Recent guidance on sustainability cooperation from the Dutch Competition Authority

The Dutch Competition Authority has recently approved three different sustainability initiatives in the CO2 capture/storage, soft drinks and floriculture sectors. These approvals demonstrate the Dutch Competition Authority’s willingness to provide guidance on the application of competition law to sustainability initiatives, and to consider that an exemption from the application of competition may be justified on grounds of sustainability. 

Dutch competition authority’s sustainability push

The Dutch Authority for Consumers and Markets ("ACM") is currently one of the leading competition authorities in Europe taking a flexible approach to the application of competition law to sustainability initiatives. The ACM has published Guidelines on Sustainability Agreements ("Sustainability Guidelines") that provide clarification on the competition law assessment of sustainability initiatives, including of so-called "environmental-damage agreements", where it may be possible to consider the benefits for wider society as a whole, instead of only the benefits for the users of the products involved. With a view to facilitating sustainability initiatives, the ACM is also at the forefront in providing guidance to companies on compliance with the competition rules.

The Sustainability Guidelines are currently in a form of second draft¹, and so far have been applied five times by the ACM to assess sustainability arrangements on the Dutch market.² We analyse below three of its most recent assessments.

Collaboration in the storage of CO2

On 27 June 2022, the ACM issued an opinion authorising Shell and TotalEnergies to collaborate in the storage of CO2 in empty natural-gas fields in the North Sea.³

The CO2 storage plan initiative

TotalEnergies, Shell and two State owned companies (Gasunie and Energie Beheer Nederland) (together, "the Parties") plan to use empty offshore gas fields (under the Dutch part of the continental shelf of the North Sea) in order to provide carbon capture and storage ("CCS") services to emitters of CO2 based in the Netherlands. The Parties will build an on-shore terminal, a high-capacity pipeline, and a compressor that will transport the CO2 to the empty gas fields.

To reduce their own risk, Shell and TotalEnergies propose an initiative to jointly market a volume of five million tonnes per annum CO2 for CCS ("MTPA"), which represents 20% of the capacity of the pipeline to be constructed ("JMI"). A joint tariff will be offered for 15 years by the Parties for the CCS services until the five MTPA is fully booked. Over and above the five MTPA, the remaining capacity of the pipeline will be used by the Parties and third parties to supply CCS services in competition with each other. 

The ACM’s assessment 

The ACM considered that a new market was created, namely, the market for CO2 storage in empty gas fields, and that about 20.4% would be covered by the joint selling. 

Given the scope of the restrictions (joint setting of prices, capacity and quality as well as the 15 year duration of the arrangements), the ACM considered that it could not exclude that the arrangements may appreciably restrict competition in the provision of CCS services. The ACM considered that the Specialisation Block Exemption could not apply because the market shares exceed 20% and the uncertainty of the market share due to the nascent market.

The ACM therefore considered whether the arrangements could qualify for an exemption under Article 6 para 3 Dutch Competition Act ("Mw") and Article 101(3) Treaty on the Functioning of the European Union ("TFEU"). 

1.    Improvement of production or distribution of goods or promotion of technical or economic progress

The ACM noted that the proposed arrangements:

• lead to the creation of a new market, and significant benefits for third parties, which will be able to connect with the infrastructure and provide CCS services in competition with TotalEnergies and Shell; 
• allow for cost savings because TotalEnergies and Shell do not have to duplicate infrastructure; and 
• introduce a new CO2 reduction technology, which will provide emitters with a new, alternative option to reduce their CO2 emissions, thus contributing to achieving legally binding climate goals.

With respect to joint price setting, the ACM noted that, due to the availability of ETS rights as a substitute for CCS, the joint CCS price setting will be subject to cost control. In addition, the ACM noted that the excess of five MPTA of CCS will be accessible by third parties competing with TotalEnergies and Shell, thus leading to market based prices for CCS services. 

2.    Fair share for consumers

When assessing the fair share criterion, the ACM underlined that the JMI will introduce a new technique for reduction of CO2 emissions — providing emitters with alternative solution to deal with their emissions, without affecting the currently available options, in terms of both choice and price. The ACM considered the counterfactual (where the new technique was not offered), and concluded that the proposed arrangements were likely to be beneficial for all consumers (emitters) within the relevant market. 

