It is argued that there is little value in calling for the role of companies in the green transition, namely through due diligence duties including the mandatory adoption of transition plans and the commitment to a set of climate targets, if in their concrete actions, businesses are then faced with a scenario of uncertainty as to how these objectives can, in a present that is still characterized by significant risks and costs, be pursued in collaboration with other companies.
The priority setting of political agendas; the commitment of states, companies, and the European Union itself to increasingly specific environmental targets; and the transformation of sustainability into a parameter of (non-price) competition between companies (which are now competing on the basis of their energy efficiency, their green credentials, or the intensity of their green innovation), as well as the growing significance of ESG factors in corporate actions and investment strategies warrant a reassessment of the efficacy of the current status quo, extending beyond mere formal commitments.
In addition to other substantive blocks of European competition policy, the merger control regime also has a role to play in pursuing the Sustainable Agenda and the European Green Deal. The objectives of the merger control regime have been in the spotlight, not only since the Franco-German Manifesto, but above all following the Draghi Report. As industrial policy is not the sole means by which humanity operates, the debate surrounding the necessity of reforming or reinterpreting the merger control regime may also apply to the field of green. It is believed that the European merger control regime offers a potential avenue for advancing green objectives. Indeed, there are multiple potential avenues and moments at which sustainability concerns can be incorporated into the merger control regime. The definition of the relevant market is the starting point for analysis. In the context of consumer preference for more sustainable products or the existence of regulatory requirements and environmental protection laws, additional segmentation or differentiation of the relevant markets (product and geographic) may be identified. Subsequently, the assessment of operations entails the emergence of (novel) theories of harm, including the loss of green innovation, as well as the examination of social and environmental efficiencies and advantages for innovation. This assessment may result in the prohibition of mergers that may give rise to problems, risks, and potential damage related to the environment and green innovation (in the case of so-called ‘green killer acquisitions’). Commitments may also be imposed to mitigate these risks. Conversely, mergers may be approved that may result in environmental benefits and efficiencies. Finally, the potential of Article 21(4) of the European Union Merger Regulation (‘EUMR’) may be harnessed.
The European Commission has already acknowledged this positive impact, as evidenced by its assertion in the 2023 Report on Competition Policy that: “EU merger control is making a significant contribution to achieving the European Green Deal’s sustainability policies, including carbon neutrality in Europe. In 2023, sustainability issues featured prominently in the Commission’s competitive assessment of recent mergers, particularly in the sectors of basic industries and manufacturing.” Similarly, legal practitioners have indicated that there is a growing perception that “Competition authorities (mainly the EU Commission, for the time being) are increasingly claiming jurisdiction (outside the traditional thresholds) over these acquisitions of (generally small) undertakings involved in sustainability-related innovations. The players active in green innovation are usually small entities and start-ups.”
Nevertheless, the assertive and unconditional manner in which this claim is presented fails to acknowledge the inherent complexities and conflicts associated with green mergers. Indeed, while an assessment based on traditional competition criteria may yield results aligned with the objectives of green sustainability, it is not these relatively straightforward cases that necessitate a more assertive approach from competition policy. Conversely, it is in cases where a purely competitive assessment yields conclusions (approval, approval with conditions, or non-approval of the merger) that diverge from those demanded by socio-economic considerations that a more nuanced debate is required.
The rise in international and European commitments mandating the substitution of polluting technologies with green alternatives, the anticipation of new market entrants and the emergence of innovative companies, as was the case with technological disruption, and the intensification of regulations imposing sustainability objectives on companies, will undoubtedly impact the European merger control regime, both ‘as it is’ and ‘as it can and should be’. Ultimately, an agnostic approach to competition law may be at odds with the state’s public policies. To illustrate, some doctrine indicates that “treating green and polluting innovation in the same way may be counterproductive if the state is investing heavily in subsidies in green tech and then allows mergers that would foster brown tech.”. The initial concern is that if a merger is blocked, the wider societal benefits may be overlooked because of the authority’s position hindering access to a market that the state is supporting through public incentives. This is exemplified by the market for the construction and management of electric vehicle charging infrastructure in public spaces.
In this text, we will begin by providing an overview of the current status quo. We will then attempt to identify and map the challenges that have been raised by the reality of green mergers and acquisitions. In order to do so, we will distinguish between green or sustainable mergers and ‘green killer acquisitions’, which we will define as a sub-type of non-sustainable operations. Ultimately, it can be concluded that, despite the prototypical openness of competition law rules to change - namely due to their open rules and indeterminate concepts, potentially compatible with different tests and criteria - the resistance of decision-making practice and the restrictive nature of some tests and criteria may necessitate reform or intervention, either through soft law or legal reforms. In light of the various proposals that have already been put forth, we propose a solution that is not in conflict with EU competition law principles and rules. Instead, it seeks to introduce an impact assessment and institutionalize regulatory dialogue between competition authorities and other relevant agencies (e.g., environmental agencies) in cases of conflict.
