As part of our response to the European Commission’s consultation on possible reforms to its merger control guidelines,[1] we provided our views on Topic Paper D – on Sustainability and Clean Technologies.
The EU aims to achieve climate neutrality by 2050, a transition which will “require changes across the entire policy spectrum and a collective effort of all sectors of the economy and society”.[2] The Draghi report identified decarbonization, alongside innovation and reducing dependencies, as a key area for action to reignite EU competitiveness.[3]
Against this backdrop, we set out our views on how the EU’s merger guidelines (“Guidelines”) could be updated to support the EU’s climate and growth objectives.
A. Recognizing the role of merger control in sustainable development in the EU
The EU Merger Regulation provides that merger control should contribute to sustainable development in the EU.[4] However, the current Guidelines lack guidance on the relevance of sustainability factors in merger control. They do not address how the Commission should assess mergers with a sustainability objective, for example whether the Commission should seek to balance the anticompetitive effects of a merger against its contribution to climate and other sustainability objectives, nor how to weigh the sustainability harms of a merger against its competitive gains.
Our proposal:
The revised Guidelines should make explicit the role of merger control in promoting sustainable development within the EU, and include a framework for assessing mergers that generate sustainability-related consumer benefits.
B. Sustainability as a parameter of competition
Sustainability factors can drive competition in certain markets. Evolving regulations, government policies, technologies, or social norms are influencing customer demand for more sustainable solutions, or requiring companies to adapt their business models and R&D plans to remain competitive. Such industry trends are particularly relevant in a dynamic analysis of a merger’s effects.
Our proposal:
The revised Guidelines should discuss the circumstances in which sustainability considerations could be a relevant parameter of competition and explain the market characteristics which could lead to such a finding and the sources of evidence considered (e.g., the parties’ internal documents, market reports, market feedback, and the deal rationale).
C. A nuanced approach to sustainability-related theories of harm
Recent Commission decisions have pursued competition concerns arising from overlaps in emerging sustainable solutions or inputs.[5] While it is important the Commission consider these issues, the Commission should also be mindful of the need for caution in developing (novel) theories of harm in a fast-moving area and the risk of penalizing first-movers in the space.
Our proposal:
When evaluating the merging parties’ market positions in a sustainable product, the revised Guidelines should consider the relevance of competitive constraints from rivals with a lesser sustainability performance or legacy solutions. Such rivals may benefit from economies of scale, access to cheaper inputs that do not internalize environmental externalities, or mature technologies. When evaluating a merger’s impact on the parties’ incentives to invest in overlapping sustainable products, the revised Guidelines should discuss the potential for neutral or procompetitive outcomes such as (i) the acceleration of R&D through complementary assets and knowledge transfer (cross-pollination), or (ii) new entry or the increased incentives of rivals to innovate and transition towards sustainable technologies.
D. A refined assessment of sustainability-related benefits
The efficiencies framework of the current Guidelines is inadequate to comprehensively assess the sustainability-related benefits of a given merger. Its stringent requirements concerning consumer benefits, merger-specificity, and timeliness present general difficulties for efficiency arguments (discussed in our dedicated submission on merger efficiencies) as well as particular challenges for sustainability-related efficiency gains, which may take more time to materialize post-merger and benefit consumers outside the markets raising concerns.
Our proposal:
The current framework should be updated to reflect recent advances in competition policy on sustainability issues. More specifically, the revised Guidelines should align the efficiency gains recognized with the new Horizontal Guidelines, clarify the relevant consumers for whom these benefits are recognized, and develop guidance on timeliness to better address dynamic efficiencies. It should also address the complexities in proving non-cost efficiencies and establish a clear framework for their evaluation. This includes explaining how non-cost efficiencies should be assessed (including the level of quantification required) and clarifying how such benefits will be weighed against the potential competitive harms identified in the absence of precise values. Finally, the revised Guidelines should provide guidance on relevant types of evidence and include case study examples on the assessment of sustainability efficiencies.
E. Greater recognition of dynamic and out-of-market efficiencies
Sustainability-related benefits (such as greenhouse gas emission reductions) may arise from mid-to long-term post-merger developments, through the parties’ investments in product development and R&D, or the scale-up of acquired green technologies. These new solutions or improvements – as well as the environmental positive externalities they bring – may arise in markets beyond those impacted by potential competition concerns.
Our proposal:
The revised Guidelines should expand consideration of out-of-market and non-cost efficiencies in the merger assessment. This will give the Commission flexibility to weigh any benefits arising in neighboring or next-generation markets against potential competition harms to legacy solutions.
In sum, the European Commission’s review of the Guidelines presents an opportunity to modernize the EU merger control framework to advance the EU’s transition towards sustainability and clean technologies. Our proposals advocate for an approach that duly recognizes the sustainability-related benefits that may arise from a merger, including longer-term and broader market impacts.
Through implementing these recommendations, EU merger control can both safeguard competition and further the EU’s sustainability and technological leadership in the face of pressing global environmental and competitiveness challenges.
Interested in reading our full response? Please find it here.
[1] See our September 5 alert EU Merger Guideline Consultation – Our Views on Possible Reforms on the Cleary Antitrust Watch.
[2] Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU) 2018/1999, OJ L 243, Recital 25.
[3] M. Draghi, The future of European competitiveness, September 2024, p.5
[4] Council Regulation (EC) No 139/2004 of 20 January 2004, recital 23, and Article 2 and Article 3(3) TEU. The Commission has assessed elements of sustainability in its analysis of market definition (Marine Harvest/Morpol (Case COMP/M.6850), decision of September 30, 2013 and DEMB/Mondelez/Charger Opco (Case COMP/M.7292), decision of May 5, 2015; competitive constraints (Norsk Hydro/Alumetal (Case COMP/M.10658), decision of May 4, 2023, and efficiencies (Aurubis/Metallo (Case COMP/M.9409), decision of May 4, 2020).
[5] For example, in Norsk Hydro/Alumetal, the Commission observed that suppliers were positioning themselves to serve the growing demand for low-carbon aluminum foundry alloys (“AFAs”) due in part to regulations driving increased customer demand for lighter, more sustainable aluminum in the automotive sector. While the Commission did not define a separate market for low-carbon AFAs, it examined whether the parties competed closely in this area and if there would be sufficient low-carbon producers post-merger. (Norsk Hydro/Alumetal (Case COMP/M.10658), decision of May 4, 2023, ¶¶46–47, 112, Sections 9.1.2.2.1. and 9.1.3.3.7. In Cargotec/Komecranes, the Commission raised the concern that the parties were the main developers of electric/hybrid vehicles, and that even the parties considered that “competitors are in fact not ahead of them in a meaningful way” (Cargotec/Konecranes (Case COMP/M.10078), decision of February 24, 2022, ¶1406).