EU Competition Law & Environmental Protection

1. EU Competition Law & Environmental Protection

2. Meeting • Meeting for the first time!

3. Objectives • To evaluate the role of the ‘company’; • To understand the position of competition law in the greater EU economic constitutional framework; • To discuss the application of horizontal provisions of the treaties; • To understand how environmental protection arrives in competition law.

4. Lecture Structure Part I • The Position of the Private Organisation; • The Space Occupied by Competition Law. Part II • The Competition Law Provisions; • The Influence of Environmental Policy.

5. Part I(a) - The Role of the Organisation Predominantly a Public Law Flavour

6. Political Agreement • This results in, for example: • Primary legislation; (Article 191TFEU) • Secondary legislation; (Regulation (EU) No 510/2011) • State policy; (International commitments, investment or non-investment commitment; EU policy (Air Quality Standards)) State Non-Compliance (EU) = Infringement.

7. Environmental Policies • Organisations feeling the pressure? • Legislation; • National Mandatory Standards; • EU Mandatory Standards. Private Non-Compliance = Penalty But what about in private spheres?

8. Private Environmental Goals Non-legal pressure about environment: • Investors; • Shareholders, etc. • AstraZeneca: As we move ahead, we continue our efforts to meet our 2015 global targets to reduce dependence on natural resources and to use them even more efficiently. We will also continue to support both the EPA Energy Star Program through building and plant certifications and the Green Power Partnership by investing in offsite wind energy in the form of renewable energy certificates. • BP: BP recognises the world's growing need for energy and aims to produce it affordably with minimum impact on the planet, without damaging the environment. • Volvo: Environmental Care is a Volvo Group Core Value. The Volvo Group is to be ranked as a leader in terms of Environmental Care among the world’s top producers of transport-related products, equipment and systems.

9. What about the Private Sector? • Freedom to operate a business (Art. 16 EU Charter); • To choose a business partner; • To choose a business structure; • To choose a business practice; • To set trading policies. But markets still need regulating, so freedom is not absolute.

10. Limits to Freedom • Business Freedom is Conditional? • Industry; • Size of company; • Behaviour; • Type of Agreement. • What? • Imposing unfair terms on trading partners; • Disguised unfair trading practices; • Disguised cartel behaviour; • Why? • Protection on adverse effects on trade between Member States How are these limits regulated?

11. Competition Law • The Treaty requirement that competition shall not be distorted implies the existence on the market of workable competition, that is to say the degree of competition necessary to ensure the observance of the basic requirements and the attainment of the objectives of the Treaty, in particular the creation of a single market achieving conditions similar to those of a domestic market.

12. Pure Competition Objectives Competition law exists to protect the process of competition in a free market economy • A system where the allocation of resources is determined solely by supply and demand in free markets Competition wanted because of the market result it produces • Efficiency • Low prices • Innovations Competition rules limits the freedom of the market players to protect the process of competition

13. Fitting Competition Law In

14. Part I(b): The Space Occupied by Competition Law • Competition law forms a predominant Union control mechanism. • Unlike US antitrust law, the EU competition rules are not part of a separate statute. They are part of a web of interrelated Treaty articles and fulfill a function in the general scheme of the Treaties. • The normative structure of the Treaties and the presence of cross-sectional clauses occasionally demands an orientation of competition provisions directed at accommodating various non-efficiency considerations.

15. TFEU Cross-Sectional Title II of Part One of the TFEU begins “shall ensure consistency between its policies and activities, taking all of its objectives into account.” In addition to the considerations that are accorded a privileged status in the Treaties, the European Council has repeatedly stressed the need to take other legitimate interests into account in the application of the competition rules.

16. The EU Maze • The CJ has traditionally privileged a teleological method of interpretation, holding that competition Articles should be construed in the light of the overall objectives of the EU and the activities indispensable for their achievement. • It follows that EU competition enforcement is one of a broad range of activities that should help attain the objectives of the Treaties.

17. Cross-Sectional Conflicts The objectives of the Treaties are not necessarily mutually compatible. Sometimes one objective can only be achieved at the expense of another. This potential for conflict between the different objectives might affect the implementing provisions, which aim to achieve the respective objectives. Given the growing diversification of constitutional values, and the notable expansion of social values in particular, this potential for conflict only increases. The Treaties do not provide an express mechanism to resolve such conflict.

18. Examples • Case 209/98 Sydhavnens v KøbenhavnsKommune*free movement • C-171/11 - Fra.bo *free movement • Case C-67/96 Albany International BV *Social policy and protection of workers

19. Lecture Structure Part II • The Competition Law Provisions; • The Influence of Environmental Policy.

20. Part II – Competition Law Provisions • Competition law provisions made up of a number of sources: • Treaty provisions (Articles 101 and 102 TFEU); • formal guidelines; • notices; • communications, and • papers.

21. Uniqueness of the EU • Competition law is one of the main tools for the prevention, permitting, curing or prohibiting intended action of a company or companies where the behaviour could constitute a threat to or cause damage to the internal market. NB: More than minimal effect on trade between Member States! • Environmental Policy as cross-sectional provision: • As environmental Agreements; • Environmental Efficiencies.

