It has been clear for some time that fears of accusations of collusion can prevent businesses from collaborating on initiatives to tackle climate change [1]. On 24 January 2022, Sarah Cardell, the new CEO of the Competition and Markets Authority (CMA), acknowledged the “pent up demand” from businesses keen to work together on action for climate good. She confirmed the CMA will propose relaxing existing rules to allow for cooperation in these instances without the fear of antitrust enforcement [2].
“Some flexibility"
In a speech to the Scottish Competition Forum, Ms Cardell set out the CMA’s revised environmental priorities, and further teased long-awaited new guidance on collaboration between businesses on climate change. The new guidance, long in the making, was first alluded to by the CMA in March 2022. In advice to the UK Government, the CMA highlighted that there was “some flexibility under the current legal framework” to exempt climate-focused agreements from antitrust restrictions [3].
Ms Cardell also confirmed that this guidance would adopt a new approach for agreements related to climate change which signifies a departure from the traditional approach to the ‘fair share’ assessment set out in the Competition Act 1998. Agreements which improve production or distribution or promote technical or economic progress will only be exempt from antitrust rules if consumers in the relevant market receive a ‘fair share’ of the resulting benefit.
Of course, this approach can be restrictive in the context of climate change agreements, where the benefits of such agreements may not be confined to be particular market but rather extend to wider society. The watchdog CEO acknowledged this, noting that climate change represents a “special category of threat” which attracts particular public concern and has led to binding legal commitments to reach net zero.
The CMA has therefore found that it will be appropriate in these cases “to take into account the full benefits to UK society which derive from the agreement” provided that consumers in the relevant market are part of the wider group of consumers who will benefit from the agreement.
While Ms Cardell confirmed the onus will be on firms to demonstrate (and potentially quantify) the benefits of climate change agreements, she said the CMA’s guidance will make clear what kind of analysis and evidence will be accepted by the CMA. The CMA also wants to offer additional comfort and clarify to firms, encouraging them to raise any questions not covered by the guidance so it can provide direct advice on how the guidance will be applied in specific scenarios.
Interestingly, the CMA has said that in its new guidance it is seizing the opportunity presented by Brexit to take a “fresh look” at its approach to sustainability agreements. Ms Cardell said Brexit “has given us the opportunity to go further than we have before in providing reassurance and clarity on our approach - including spelling out where we won’t take enforcement action against business collaboration to tackle climate change”.
The European approach
In its latest draft of the Horizontal Cooperation Agreement Guidelines the European Commission (EC) also provided additional guidance to businesses in relation to sustainability agreements and how antitrust rules would apply to them [4].
However, the EC has confirmed that in order to rely on collective societal benefits for an exemption to antitrust rules under Article 101(3) of the Treaty on the Functioning of the European Union (which includes the EU’s ‘fair benefit’ test), there must still be a substantial overlap between the consumers of the relevant goods or services affected by a sustainability agreement and any other beneficiaries.
Whilst the devil will be in the detail, it appears that the CMA is set to go further than the EC in its new guidance regarding climate change agreements. However, it remains to be seen whether the CMA will become a true trailblazer in this area - this will depend not just on any new interpretations of existing antitrust rules, but also on whether this new guidance is clear enough to truly remove business risk of antitrust fines in these instances.
While the CMA has framed these developments as a post-Brexit dividend, it is worth noting that other European national regulators have been thought leaders in the context of sustainability agreements for some time, despite the EC’s conservatism. The Dutch Authority for Consumers and Markets in particular has published two sets of draft guidelines on sustainability agreements [5] and has approved these kinds of agreements in a number of instances (e.g. allowing Shell and TotalEnergies carbon capture and storage venture [6], and an agreement between soft-drink suppliers to reduce plastic packaging [7]).
Nevertheless, Brexit has seen the CMA settle in to a newly expanded role across a range of competition law issues and a new presence on the global stage. So despite being arguably late to the party on this issue, stepping out of the EC’s shadow may well have emboldened the CMA to go further than it otherwise would have in its new guidance. Earlier this month the EC opened a new consultation on sustainability agreements in the context of agriculture, so it remains to be seen whether it may begin to take a more progressive approach in line with national authorities in certain markets [8].
A key role for competition authorities to provide clarity to business
Some commentators have levelled the criticism that antitrust rules and the authorities which are responsible for their enforcement are themselves a key barrier to sustainable innovation. Whilst these are bold claims, it is certainly the case that competition regulators in the UK and elsewhere have been unsure of their role in the wider response to the climate crisis. In her remarks on Tuesday, the CMA’s new CEO clearly articulated where she stood on the question: Ms Cardell fully acknowledged that “competition and consumer authorities have an important role to play” in addressing climate change as a real-world challenge facing people and businesses.
The CMA’s guidance on sustainability agreements is expected next month and will be subject to public consultation.
[1] – See for example commentary from the OECD in 2020 (https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WD(2020)75&docLanguage=En), and examples in Financial Times’ coverage of this announcement (https://www.ft.com/content/6513ae6f-2347-409c-9be1-eee673d9447f).
[2] – See the full speech here: https://www.gov.uk/government/speeches/sustainability-exploring-the-possible.
[3] - https://www.gov.uk/government/news/cma-publishes-environmental-sustainability-advice-to-government
[4] See our prior analysis of these guidelines here: https://my.slaughterandmay.com/insights/briefings/revolution-or-evolution-the-european-commission-consults-on-revised-horizontal-guidelines-and-block-exemptions
[8] - https://ec.europa.eu/commission/presscorner/detail/en/ip_23_102
[9] - https://www.gov.uk/government/news/cma-to-scrutinise-green-claims-in-sales-of-household-essentials
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