Despite the fact that it did not appear necessary to do so as the grounds for a "classic" exemption on efficiency grounds had been fulfilled, the ACM went further in its analysis. The ACM considered that the proposed arrangements qualify as "an environmental damage agreement, leading to cleaner air and less CO2 pollution for society". Whilst the ACM considered that the proposed arrangements benefit all consumers (emitters), the ACM went on to state that "... even if the Emitters would have been worse off ... it is likely that, based on a rough estimate … the benefits for the consumers and society would outweigh the negative effects for the consumers."

3.    Indispensability

The ACM noted the need for emitters to have certainty that CCS and transport services can be offered without interruption, and considered that the operational and financial resilience required to provide this service, in such an innovative, novel and technically untested area, could not be offered by either Party acting on their own. The ACM concluded that in order to allay emitters' concerns and give them confidence to commit to the JMI, and mitigate potential first mover disadvantage, the companies need to join their developing and marketing competencies and experience. The ACM also considered that the joint pricing mechanism minimised restrictions of competition in several ways. Therefore, the ACM found the cooperation agreement to be indispensable for the sustainable goals proposed.

4.    No elimination of competition

The ACM's analysis acknowledged that the first five MTPA of the total pipeline capacity would be restricted by TotalEnergies and Shell. However, the rest of the capacity remains available on FRAND terms to third parties and will be offered both in competition with each other and with third parties. 

Moreover, the ACM emphasised that the EEA-wide market for CCS is likely to grow in the future. The ACM therefore considered the "no elimination of competition" criterion to be fulfilled. 

Based on the above analysis, the ACM concluded that JMI is likely to meet all four criteria of the legal exemption covered by Article 6 para 3 Mw and Article 101(3) TFEU. Consequently, it issued a "no-action letter" and decided not to investigate the initiative further at this stage. 

Plastic handle initiative between soft drink suppliers

On 26 July 2022, the ACM issued a press release⁴ stating that an agreement between Coca Cola, Vrumona, and two supermarket chains to discontinue the use of plastic handles on all of their soft drink and water multipacks was compatible with the competition rules.

The ACM set out the following reasoning in its press release:

• Several of the suppliers conducted a market study which indicated that the handles (or the ease thereof) do not play a role in the competitive process; 
• As a result of the collaboration, more than 70% of multipacks in the Netherlands will no longer have handles, and less plastic is needed; and
• The agreement leaves the suppliers free to continue making their own decisions (sustainable or otherwise). By illustration, each company participating in the agreement is free to decide when and how it wishes to discontinue using handles in their multipacks. 

The ACM considered that the agreement fell under at least two of five categories of agreements that are not considered as anti-competitive and are thus allowed under its Sustainability Guidelines, namely: 

• agreements that incentivise undertakings to make a positive contribution to a sustainability objective without being binding on the individual undertakings; and
• agreements that are aimed at improving product quality, while, at the same time, certain products or products that are produced in a less sustainable manner are no longer sold.

The ACM concluded that the agreement between soft drink suppliers did not restrict competition. Therefore, the ACM informally approved the initiative without appearing to consider whether it qualified for an exemption.

Arrangements of garden centers to curtail use of illegal pesticides

On 2 September 2022, the ACM informally approved arrangements between garden centers, which aim to curtail the use of illegal pesticides.⁵ These arrangements have been made between hundreds of members of the Dutch Garden Retail Sector, Tuinbranche Nederland. By virtue of these arrangements, the garden centers will put in place certain measures to temporarily collectively exclude supplies from growers that use illegal pesticides.

In the Netherlands, the Plant Protection Products and Biocides Act indicates that only plant protection products that have been proven safe are allowed. In addition, the Dutch retailers have been encouraged to take individual actions when illegal substances are found by, for example, focusing on prevention and spreading awareness among growers and garden retailers. However, research on the Dutch market has shown that such actions have not been sufficiently effective and that illegal pesticides are sometimes still used for the growth of certain plants. 

