to make it compliant). Thus, it might not be surprising that many OECD countries are already considering sustainability matters within their antitrust enforcement practice.
With the increasing pressure imposed by climate change and other sustainability issues, innovation in these fields will be key. Thus, the US cannot avoid the question of how antitrust interacts with sustainability and whether—and to what extent—it would want to follow in the EU’s footsteps.
Disclosure: Julian Nowag has written the report Sustainability and Competition Law for the OECD and is a founding member of the Inclusive Competition Forum, a think-tank connecting experts in competition law with stakeholders working to promote more socially-inclusive competition policy and economics in Europe.
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