In light of the ongoing climate crisis, it is imperative that competition policy and the merger control regime adapt to address the urgent challenges we face. The demands for legal certainty, transparency, legitimacy, legality, and the separation of powers require that the potential ‘conflict’ between a more conservative and more progressive approach to competition law be addressed. This can be done either by internalizing or broadening the objectives of competition law or by stepping back in line with the need to harmonize those objectives with other public policies. Ultimately, competition law is merely one component of a larger system that encompasses the development and implementation of a social market economy. And the consumer is but one member of a global society.
2. Sustainability and Competition Policy in the EU: Exploring Synergies and Tensions
The relationship between competition law and the Sustainable Development Goals is ambivalent. On the one hand, competition law may impede the attainment of the objectives of the green transition, given its emphasis on allocative efficiency, consumer welfare, and the constraints it places on the efficiencies it deems acceptable (arising from an agreement or concentration). In short, a traditional interpretation of competition rules may result in the neglect, silencing, or even harm to other public interests and society as a whole.
Conversely, however, competition law can facilitate the pursuit of the Sustainable Agenda and, in particular, the transition to a greener economy. It can do so in two different ways.
Firstly, through the process of ‘preventive integration’, competition rules, when applied in accordance with existing frameworks, can prevent actions by companies that would otherwise jeopardize sustainable development objectives. Such alignment is exemplified by certain suspicious mergers, including so-called ‘green killer acquisitions’, which eliminate or reduce the supply of green products and/or technologies, or delay their entry into the market. Additionally, there are instances where mergers are approved but subsequently require commitments due to the presence of specific market characteristics, underscoring the need for intervention. For instance, the market for sustainable products may exhibit distinctive competition and environmental concerns, necessitating tailored regulatory measures.
Secondly, although more challenging, there is the possibility of considering ‘supportive integration’, which would entail a more flexible interpretation of competition rules. This could include a more lenient approach to the prohibition of restrictive practices or the ex-ante control of mergers. This lenient interpretation will be justified by the pursuit of sustainability objectives, necessitating a retreat from a purely economistic interpretation of competition rules in light of a judgment of practical concordance (balancing exercise), whereby the disparate policies of the European Union are harmonized. This retreat could entail, among other things, giving due consideration to a ‘sustainability defense’ and ‘environmental efficiencies’ as a means of justifying an agreement that restricts competition or a concentration that may be problematic in and of itself but is nevertheless necessary for the pursuit of the objectives of the green transition.
While the potential impact of sustainability on competition law has been primarily discussed in the context of agreements between competing companies, the merger control regime has also prompted the possible need for reform or adaptation to accommodate the demands of the Green Agenda. For example, as early as 2019, the European Parliament, in its Resolution of January 31, on the Annual Report on Competition Policy, requested the Commission to “come forward with a review of the EC Merger Regulation, and to analyze to what extent it should be vested with the powers, much as a number of Member States are at present, to adopt measures to protect the European public order and the rights and principles of the TFEU and EU Charter of Fundamental Rights, including environmental protection”.
This debate is not as novel as is often claimed. Indeed, it is closely related to the broader discussion on the role of public interest issues in merger control. As such, it is not a new or foreign body in at least some Member States. Nevertheless, the relationship between sustainability and competition, and the role of EU merger rules in the context of the green transition, remains unclear at both the European Union and Member State levels. The issue can be attributed, at least in part, to the manner in which competition rules have been applied over time, and the limited scope for integrating sustainability considerations.
3. Unpacking the Monsters of EU Merger Control: The SIEC Test, Consumer Welfare, and Blurred National Public Interest Exemptions
Despite the European Commission’s previous acknowledgment of a “clear trend towards the sustainability-related aspects of the Commission’s merger review becoming increasingly important”, the rules of the EUMR, as applied by the European Commission, appear to lack the flexibility to consider issues and factors of public interest that do not align with the traditional pillars of allocative efficiency and consumer welfare.
Conversely, the objective is to guarantee that competition is not distorted and that the internal market is preserved. It thus follows from Article 2(2) and (3) of the EUMR that concentrations “which would not significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared compatible with the common market”. Conversely, those mergers “which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market.” The SIEC test, or ‘Significant Impediment to Effective Competition’, is thus adopted.
Upon examination of the list of factors to be considered when analyzing mergers, it becomes evident that Article 2(1) of the EUMR does not make a direct reference to public interest factors, despite the assertion by some that economic progress can encompass environmental dimensions. In particular, with regard to the relevant efficiencies, paragraph 78 of the European Commission Guidelines provides for a threefold condition, according to which “the efficiencies have to benefit consumers, be merger-specific and be verifiable”.
In contrast, mergers without a community dimension are assessed in the light of national legislation, which may allow public interest objectives to be valued as relevant efficiencies in the assessment of mergers. In addition, national laws may enshrine exemptions based on public interest; may allow government intervention that is potentially misaligned with the analysis of the merger’s pro- and anti-competitive effects; and may make the approval or non-approval of a merger dependent on the opinion (binding or not) of a regulatory authority with sectoral competence.
