Green Deals: Can EU Merger Control support the bloc’s wider policy objectives?

Last week, the European Commission published its latest competition merger brief, setting out the views of staff in its Directorate General for Competition (DG Comp) on sustainability-related aspects in EU merger control. The competition spotlight has to date mainly focused on issues surrounding cooperation between competitors for environmental or sustainability goals. This paper changes tack – setting out the Commission’s approach to sustainability in its merger control function and explaining how its mergers work and the current legal framework support the European Green Deal. 

We have been considering this issue for some time and welcome the Commission’s new focus, see our chapter in Concurrences’ Competition Law, Climate Change & Environmental Sustainability (Chapter 3). The Commission claims, and we see in practice, that there is a clear trend towards sustainability becoming increasingly important in its merger reviews, while also recognising the limits of the Commission’s powers within the current legal framework (for instance in assessing sustainability-related efficiencies or designing green remedies).

Greening market definition

The paper considers how sustainability-related factors can impact the definition of relevant markets in merger reviews and flags the need for the Commission to take into account (i) customer preferences for sustainable products, services or technologies to assess demand-side substitutability; and (ii) the potential for suppliers to offer green products, services or tech on the supply side.

Consumers are increasingly demanding and interrogating sustainability credentials when they shop, and the Commission cites several examples in its case practice where it has taken non-price parameters of competition – such as sustainability – into account in its assessment of market definition. By way of example, customer preferences for sustainably farmed salmon informed the finding of separate product markets for farming and primary processing of Scottish salmon as opposed to Norwegian salmon in Marine Harvest/Morpol.

More recently, in its 2023 decision in Norsk Hydro/Alumetal (see here), the Commission considered whether low carbon solid advanced aluminium foundry alloys could constitute a separate product market from the non-low carbon equivalents, based on customer preferences. The Commission ultimately left the issue open but found that low carbon is – at least – an element of differentiation that plays a role at product and geographic level. And the Commission has reflected the need to take sustainability into account when defining markets in the ongoing review of its Market Definition Notice, which specifically lists sustainability as a non-price parameter of competition.

Competitive Assessment

There are several ways in which the Commission can and does take sustainability into account in its competitive assessment of mergers. First, sustainability is relevant and, the Commission says, plays a “prominent role as a parameter of differentiation”, when assessing closeness of competition. The Commission cites GE/Alstom where it found that GE and Siemens developed 50Hz heavy-duty gas turbines which were relatively close to Alstom’s machines in terms of emissions and therefore largely targeting the same customers, and Sika/MBCC where the fact that both parties were strong innovators in green R&D was one of the main factors considered when assessing closeness of competition, as relevant examples.

In addition, the paper addresses (green) innovation theories of harm and sets out the Commission’s view that the competitive assessment of mergers should ensure that mergers do not significantly impede green innovation. This is framed as a continuation of previous efforts, with the paper saying that “the Commission intends to continue to defend (green) innovation vigorously” and citing the approach to innovation taken in Dow/Dupont, which considered broader innovation spaces and the overall level of innovation. The Commission suggests that the Dow/Dupont framework could be used in industries with long innovation cycles in particular.

Further, the Commission can take sustainability-related efficiencies that arise from the merger into account under the existing legal framework. To do so, the efficiencies must “benefit consumers, be merger-specific and be verifiable.” The Commission looked at two sets of efficiencies put forward by the merging parties in Aurubis/Metallo but found that neither set met the requisite legal standard. Like its approach under the revised Horizontal Guidelines, while there is demand from some stakeholders for the Commission to consider “a longer time horizon and overall benefits to society”, the Commission has not accepted this type of “out-of-market” efficiency, and in fact, in line with EU case law, considers it could only do so “if the benefits cover substantially the same customers otherwise harmed by the merger”.

Finally, it is worth noting that the Commission cannot clear or block a deal based on sustainability or other non-competition related considerations alone – the substantive test under the EUMR is whether there is a significant impediment to effective competition in the internal market. Therefore, while sustainability considerations may play a role in the Commission’s overall assessment, they will never trump competition under the current legal framework.

Sustainable remedies

While some stakeholders have called for sustainability-related aspects to be included in remedy design and argued that the Commission should accept or even impose the “greenest” remedy, the Commission’s position is that it cannot unilaterally impose remedies – it can only accept them based on the parties’ commitments – and it can only accept commitments that it deems capable of remedying a significant impediment to effective competition. Therefore, the Commission does not have the power to unilaterally impose or choose the greenest remedy.

However, this does not mean that merger remedies cannot have “positive effects on the environment.” For example, where environmental aspects impact how closely the parties compete or where the Commission has concerns about innovation competition, this could be reflected in the remedy design. In Sika/MBCC, while the geographic scope of the relevant market was national, the scope of the remedy needed to include all global R&D assets, sites, personnel and intellectual property, because the parties’ innovation capabilities at a global scale were key to their competitive strength.

Green Killers

The Commission is concerned that some smaller players are particularly relevant for the development of green innovation and could therefore be targets for killer acquisitions (see here). The paper flags that the Commission’s revised approach to Article 22, which allows it to review deals that meet neither the EU nor national review thresholds and under which three cases have been referred for review to date, could be used to fill a potential enforcement gap for deals involving a “green” innovator with low or no turnover in the EU.  Therefore, companies should consider the potential referral risk when assessing the purchase of green technologies.

Revolution or evolution?

While the Commission argues that the “EUMR provides the Commission with flexible tools to take into account sustainability-related aspects where relevant for a given transaction” and is keen to cite examples of this, the paper also puts into sharp focus the limits on the Commission’s powers to prioritise sustainability considerations in merger control. In order to go further and put sustainability on a more equal footing with competition considerations so that, for example, the greenest remedies could be accepted (or even imposed) or “out-of-market” benefits to consumers and society as a whole could be considered in its efficiencies assessment, broader legislative change would be required, which could go much further towards supporting the European Green Deal.

To learn more about how mergers can accommodate sustainability, read our Chapter in Concurrences’ Competition Law, Climate Change & Environmental Sustainability (Chapter 3) and watch out for our forthcoming publication, ‘Sustainability and Competition in the UK after Brexit’.