22. Article 101 TFEU 1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:…

23. Environmental Policy (Old Horizontal Guidelines) The (old) Horizontal Guidelines define environmental agreements as agreements ‘by which the parties undertake to achieve pollution abatement, as defined in environmental law, or environmental objectives, in particular, those set out in … the Treaty’. In such agreements, the parties may set out environmental product or production standards, provide for the common attainment of an environmental target (e.g., for the recycling of materials, emission reduction, or improvement of energy efficiency), or establish industry-wide waste take-back and recycling schemes. To qualify as an environmental agreement, the target of the measure must be directly linked to the reduction of a pollutant or a type of waste, identified as such in the relevant regulations.

24. Environmental Agreements For example, agreements between undertakings to set up collective, industry-wide packaging waste recycling schemes qualify as environmental agreements, since they target the reduction and recycling of packaging waste, which is required by the Packaging and Packaging Waste Directive. Environmental agreements were frequently encouraged or even made necessary by public authorities in the exercise of their public prerogatives. In such situations, undertakings must comply with the EU competition rules within the margin of maneuver that remains after the public intervention.

25. Environment not Absolute! • Environmental agreements are caught by Article 101(1) ‘by their nature’ if the cooperation does not truly pursue environmental objectives, but serves as a tool to engage in a disguised cartel, or if the cooperation is used as part of a broader restrictive agreement which aims at excluding actual or potential competitors.

26. For Example… • In VOTOB, the Commission objected to a fixed ‘environmental charge’ that was mentioned separately on the invoice and that was intended to cover part of the cost of implementing a voluntary emission reduction covenant concluded between Dutch chemicals storage companies and the Dutch Government. • The horizontal fixing of an ‘environmental and safety charge’ was also found to violate Article 101(1) in Industrial and Medical Gases. • In NAVEWA-ANSEAU, the Commission held that the labelling scheme for washing machines and dishwashers, arguably based on environmental considerations, was in fact discriminatory and essentially aimed at isolating the Belgian market by protecting it from parallel imports.

27. Consider This… Almost all producers of washing machines agreeto no longer manufacture products which do not comply with certain environmental criteria. Together, the parties hold 90 % of the market. The products which will be phased out of the market account for a significant proportion of total sales. They will be replaced by more environmentally friendly, but also more expensive products. Furthermore, the agreement indirectly reduces the output of third parties (for example, electric utilities and suppliers of components incorporated in the products phased out). Without the agreement, the parties would not have shifted their production and marketing efforts to the more environmentally friendly products. Product variety, which is partly focused on the environmental characteristics of the product, is reduced and prices will probably rise.

28. Article 101 (3) The provisions of paragraph 1 may, however, be declared inapplicable in the case of: • any agreement or category of agreements between undertakings, • any decision or category of decisions by associations of undertakings, • any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: • impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; • afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

29. Environmental Policy and 101(3) Under Article 101(3), agreements may not impose restrictions that are not indispensable to the attainment of the economic efficiencies pursued. The (old) Horizontal Guidelines note that the more objectively the economic efficiency of an environmental agreement is demonstrated, the more clearly each provision might be deemed indispensable to the attainment of the environmental goal within its economic context. The Guidelines further state that provisions which might prima facie be deemed not to be indispensable must be supported with a cost-effectiveness analysis showing that alternative means of attaining the expected environmental benefits would be economically or financially more costly, under reasonable assumptions.

30. All Washed Up? Not Yet… Newer, more environmentally friendly products are more technically advanced, offering qualitative efficiencies in the form of more washing machine programmes which can be used by consumers. Furthermore, there are cost efficiencies for the purchasers of the washing machines resulting from lower running costs in the form of reduced consumption of water, electricity and soap. The efficiency gains outweigh the restrictive effects on competition in the form of increased costs. Other alternatives to the agreement are shown to be less certain and less cost-effective in delivering the same net benefits. Various technical means are economically available to the parties in order to manufacture washing machines which do comply with the environmental characteristics agreed upon and competition will still take place for other product characteristics. Therefore, the criteria of Article 101(3) would appear to be fulfilled.

31. CECD The Commission granted an exemption to an agreement between virtually all the European importers and manufacturers of domestic washing machines to stop importing or producing the least energy-efficient machines, thereby reducing the polluting emissions from power generation. The environmental benefits for society were stated to meet the criteria for exemption although there may be no benefits for individual purchasers who apart from a reduction in choice will see the purchase price of such machines going up to cover the added costs. The Commission stated that the agreement contributed to EU environmental policy objectives to such an extent that ‘the benefits very largely exceed potential cost increases triggered as a result of the agreement’ and even if individual purchasers were not to derive the financial benefits ‘the magnitude of environmental benefits is such that the net contribution to society's economic welfare would still be positive’.

32. Backward Trend? • CECD no longer referred to in literature; • Environmental agreements withdrawn from the Commission Guidelines; • Little or no mention of environmental policy in any other literature from the Commission in relation to its impact on competition provisions.

33. Recent Case • Netherlands Energy Companies • This case concerns an agreement by electricity producers active on the Dutch market, who agreed to a plan ‘National Energieakkord’ which is supported by social actors, environmental NGO’s and employee representatives, to close down a number of five old coal powered plants. • Such a collaboration raises competition concerns and is likely to reduce production capacity, so the Netherlands Competition Authority was consulted on the compatibility of this plan with Article 101 TFEU. They took the preliminary view that the plan is incompatible with competition law. • Their opinion is very thin and there is hardly any consideration of the environmental motivators behind the preliminary view.

34. Concluding Thoughts