The ACM considered that the initiative combats below-legal-standard competition, and therefore falls under the category of agreements that are not considered as anti-competitive and are thus allowed under the Sustainability Guidelines. In reaching its conclusion, the ACM took into account the following factors:

• The objective of the agreement is to respect a national standard that promotes sustainability: the ACM considered that currently growers which use illegal pesticides can produce plants with less effort and by cheaper means and therefore, have an "illicit" advantage over those suppliers which comply with the law.  The ACM noted that the growers do not compete on the basis of their own merits but because they do not comply with the law, and that this is not the type of competition that the competition rules seek to protect. The initiative aims to counteract the "illicit" competition by ensuring enforcement of the statutory rules and, in doing so, promoting sustainability.
•  The proposed measures are necessary and proportional to the elimination of "illicit" competition and the promotion of sustainability: the ACM took due account of the fact that illegal substances are still being used and that the previous initiatives in the floriculture sector have not managed to properly address this concern. In addition, the ACM noted that Tuinbranche Nederland has put in place certain safeguards, which limit the initiative to what is necessary and proportionate.

Based on the above, the ACM was satisfied that the arrangement at hand is open and transparent, and that decisions to exclude certain suppliers will be taken carefully and subject to "due process". 

The ACM concluded that the initiative does not restrict competition under Article 6 para 1 Mw without the need to analyse whether it would qualify as ancillary restraint or whether an exemption under Section 6(3) Mw would apply. In addition, the ACM considered that to the extent that there is a cross-border effect and Article 101 TFEU applies, it is plausible that a similar conclusion would be drawn. Consequently, the ACM decided not to investigate the initiative further at this stage.

Outlook

These approvals indicate the ACM's willingness to discuss and permit initiatives between competitors that genuinely pursue sustainability goals. The ACM's flexible approach to competition law exemption and encouragement of consultation provides companies operating on the Dutch market with opportunities to cooperate on sustainability initiatives. 

The approach is not uniform across the EU, however. The European Commission, for example, published in March 2022 draft revised Horizontal Guidelines with a new chapter dedicated to sustainability agreements. However, the EC approach set out in the draft does not take as liberal approach to exemption on sustainability grounds as the Dutch approach, and there has been limited appetite and engagement by companies to date for approaching the European Commission for informal guidance on sustainability initiatives. The chairman of the ACM, Martijn Snoep, recently indicated that informal guidance is crucial and that companies do not engage in cooperation due to fear of potential competition law infringements.⁶ By contrast, at more or less the same time, Olivier Guersent, Director General of DG COMPETITION in the European Commission, pointed out that no company had yet taken up an offer to discuss such agreements with the European Commission, and therefore, the tension between sustainability agreements and anticompetitive effects may not be as problematic as initially anticipated.⁷ Controversy about the approach of the EU Commission was stoked by recent comments made by major banks that global antitrust concerns could require them to withdraw from the Glasgow Financial Alliance for Net Zero founded by Mark Carney.⁸

^{1 Press release, Second draft version: Guidelines on Sustainability Agreements – Opportunities within competition law (26 January 2021), available at link. In addition, the ACM has also recently published Guidelines regarding collaboration between farmers, which outline opportunities for collaborations between farmers that are allowed under the competition rules, see at link.
2 For two initiatives not covered by this alert see press release, ACM favours collaborations between businesses promoting sustainability in the energy sector (28 February 2022), available at link.
3 Press release, ACM: Shell and TotalEnergies can collaborate in the storage of CO2 in empty North Sea gas fields (27 June 2022), available at link. The authorisation is in the form of a so-called “no-action” letter, that allows the ACM to investigate the arrangements in the future (e.g. following a complaint), but protects the parties from fines because the parties have sought the ACM’s preliminary views on the arrangements.
4 Press release, ACM is favourable to joint agreement between soft drink suppliers about discontinuation of plastic handles (26 July 2022), available at link. 
5 Press release, ACM agrees to arrangements of garden centers to curtail use of illegal pesticides (2 September 2022), available at link. 
6 Martijn Snoep, Ad Hoc Expert Meeting Competition, Consumer Protection and Sustainability – Competition and Sustainability (28 September 2022), available at link. 
7 Lewis Crofts, Most environmental agreements are unlikely to cause antirust harms, EU's Guersent says (10 October 2022), available at link.
8 Stephen Morris, Kenza Bryan, Owen Walker, US Banks Threaten to leave Mark Carney’s green alliance over legal risks, Financial Times 21 September 2022.}

Sylwia Kalaska (Associate, White & Case, Brussels) contributed to the development of this publication.

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