Do companies become more sustainable when they are allowed to collaborate?

From the business community, there have been calls for competition law to be relaxed, making it easier for companies to enter into sustainability agreements with one another. This raises a question for policymakers: is it sensible and effective to relax the competition rules? Professor Maarten Pieter Schinkel of the University of Amsterdam plays a key role in this debate.

How can companies be encouraged to take sustainable solutions seriously? Companies and lawyers often argue that businesses are ready to work together on initiatives, but are reluctant to do so for fear of being seen as a cartel. For this reason, the European Commission has explored the advantages and disadvantages of relaxing the competition rules in recent years. In 2023, a chapter was added to the Horizontal Guidelines – the European Commission’s guidelines for companies concerning collusion – addressing the scope for cooperation agreements between companies pursuing sustainability initiatives.

Is relaxing European competition rules a good idea?

The update to the Horizontal Guidelines sparked extensive debate about the conditions under which sustainability agreements can be exempted from the European cartel prohibition. This prohibition is laid down in Article 101 of the Treaty on the Functioning of the European Union (TFEU) and applies to all companies in Europe.

By sharing academic insights and taking a well-substantiated position, Maarten Pieter Schinkel plays a crucial role in the debate around what he calls green antitrust. Schinkel is a professor at the Faculty of Economics and Business at the University of Amsterdam (UvA), specialising in competition policy and regulation. As an academic, he focuses on the fundamental questions at the heart of the policy debate. Do companies genuinely step up their sustainability efforts when they are allowed to make agreements with one another? Or does competition in the market provide a stronger incentive to pursue sustainability? And what is the risk of cartel greenwashing – a situation in which companies use sustainability as an excuse for anti-competitive behaviour?

In publications, presentations and interviews, Schinkel highlights the societal consequences of relaxing competition rules. His research shows that agreements between competitors can actually hinder the transition to a more sustainable economy, and that competition authorities should therefore be cautious about allowing them. His work contributes to better-informed policymaking for the European market.

What exactly is the problem with more lenient rules for green agreements?

In discussions surrounding the Horizontal Guidelines, Schinkel warned that exempting companies from the cartel prohibition would not encourage them to take action on sustainability. Quite the opposite: ‘With green agreements, there is a risk that sustainability is used to justify anti-competitive behaviour. Cartel greenwashing is a real danger. Companies then benefit from agreements among themselves while making only minimal efforts to improve the sustainability of their production processes. Consumers pay higher prices without demonstrably gaining anything in return.’

The Dutch Authority for Consumers and Markets (ACM), by contrast, strongly advocated more lenient guidelines for sustainability agreements at European level. In 2015, the regulator had still prohibited a sustainable cooperation agreement between poultry farmers relating to the ‘Chicken of Tomorrow’ (De Kip van Morgen) initiative. ‘The idea behind De Kip van Morgen was that the parties would collectively phase out intensively farmed chicken. The ACM, however, found that the sustainability benefits did not sufficiently outweigh the disadvantages for consumers, such as higher prices. That was the right conclusion, but the ruling nevertheless led to considerable political pressure. The ACM subsequently lobbied in Brussels for such agreements to be permitted more easily. The regulator drew up its own draft guidelines, allowing more scope for sustainability agreements. The ACM also wanted such an extended scope to be included in the revision of the European Horizontal Guidelines.’

The impression was created that the cartel prohibition would stand in the way of companies’ sustainability initiatives. But the opposite is true. It is precisely when competing with one another that companies step up their CSR efforts. The poultry case is a good example. Several years after the agreements under De Kip van Morgen were prohibited, it became clear that poultry farmers had improved living conditions significantly more than they had originally planned. Maarten Pieter Schinkel (Amsterdam Center for Digital Competition)

What impact do academics have on European regulation?

The prevailing interpretation of Article 101 of the TFEU is that a cartel agreement can sometimes be permitted, particularly if the customers of the companies involved are not worse off as a result. Through lobbying, the business community calls for a broader interpretation of the so-called consumer compensation criterion. They want this criterion to include benefits to non-customers as well. Schinkel explains: ‘That may sound reasonable, but such a broad interpretation of environmental benefits would actually reduce sustainability efforts even further. Take a green cartel that reduces CO2 emissions while increasing the price of a product. Suppose one tonne of CO2 reduction is needed to compensate customers for that price increase. Such a cartel could get away with a fraction of that tonne of reduction if it were allowed to argue that the whole world benefits from it.’