It is important to note that, even in the context of concentrations with a community dimension, Article 21(4) of the EUMR permits Member States to implement measures for the protection of other interests - beyond those related to competition - provided that they are necessary and proportionate. In addition to the interests recognized in the aforementioned precept (“public security, plurality of the media and prudential rules”), which, at least in the case of “public security” may, according to some, already include sustainability objectives, it is possible to comprise other public interests, including socio-environmental interests, such as the promotion of public health, the protection of employment, and the protection of the environment. However, this is subject to the need for communication and ex ante recognition by the European Commission.
While this flexibility has clear advantages, the leeway allowed to Member States has resulted in a highly heterogeneous regulatory landscape, both in terms of the public interest considerations taken into account and the institutional models employed. In particular, it is possible to identify two distinct models. The ‘dual responsibility model’ or the ‘two-tiered system’ is based on a division of competencies between the competition authorities, which are responsible for conducting the standard competitive analysis, and a government body, which is responsible for (re)analyzing the operation in light of public interest considerations. The latter may prohibit or approve a concentration that has been approved or prohibited by the competition authority. In contrast, the ‘single authority model’ designates the national competition authority as the entity responsible for conducting the ‘public interest test’ in the concentration appraisal process. In addition, a mixed model may be identified, in which the competition authority is required to liaise with other entities, despite having competence to conduct the assessment. The heterogeneity of national regulatory frameworks could result in fragmentation. Furthermore, the specific models adopted are often associated with shortcomings. These include the vagueness of a general reference to the public interest, as well as concerns about the potential for political usurpation and violation of the principle of separation of powers. It is possible that both fragmentation and these shortcomings could potentially compromise the effectiveness of the mechanism.
For disparate reasons at the European and national levels, there is scope for further action, particularly with regard to rethinking the interpretation and application of competition rules in order to meet the challenges of the green transition. For this to occur, it is essential to be mindful of the inherent variability associated with green M&A.
4. Green (Killer) Acquisitions: Balancing Competition Concerns and Socio-Environmental Benefits
The concept of ‘green M&A’ is an umbrella term that encompasses a wide range of potential scenarios, each of which could be subsumed under the overarching concept of concentration as defined in Article 3 of the EUMR. Such transactions include mergers, acquisitions, and the establishment of joint ventures. In addition to this objective heterogeneity, the motivations of the parties to the transactions and their potential effects may also vary. These variations may be observed with regard to both competition and, in particular, the potential for significant impediments to it, as well as with respect to the objectives and goals of the green transition. In such instances, the effects may be aligned, whereby an anticompetitive merger would also be unsustainable.
Alternatively, a potential conflict could arise in two distinct scenarios. On the one hand, there are mergers that may impede competition significantly in the market but are nonetheless associated with green efficiencies, thereby promoting and contributing to sustainability objectives. Conversely, there are concentrations that do not meet the SIEC criterion but may prove detrimental to the objectives of the green transition.
Despite these differences, it is possible to simplify the picture by distinguishing between sustainable or green mergers and non-sustainable mergers, which include green killer acquisitions as a subcategory.
4.1. Decoding Green Mergers: Exploring the Role of Sustainability in Corporate Consolidations
Green mergers can be defined as operations through which companies active in a particular market seek to acquire companies with more sustainable and green assets and technologies (for example, in terms of environmental impact, energy efficiency, and pollutant emissions). Alternatively, they may merge with others in order to combine their structures, capacity, know-how, and technology. This is done with the goal of achieving the scale necessary to pursue green objectives and avoid risks, such as the first-mover disadvantage and free-riding. A subset of the doctrine posits that the level of investment necessitated by research and development, when considered alongside the associated risks, can frequently render it a more rational decision to directly acquire targets with green technologies. This approach can enhance operational efficiency and ensure that the incumbent has access to specialized (green) innovation from smaller companies. This provides a rationale that combines innovation objectives with performance considerations.
The objective of supporting future green innovation and replacing or eliminating more polluting technologies may also be a rationale for a green merger. In short, the goal of transforming industries into low-pollution and low-energy ones may also be a potential justification for a green merger. Green mergers enable one or more companies with a history of significant pollution to enter the green market. This allows them to satisfy the growing demand for greener products, reduce their pollution and compliance costs in line with an increasingly demanding environmental regulatory framework, and ensure more efficient, sustainable, and green production. Furthermore, green M&A could facilitate the reconstruction of industrial chains, for instance through vertical integration strategies that diminish reliance on upstream and downstream operators. Ultimately, the company’s M&A practice may serve to communicate its commitment to the green transition. This intention is particularly well achieved through the transparency and visibility of mergers, especially those subject to prior control. While such actions could have a positive impact on the company’s market performance, this rationale must be reconciled with the green claims’ regime and the prohibition of deceptive practices.
In the case of a concentration involving the acquisition of a start-up, it is also important to consider the advantages for the start-up itself. Beyond the motivation of the incumbent, the start-up can benefit from the experience and capacities of a company already established in the market, as well as access to an important source of funding. Indeed, according to legal scholarship, the “large majority of successful startups achieve monetization through a sale to a larger company, rather than an IPO”. In other words, the acquisition of start-ups serves as a monetization mechanism that, in addition to promoting investment in newcomers and ensuring their market entry, also benefits them through access to capital and the potential to leverage the synergies, complementarities, and resources of a company with a market presence.
