Martijn Snoep, Chairman of The Netherlands Authority for Consumers & Markets (“ACM”), spoke about ‘What is fair and efficient in the face of climate change?’ at the Swedish Competition Authority’s annual seminar “The Pros and Cons” on 30 May 2022. He strongly advocates that the competition authorities around the world should play their role in contributing to action to protect the climate.
This especially relates to enabling any horizontal cooperation among competitors, as this is traditionally frowned upon by competition authorities considering it may risk restricting competition.Snoep stated “We are the ones holding the key to this part”. According to the chairman, horizontal cooperation is necessary to avoid the disastrous consequences of global warming. According to Mr Snoep, this is because there is market failure and, “… we have governments incapable of doing what is necessary out of fear of losing the current electorate. And we have businesses incapable of doing what is necessary out of fear of losing customers. But there is some hope coming from three other stakeholders: capital, labour and the courts.” According to him there is however a way out, this is where the competition authorities should play their part.
He believes that the European Commission (“Commission”) still needs to make a significant amendments in the proposed Horizontal Guidelines on Sustainability (“Proposed Guidelines”), as they lack the clarity that is much needed in the market. The Proposed Guidelines do not provide sufficient guidance for allowing indispensable, impactful cooperation between competitors required to meet the goals of the Paris Agreement and to avoid the drastic consequences of climate change.
According to the Proposed Guidelines it is possible for a sustainability agreement that infringes Article 101(1) TFEU to be exempted under Article 101(3) , if – in addition to the other 3 cumulative criteria – consumers receive a fair share of the benefits (the fair share test) when the benefits deriving from the agreement outweigh the harm caused by the same agreement, so that the overall effect on consumers in the relevant market is at least neutral.
Although the Proposed Guidelines mean a ‘big step in the right direction’, according to Snoep, they stop short of providing sufficiently precise guidance. In particular, the Proposed Guidelines will create confusion on how to meet the fair share test in practice. Snoep points out that the Commission seems to insist that a fair share means that the balance of the harms (which relates to the price increase or reduction of choice) and the benefits (the contribution to no climate change) seems at least neutral for the consumers of the products or services negatively affected by the cooperation and that benefits should fully compensate for the harms.
Snoep questioned why consumers need to be fully compensated for the benefits of environmental damage agreements (in terms of the ACM’s Sustainability Guidelines), as it would be fairer to not compensate the consumers for the harms when the consumers are also the polluters, as long as the cooperation has a total net positive effect for the world (including these consumers). Snoep claims that there is no sensible justification for requiring that the consumers need to be compensated in full for not contributing to climate change, in case agreements aim to redress negative externalities. This would not be efficient and fair, as it is important to always look at the context. Furthermore, the Commission has determined that in situations where the benefits are global, only a proportionate amount of those benefits can be used in the fair share test. When following the Commission’s logic, not more than 5% of these collective benefits would be used for the fair share test making the fair share test insurmountable in practice.
Snoep states that this flaw in the Proposed Guidelines is caused by the Commission lumping together all ESG-related sustainability benefits ranging from animal welfare to greenhouse gas reduction and subjecting them to the same fair share test. In doing so, in his view, the Commission seems to ignore the context and in particular, whether there are negative externalities of the size and magnitude of the climate change on a case-by-case basis.
The ACM chair argues that what should be fair and efficient in the face of climate change, is that an agreement is only exempted from the competition laws if the benefits outweigh the harms for the consumers as created by that specific agreement. This is also in line with the ACM’s draft sustainability guidelines (see ACM’s own Guidelines and it’s Legal Memo on the ‘fair share’). According to Snoep: “That is the type of fairness and efficiency we need in the face of the dramatic consequences of climate change.” As the Commission is holding the key, Snoep hopes that the Commission will clarify in next draft Guidelines that this is indeed the case.
For further information, please contact:
Pauline Kuipers, Partner, Bird & Bird
pauline.kuipers@twobirds.com
