On 27 January, the CMA published guidance for businesses on the application of UK competition law to co-operative agreements aimed at achieving environmental or sustainability objectives (the Guidance). The role of competition law in supporting environmental initiatives has seen greater focus as the UK government pursues its 2050 net zero target and the European Union seeks to become the first climate-neutral continent by 2050 (discussed here). The Guidance explains the application of existing block exemptions and guidance for firms assessing whether agreements with sustainability objectives risk infringing competition law, and is part of a wider programme of activities that the CMA is carrying out to support sustainability objectives.
The CMA’s Wider Sustainability Objectives
The CMA’s 2020/21 Annual Plan, published on 19 March 2020, identified sustainability as one of six priority areas. It stated that the CMA would focus on “Climate change – supporting the transition to a low carbon economy,” with an aim to “ensure that businesses engaged in sustainable initiatives know to how to comply with competition law and do not unnecessarily shy away from those initiatives on the basis of unfounded fears of being in reach of competition law.”[1] The same objective is repeated in the CMA’s draft 2021/2022 Annual Plan.
The Guidance is the third initiative that the CMA has undertaken in support of its climate change commitments. It follows the announcement in early December 2020 of a market study into electric vehicle charging,[2] and a call for evidence in relation to misleading environmental claims about consumer products in November 2020.[3]
Substance of the Guidance
The Guidance is divided into three main sections: (i) advice for setting standards (for instance, on environmental performance); (ii) an explanation of the types of agreement that are considered to restrict competition ‘by object’; and (iii) exemptions that may apply.
Standard setting
The CMA recognises that many sustainability agreements involve standard setting, where agreements are reached between businesses on, for instance, performance of products, production processes and the resources used in production. The Guidance explains the rules that organisations must follow when agreeing new standards with other firms, including: (i) ensuring that standard setting processes are transparent, up to date and easily accessible for affected parties; (ii) allowing all interested competitors to participate in the standard setting process; (ii) ensuring access to the standard on fair, reasonable and non-discriminatory terms; and (iii) compulsory IP licensing where those IPRs are essential to the implementation of the standard.
The CMA goes on to provide four examples of practices in which standard setters should not engage: (i) the disclosure of commercially sensitive information not necessary for setting the standard; (ii) directly or indirectly obliging businesses to comply with the standard; (iii) hindering the development of alternative standards; and (iv) limiting access to the market, such as through pressuring third parties to market only standard compliant products.
‘By object’ restrictions
The CMA reminds firms of the rules on cartel agreements and sharing competitively sensitive information. The Guidance nevertheless explains that sharing competitively sensitive information may be permitted if (i) it is shared only with a third-party to create aggregated market-wide statistics, (ii) the third party collating the data does not disclose individualised information and (iii) the data is not used to facilitate coordination between competitors.
Available exemptions
The CMA outlines three ways in which organisations may be permitted to co-ordinate their behaviour to achieve sustainability objectives: (i) the parties have low combined market shares (ranging from 10% for agreements of minor importance, to 20% for cooperation related to production agreements) and the agreement does not contain any hardcore restrictions of competition; (ii) the parties fall within an existing EU block exemption, which form part of retained EU law post-Brexit; or (iii) the agreement benefits from an individual exemption on the basis that it generates efficiencies for consumers that cannot be achieved by other less restrictive means.
What does the Guidance mean in practice?
The Guidance seeks to support the UK’s transition to a low-carbon economy in summarizing the application of competition law to co-operative agreements aimed at achieving environmental or sustainability objectives. The CMA makes clear, though, that it will continue to investigate suspected infringements even where the underlying conduct has a sustainability objective. It also acknowledges that firms are likely to need expert legal advice to apply the Guidance, while recognising the CMA’s discretion to issue short- form opinions.
The Guidance does not advance new substantive rules for the assessment of agreements that are designed to achieve environmental or sustainability objectives. A number of questions therefore remain unanswered, including whether the CMA will take environmental benefits into account when applying the criteria for exemption under section 9, Competition Act 1998. For example, how will the CMA assess agreements between competing groceries shops to phase out plastic packaging or agreements to close down production facilities that cause pollution? Will the CMA consider and assign a value to the cost of carbon emissions, which would support an analysis of whether a sustainability agreement could be considered “necessary” for the purposes of an individual exemption assessment?
The Guidance is unlikely to be the CMA’s last word on this subject, not least because it does not say anything new. In a blog post that accompanied the publication of the Guidance, the CMA referred to ongoing international discussions on competition law and environmental sustainability.[4] It suggests that there could be future developments on whether environmental efficiencies (such as reduced CO2 emissions) should be taken into account when considering the availability of individual exemptions. The public policy debate centres on considering whether and how competition law should be influenced by sustainability. The debate is, however, sometimes reduced to “competition law versus sustainability,” ignoring that the two can coexist, by incorporating sustainability considerations within existing competition law frameworks.
In November 2019, the European Commission launched a public consultation on the horizontal block exemption regulations and its guidelines on horizontal cooperation agreements, to which the Guidance expressly refers. In the Commission’s summary of contributions, 11 national competition authorities stressed the need for more guidance on sustainability agreements.[5] And, as the OECD has found, many non-European countries are already considering sustainability in their enforcement practice.[6] Various commentators have argued (including here), that the European Commission can and should include environmental agreements in its revised guidelines on horizontal cooperation agreements. When the current Commission guidelines expire, the UK will need to decide whether to continue to follow the Commission’s approach or introduce UK-specific guidance.
[1] https://www.gov.uk/government/publications/competition-and-markets-authority-annual-plan-2020-to-2021/annual-plan-2020-to-2021#our-priorities- for-202021.
[2] See https://www.gov.uk/government/news/cma-to-examine-electric-vehicle-charging-sector.
[3] See https://www.gov.uk/cma-cases/misleading-environmental-claims.
[4] The blog post cites the following reports: OECD (2020), Sustainability and Competition, OECD Competition Committee Discussion Paper; the Dutch competition authority (the ACM) Draft Guidelines on Sustainability Agreements, 9 July 2020; and the Greek competition authority (the HCC) Technical Report on Sustainability and Competition, January 2021.
[5] Summary of the contributions of National Competition Authorities to the evaluation of the R&D and the Specialisation Block Exemption Regulations and the Commission Guidelines on Horizontal Cooperation Agreements, p.8, available here: https://ec.europa.eu/competition/consultations/2019_hbers/NCA_ summary.pdf.
[6] OECD (2020), Sustainability and Competition, OECD Competition Committee Discussion Paper, paragraph 112,