4.2. The Dark Side of Green Acquisitions: Unpacking the Risks of Sustainability Killer Deals
Green or sustainability killer acquisitions are mergers that involve the acquisition of a nascent company with sustainable practices or a start-up that is still in the early stages of developing a green product, service, or technology (the ‘green’ company) by an incumbent company (the so-called ‘brown’ or polluting company). These acquisitions are conducted with the sole aim of eliminating a growing rival. In particular, the objective of the incumbent is to eliminate green competition at its inception by removing it from the market. This ensures the cessation of green market development and the continuation of dirty production. Another potential rationale may be to control the expansion and importance of green products in the market. This is meant to ensure that green products remain in a ‘controlled’ niche. Alternatively, the incumbent may (only) seek to secure its market position in a green product, service, or technology against an innovative entrant.
Green killer acquisitions are associated with various theories of harm, including the loss of potential or nascent competition due to the discontinuation of the development and use of greener products, services, and technologies, as well as the disincentive to invest in start-ups due to the creation of a ‘kill zone’. This phenomenon can be attributed to the fact that repeated acquisitions by incumbent firms in a specific market segment can effectively deter other companies from entering that particular segment. Indeed, the prospect of future acquisition by incumbent entities may act as a deterrent for investors, dissuading them from allocating capital to startup ventures. Similarly, the threat of incumbent acquisitions may also discourage startups from investing in green products, services, and technologies.
In order to qualify a deal as a ‘killer acquisition’, it is necessary to consider only those scenarios in which the acquiring company has the actual intention of eliminating the green market and its green competitors. The distinction is of great importance for the purpose of identifying the relevant theory of harm. Indeed, when the company’s intention is to achieve efficiencies, continue the development and/or internal use of the green product, service, or technology, or adopt the target’s sustainable practices, it is inaccurate to conclude that green innovation efforts have been discontinued or that an unsustainable good or practice exists, with potential negative consequences for competition, consumers and citizens, and the environment. Economic literature indicates that when the objective is to achieve synergies and when the elimination of one of two parallel paths of innovation (that of the target or even that of the incumbent, in the case of ‘reverse green acquisitions’) is motivated by the need for specialization and associated economies and efficiencies, it is not appropriate to invoke the idea of ‘prevention’ or ‘elimination’ of future or potential competition. As a result, even in scenarios where the acquisition is followed by the discontinuation of one of the lines of R&D previously being carried out in parallel (by the incumbent and the target), the discontinuation may be due to a ‘hedging strategy’ justified for reasons of efficiency arising from specialization, and reducing costs associated with the duplication of processes.. Such actions are not intended to impede or eliminate green innovation or the expansion of green markets.
In essence, the nature of ‘killer acquisitions’ is such that it is not always clear whether they are being used as an exclusionary strategy or as a means of fostering innovation, competition, and access to finance for start-ups. It is thus deemed that, in comparison to other scenarios, the intention of the incumbent company will be of particular significance in determining the boundaries of this distinction. It is therefore important to ascertain whether the objective is the straightforward elimination of the target, and in particular the competitive pressure exerted by the green alternative, or, conversely, the entry and development of green markets. This is a challenging analysis that, in our view, should not lead to any assumption of harm, particularly given that the promotion of ‘brown’ technologies and processes compared to green ones will ultimately not be economically rational given the applicable regulatory framework. It is crucial to conduct a comprehensive and rigorous analysis, which, akin to offenses by object, scrutinizes the purpose and the legal and economic context of the transaction. In addition to the transaction’s value, this analysis should consider the company’s pattern of acquisitions, and the market(s) and competitive proximity of the parties involved.
In any case, it seems reasonable to posit that, in contrast to other green mergers, there may be a convergence between competition policy and sustainability objectives in the context of green killer acquisitions. This would be particularly the case if, in addition to the potential loss to sustainability, there is also a substantial or significant loss of competition (if not total, at least in terms of sustainability as a non-price competitive parameter).
4.3. Tackling the Complexity of Green (Killer) Deals under EU Merger Rules
The advent of green killer acquisitions and green mergers has introduced a series of challenges to the conventional framework and application of the European merger control regime. Firstly, there are the common challenges related to the theories of harm and their future suitability (depending on the question of what stage the market would be in the future). The loss of current, effective, or dynamic competition in the markets, accompanied by a reduction in incentives and investments in R&D, will be regarded as the most relevant theory of anticompetitive harm. This holds particularly true in instances where the operation involves (potential) competitors with close investments and a focus on (green) innovation, and especially when it involves the main players with operations or potential in the relevant (green) market. In such cases, there is a reduction in diversification and the chances of successful innovation, which is uncertain and therefore justifies the continuation of different paths. Additionally, there is a risk of losing potential competition that the target could have represented for the incumbent.
Subsequently, specific challenges emerge within each of the categories.