According to Schinkel, the lobbying effort to broaden the consumer compensation criterion is therefore misguided. ‘It is obvious that the positive effects of a company’s sustainability initiative often extend beyond its direct customers. In some cases the whole world benefits. But if you take sustainability seriously, you must impose an obligation to make a substantial effort – enough to at least compensate your customers.’

‘When we, as researchers, showed that sustainability agreements would lead to less sustainability rather than more, I thought the debate would be over. But there continued to be strong lobbying by companies and lawyers in favour of a broader interpretation of the compensation criterion.’

The European Commission ultimately listened to the arguments put forward by academics advocating the stricter consumer welfare criterion as a necessary condition for green agreements. The 2023 Horizontal Guidelines explicitly retained the consumer compensation criterion. The revised Horizontal Guidelines entered into force on 21 July 2023 and are also binding on national competition authorities. The ACM subsequently withdrew its earlier draft guidelines and published a new policy rule, ACM Supervision of Sustainability Agreements. The regulator also announced that it would not enforce the cartel prohibition against sustainability agreements. ‘I found the latter rather odd, given their demonstrable ineffectiveness. But it is good that the European Commission did not adopt the policy advocated by the ACM.’

Thanks in part to the economic research by Maarten Pieter Schinkel and his co-authors, there has been a growing recognition that some sustainability agreements may have limited effectiveness – and even sometimes a negative effect on sustainability. This helped enlighten the debate within the European Competition Network as to the balance to be struck in the Horizontal Guidelines when assessing the competition impact of such agreements, leading the Guidelines to maintain relatively strict conditions that take full consumer compensation into account. Olivier Guersent (former Director-General for Competition at the European Commission)

What is the added value of academic research in the debate on competition and sustainability?

Schinkel contributed to the debates on sustainability agreements within the European Union in various ways. In 2017, a publication by Schinkel and Yossi Spiegel was among the first academic studies of green cartels. ‘There was a great deal of interest in it, including among policymakers. The research made clear that exempting companies from the cartel prohibition was not an effective way of promoting sustainability. In an equilibrium with sustainability agreements, the investments made by cooperating companies in sustainability are lower than in a competitive equilibrium.’ Together with Leonard Treuren, Schinkel generalised these findings and disproved further counter arguments given.

His economic analyses made Schinkel a sought-after speaker on the risks of green cartels. He gave presentations at the European Commission, the OECD and the United Nations. He also shared his insights at academic conferences and during meetings of competition authorities in countries including Sweden, Austria, the United Kingdom, China and Japan. ‘The conference Competition Policy Contributing to the European Green Deal in February 2021 was decisive for the European Commission’s position.’ The online event attracted more than 3,000 participants and provided input for the draft Horizontal Guidelines. In 2023, Schinkel also responded to the public consultation on the draft Horizontal Guidelines. His main recommendation – to retain the strict consumer compensation criterion – was adopted.

Schinkel sees the combination of fundamental academic research and applied analysis of societal issues as the key to success in the debate on green cartels. ‘As a professor, you are just as much the author of academic research on the public interest as you are a thorn in the side of lobbyists pursuing their own private interests. Our UvA research on green antitrust is cited internationally, including by leading economists such as Jean Tirole and John Vickers. I also see it as my role as an academic to advance the public debate. To do that, it is important to remain open-minded and independent, and always to substantiate your position with academic insights. The opportunity to do so is what makes the position of an academic unique.’

Want to know more?

The Impact Centre involved is: Amsterdam Center for Digital Competition

Publications

Corporate social responsibility by joint agreement, M.P. Schinkel and L. Treuren (2024, January). Journal of Environmental Economics and Management.

Response to the public consultation of the “draft revised Horizontal Guidelines” of 1 March 2022, in particular to Chapter 9 Sustainability Agreements. M.P. Schinkel (2022, May).

Can collusion promote sustainable consumption and production? M.P. Schinkel and Y. Spiegel (2017, July). International Journal of Industrial Organization.

Other sources

Let’s talk competition - Navigating the new Horizontal Guidelines: sustainability & info exchange (2023, June). Competition Policy.

Maarten Pieter Schinkel presents ‘Green Cartel’ research at the European Commission. (10 February 2021). University of Amsterdam.