With regard to green mergers, the most significant challenge will be to resolve conflict scenarios regarding operations that, in the context of a purely competitive analysis, should or should not be granted permission, but which, in view of their potential benefits and/or drawbacks for sustainability, necessitate a differentiated assessment. It bears reiterating that green mergers can be associated with various efficiencies resulting from circular models and the improvement in quality and use of resources. Such efficiencies include, for instance, a reduction in energy costs and gas emissions or the carbon footprint, a reduction in the costs of materials, transport, or storage (for instance, through a reduction in plastics and the size of packaging), or an increase in the potential for innovation and the know-how needed to achieve the goals of the energy and sustainable transition. These efficiencies extend beyond a purely economic perspective and may present a challenge in scenarios where prices are elevated or production and supply are constrained, particularly in the context of browner products and alternatives.
Examples of this conflict can be observed in the re-examination of previously analyzed mergers by competition authorities in light of the underlying public interest. Although the decision-making practice in question is not entirely clear, it is possible to derive two key elements from it. Firstly, mere compliance with applicable environmental protection legislation will not, in and of itself, constitute a relevant efficiency. Secondly, the pursuit of a sustainability objective cannot be used as a rationale for anti-competitive behavior in a strategy of greenwashing, as this would be in contravention of the principles of competition law.
Green (killer) acquisitions give rise to a further type of concern, namely that they may not be within the remit of national competition authorities, thus evading ex ante control. Indeed, green innovation and related efforts tend to focus on smaller companies, whose acquisitions are unlikely to meet the notification thresholds established at the European or national levels. In addition to this initial challenge, there are specific difficulties associated with classifying the concentration as a ‘killer acquisition’ or analyzing the company’s incentives to innovate and the impact of the operation on the incentives of third parties. In particular, the nascent nature of the target’s activity and/or presence in the reference markets could render it challenging for the national competition authority to assess the prospective competitive pressure it may exert on the incumbent company. This is a pivotal consideration in evaluating the competitive implications of the acquisition. Additionally, some legal scholars argue that the prohibition of a merger motivated solely by the loss of green innovation may be unnecessary when, despite the reduction of competition in the sustainability parameter, there is no reduction or elimination of competition due to the existence of cleaner rivals capable of persuading consumers to opt for greener choices.
In addition to the inherent complexity and difficulties associated with the various forms of green M&A, there are also broader challenges related to integrating sustainability considerations into the European merger control framework.
5. Navigating the Green Conundrum: Challenges and Pathways for Reforming Merger Control Rules
The implementation of green M&A is confronted with a number of challenges and ambiguities that originate from a historically cautious and conventional interpretation of the regulations governing European competition law. The initial challenge persists due to an enduring debate and divergence of opinion regarding the fundamental objectives of competition law. One of the arguments against valuing objectives and efficiencies that are not strictly competitive when analyzing mergers is based on a separatist view that is no longer tenable in the current context. This separatist view holds that it is not within the purview of competition law or the jurisdiction of competition authorities to assess matters of public interest, which give rise to uncertainty, questions of legitimacy, and a potential for conflict between the branches of government. It is argued that issues of public interest must either arise from the efficiency of the market itself or from the intervention of the legislator through specific public policies. In particular, it is argued that competition law should be concerned solely with maintaining an undistorted competitive structure and ensuring efficiency in the allocation of resources, as well as consumer welfare.
While we do not dispute the potential risks associated with a more expansive interpretation of competition rules, we do take issue with the extent to which that separatist and agnostic reading has been embraced. Firstly, it should be noted that competition policy is just one European and/or national policy among many others. Given its intrinsic nature, competition policy must be subject to considerations and relationships of practical agreement with the objectives of other policies. Consequently, even if we adopt a narrow interpretation of the objectives of competition, it is not feasible to assert that competition is ‘primus inter pares’, capable of addressing all issues without consideration of its impact on the efficacy of other priorities. The EU Treaties themselves call for a principle of harmonization, without any hierarchical or prioritized structure. This implies that even if the objectives of competition law are maintained, they cannot remain insulated from certain relationships of tension, justifying temporary or permanent exemptions, or at least corrective readings capable of ensuring harmonization between conflicting interests.
Secondly, it is crucial to underscore that competition policy is not an end in itself; rather, it is an instrument designed to achieve specific objectives. These objectives must be contextualized within the framework of a social market economy, which is an economic model that is not exclusively liberal and incorporates socio-environmental considerations. This suggests that the conventional tools of competition are not intrinsically valuable in themselves, but rather possess merit based on the outcomes they can facilitate with respect to market efficiency, within a broader political and legal framework that prioritizes considerations beyond economic concerns.
Thirdly, the primacy given to the consumer, which is not justified by any legal precedent, must acknowledge that the consumer is, like any other citizen, a member of a global community facing an existential threat in the form of climate change. The protection of consumer rights does not take precedence over other fundamental rights and diffuse interests on the basis of an inherent value hierarchy. Prior to engaging as consumers within a specific market, we are all citizens with both rights and fundamental obligations within a broader society. This society, which is founded upon shared European values - including freedom, equality, justice, and solidarity - does not permit a self-serving perspective of markets that prioritizes immediate and minimalist necessities, while disregarding the requirements of intergenerational fairness.
Ultimately, at a time when states and, in particular, private companies are increasingly bound by specific obligations and targets to guarantee the fight against climate change and the realization of the green transition, it would be somewhat contradictory for the European Commission and national competition authorities to send out the opposite message, claiming to have ‘nothing to do with it’, and therefore shirking a responsibility that belongs to everyone, not just the legislator or other executives with specialized competence in the matter.
None of the aforementioned considerations are unaware of the challenges posed by the integration of sustainability and environmental concerns into the legal-competitive analysis. Conversely, we are cognizant of these issues and recognize that some require legislative intervention to ensure the legitimacy of executive actions and the guarantees of the rule of law. However, it is also important to acknowledge that, particularly in the context of competition law, these reforms are often driven by the competition authorities themselves. This is due to their qualified knowledge and unique strategic positioning, which affords them a greater capacity to identify gaps and potential responses. Consequently, the success of such an endeavor will depend on the degree of commitment demonstrated by the relevant authorities. And the degree of willingness to incorporate sustainability objectives into the analysis varies considerably between national competition authorities.
In light of these considerations, it is proposed that, prior to implementing any hasty and contentious reform proposals, there is an opportunity to re-examine whether the existing rules of competition law, and in particular the rules governing merger control, already provide sufficient scope for flexibility. It is believed that, with the additional support of European Commission guidelines and the soft law of national authorities, some of the shortcomings of traditional tests and instruments can be resolved. This is particularly the case in light of the need to rethink the relevant theories of harm and the valuation of environmental efficiencies or a green defense.
As was the case in previous periods of crisis, there is a renewed interest in the valuation of public interest objectives in legal-competitive analysis. The environmental crisis provides an opportunity to revisit this issue and to leverage the full potential of competition law, particularly in scenarios of alignment between competition and green. As has already been discussed, the merger control regime can be used to prevent green killer acquisitions.
As we will attempt to demonstrate, the monopoly of consumer welfare as the pertinent standard of analysis, coupled with an unduly narrow perspective on the relevance of non-economic efficiencies (dependent on their valuation by consumers in the relevant market and subject to a strict necessity test), may prove inadequate in addressing the expectations towards public authorities in a context where they are expected to serve as a model, not a disincentive for companies.
5.1. Mapping the Challenges: Integrating Environmental Considerations into EU Merger Control
The internalization of environmental issues in legal-competitive analysis, and in particular in merger control, is subject to a number of challenges. These range from the inherent complexity of the analysis, particularly in the context of ex ante assessments that become increasingly speculative with the accumulation of information, to the potential risks to legal certainty and the separation of powers, both between formal and institutionalized powers and in the face of interest groups.
To illustrate the nature of these challenges, we can begin by examining the process of market delineation, which, in the context of merger control, presents a significant challenge from the outset. In the majority of cases, there are new or innovative products and services for which an appropriate market may not yet exist. Furthermore, certain markets that are potentially linked to concentration may potentially become obsolete in the future (for example, fossil energy), and the impact of market concentration resulting from a transaction between companies on the pursuit of a green transition must also be considered. Ultimately, it is important to bear in mind that the green sector has witnessed considerable evolution in terms of both consumer preferences and the costs associated with development and deployment. Initially perceived as significant barriers to entry, these costs are now followed by a period of reduction, either in specific areas such as solar and wind energy or across the board in markets, due to learning-by-doing.
The focus on the consumer represents an additional and significant challenge, particularly in light of the question of consumer awareness regarding the importance of consuming greener products and services. Firstly, consumers face particular difficulties in assessing future costs (hyperbolic discounting), as well as reluctance to new products (status quo biases), or the idea that their choices won’t make a difference. Without a sufficient understanding of the benefits associated with sustainable products, there is a risk of a lack of willingness to pay for more sustainable options. An analysis of consumer willingness to pay thus appears inadequate, as there may be no viable means of absorbing an increase in costs and, consequently, final prices. In particular, consumers may be unwilling to bear the burden of this new price or the withdrawal of a less environmentally friendly product from the market. In any case, limiting the beneficiaries of efficiencies to the consumer in the relevant market is an inadequate approach, as it fails to consider the broader societal benefits of green concentrations. These benefits extend beyond the relevant market and often manifest over extended periods.
A particular challenge in terms of efficiencies pertains to questions of verifiability, given the time required for materialization and the inherent difficulty in quantification. It is important to consider the long-term effects of sustainability initiatives, as these could potentially outweigh any short-term negative impacts on prices.
Furthermore, the green transition gives rise to questions regarding dynamic competition. It is well established that the competition-innovation relationship, typically described according to the inverted U model, necessitates an understanding of the specific point in the U at which we find ourselves. This understanding is crucial for determining whether a potential decrease in competition will ultimately impede future innovation.
The criterion of specificity (in terms of the efficiencies that can be considered) also presents a unique set of challenges. Under the traditional framework of analysis, the efficiencies deemed valuable in the context of merger control, and which are intended to benefit consumers, must be specific to the particular merger in question and verifiable. Moreover, they should manifest, at least in principle, in the relevant markets where competition concerns arise. This restrictive approach, and in particular the criterion of strict necessity, tends towards insufficient responses, not only because of the pervasive nature of the environmental issue, but also because it is always possible to posit a less restrictive route to competition. This could take the form of isolated or singular innovations by each of the companies, or the conclusion of research agreements, rather than mergers. Nevertheless, these approaches may prove to be less effective in the context of the pressing environmental crisis.
5.2. Solving the Dilemma: A Balanced Approach Between Conservative Openness and a Cautious Reform
Notwithstanding the aforementioned challenges, it is erroneous to assume that legislative reform is the sole means of addressing the environmental challenges we face. With Emanuela Lecchi, it could be argued that, prior to discussing “what should be done”, it is possible to discuss “what could be done, taking into account the wording of the EUMR, and the other factors considered”. Indeed, even at the European level, the fact that the European Commission does not have the power to intervene or base the control of mergers on exclusively environmental issues does not preclude the possibility of incorporating sustainability aspects into its analysis.
As previously stated, European competition law is regarded as sufficiently flexible to accommodate changes in economic and social reality, and it is therefore untenable for it to remain indifferent to such developments. In particular with regard to merger control, recital 23 of the EUMR states, “the Commission must place its appraisal within the general framework of the achievement of the fundamental objectives referred to in Article 2 of the Treaty establishing the European Community and Article 2 of the Treaty on European Union.” These objectives point to sustainable development and include public interest considerations, which have already been legitimized by the case law of the Court of Justice of the European Union.
Some illustrative examples demonstrate this openness and the capacity of competition law to accommodate novel challenges.
With regard to market definition, consumer preferences for green or sustainable products, services, and/or technologies, in addition to certain environmental legislation and regulations, have already made it possible to identify relevant competitive pressures and justify and support a particular product or geographic market definition. In its revised Communication on the definition of the relevant market, the European Commission explicitly acknowledges the necessity of considering a multitude of competitive parameters, which may encompass diverse dimensions of innovation and quality. These include, for instance, “sustainability, resource efficiency, durability, the value and variety of uses offered by the product, the possibility to integrate the product with other products, the image conveyed, or the security and privacy protection afforded, as well as its availability, including in terms of lead-time, resilience of supply chains, reliability of supply and transport costs. The relative importance of these parameters for customers may change over time.” Furthermore, the concept of sustainability can be employed as a parameter of competition between the parties, thus enabling an assessment of the degree of proximity between the parties in the transaction, as well as in relation to competitors.
In terms of theories of harm, the European Commission and national competition authorities may consider innovation and loss of (green) innovation. This is particularly relevant in situations where there is a risk of discontinuing different lines of research or reducing incentives and the ability to innovate.
In addition to the potential for valuing non-price efficiencies related to product quality (such as reduced toxicity or decreased use of water or raw materials), environmental economics offers a range of methodologies for assessing the environmental costs of specific behaviors or transactions. These include the costs of pollution and the monetization of greenhouse gases.
In turn, potential risks in terms of innovation or concentration can, as in other cases, be mitigated by accepting structural commitments, such as the sale of business units and the possible imposition of specific criteria on the buyer to ensure the continuity of innovation in the green field, or behavioral ones, related, for example, to the preservation of natural resources.
The absence of a legal basis for evaluating the public interest is a significant concern. However, in those Member States that permit the minister responsible for the matter to approve or block mergers, in light of the public interest exemption or exception, the issue can be addressed in a manner that mitigates skepticism and doubts about the potential dangers of the national competition authority acting beyond the traditional legal test. Even in other instances and national contexts, it is possible to mitigate the potential for discretion or unpreparedness on the part of the national competition authorities to assess whether competition objectives are aligned with other general interest objectives. This can be achieved, initially, through the adoption of transparent and publicly accessible guidelines that delineate the methodology employed by the authority to quantify benefits. By setting out the form, procedure, and criteria to be followed in valuing non-economic efficiencies in cases of alignment, as well as in scenarios of conflict, these guidelines would ensure legal certainty.
The lack of preparation of national competition authorities may be addressed by hiring experts in environmental economics and staff with expertise in development (environmental scientists). Additionally, collaboration with specialized entities, such as environmental agencies and those working in sustainability and in the context of agri-food, could add some value in several ways. This could entail providing input on an ad hoc basis in specific cases where their opinion is requested, conducting joint market studies to anticipate some of the challenges, or participating in cooperation forums involving different public authorities, thereby reflecting the necessity for a joint effort to respond to what is a global challenge.
Two particular challenges of green M&A warrant further discussion: the importance of the intention of the parties involved and the potential for evasion of the applicable notification thresholds. In terms of proof, it will be important and possible to consider a number of elements, including the company’s innovation track record (which may indicate a lack of performance), its investment plans, its participation in environmental protection or solution projects, and the resources (financial, human, and know-how) it has at its disposal for this purpose. In addition to internal documents, the reporting obligations arising from European legislation will facilitate compliance for companies, enabling them to provide sufficiently detailed proof and to demonstrate their compliance with the requisite standards. Furthermore, the legislation will assist competition authorities in monitoring compliance through requests for information.
With regard to green killer acquisitions that may evade ex ante merger control, it can be argued that they may still be subject to ex post assessment under the prohibition of abuse of a dominant position, particularly in light of the clarification made in the Court of Justice’s judgment in the Towercast case. In particular, the Court of Justice provided clarification that the EUMR does not preclude ex post control of transactions that could potentially constitute an abuse of a dominant position and be subject to such analysis. The Court underscored the following point: “It thus follows from the scheme of Regulation No 139/2004 that, although that regulation introduces an ex-ante control for concentration operations with a Community dimension, it does not preclude an ex-post control of concentration operations that do not meet that threshold. While it is true that Article 3 of that regulation sets out a substantive definition of a concentration of undertakings without reference to the thresholds mentioned in that regulation, the regulation must be read in the light of its context, and in particular of Article 1 and recitals 7 and 9 thereof. It follows from this, first, that that regulation applies only to concentrations with a Community dimension and, second, that it is accepted that certain concentrations may both escape an ex-ante control and be subject to an ex-post control. […] It follows that a concentration operation which does not meet the respective thresholds for prior control laid down by Regulation No 139/2004 and by the applicable national law may be subject to Article 102 TFEU where the conditions laid down in that article for establishing the existence of an abuse of a dominant position are satisfied. In particular, it is for the authority in question to verify that a purchaser who is in a dominant position on a given market and who has acquired control of another undertaking on that market has, by that conduct, substantially impeded competition on that market. In that regard, the mere finding that an undertaking’s position has been strengthened is not sufficient for a finding of abuse, since it must be established that the degree of dominance thus reached would substantially impede competition, that is to say, that only undertakings whose behavior depends on the dominant undertaking would remain in the market”.
It is evident that the aforementioned considerations are contingent upon the stance adopted with respect to the objectives and scope of competition law. Nonetheless, even among proponents of a shared vision, doubts and obstacles may emerge that can only be addressed through legislative intervention, reform or adjustments, whether in the form of soft or hard law.
Among those who advocate legislative reform, there is support towards the introduction of a duty of notification in mergers involving companies active in the development of green technologies. Moreover, there are those who support the exploration, realization, and extension of the possibility of government intervention, namely by providing for sustainability as a relevant public interest in either national legislation, or in the EUMR (as a recognized interest that dispenses with the Commission’s intervention). The legal provision would legitimize the need for an in-depth analysis, potentially resulting in the approval or non-approval of a concentration based on its environmental footprint.
The legal concretization of sustainability and environmental protection as specific public interest issues is not due to the indeterminate nature of the concept or the difficulty of subsuming sustainability and environmental protection under a relevant public interest. Indeed, in contrast to other matters of public interest, which can be interpreted in varying ways across different jurisdictions, eras, and social, cultural, and political contexts, the environment is currently a topic of universal concern and a matter of global urgency. Nevertheless, despite the absence of doubt on this point, it seems pertinent and important to ensure legal certainty and to avoid a chilling effect potentially arising from the absence of a clear legal basis that can support the actions of the competition authority. In conclusion, the necessity for certainty and a legal basis, whether for the actions of the national competition authorities or the government body (depending on the model followed by the Member State), justifies the enshrinement and specification of this in law. This should be complemented by the adoption of soft law documents and guidelines setting out the form and procedure for assessing mergers, always, of course, with the possibility of judicial review, and accompanied by other procedural guarantees.
With regard to the potential for extending this same possibility to the European level, certain doubts are raised. In such a scenario, a preliminary analysis of the concentration by the European Commission or a newly established European competition authority (focused exclusively on competition) would be followed by a subsequent analysis by a political body. Notwithstanding the inherent challenges, we concur with the view that this codification of the rules at the supranational level offers the advantage of ‘leading by example’, thereby circumventing the fragmentation that would otherwise result from a significant divergence of positions at the national level.
In addition to this legal enactment, legal scholarship also suggests that a clause be included in the legislation expressly authorizing the imposition of behavioral commitments related to the achievement of socio-environmental objectives, as opposed to mere passive acceptance. The question of whether, when faced with different commitments, the competition authority should be obliged to opt for the ‘greenest remedy’ is a separate and more complex issue that currently lacks a specific basis.
The final point to be considered is that of the acquisition of start-up companies. As has been the case in the digital field, the discussion is essentially the same, and it has been proposed that there is a need to complement and/or correct the ex-ante control regime, based on turnover and/or market share thresholds. The fact that green killer acquisitions are typically characterized by the involvement of a nascent, small, and innovative company as a target also gives rise to the necessity of considering the extent of notifiable operations. In light of the prevailing theory of harm, namely the detrimental impact on competition resulting from the removal of companies from the market that could have a substantial influence on green innovation, a number of potential solutions have been proposed. One such proposal is the introduction of supplementary communication or notification obligations for companies with a strategic status that intend to “merge with or acquire target companies active in the development of innovative green products and services, when the notification thresholds (national or European) are not met”. In order for the solution to be successful, Despoina Loukianou asserts that it “would require amendments at two levels: firstly, an amendment of the national merger control regime of all Member States to make the notification of concentrations involving green target companies compulsory, and secondly the amendment of the European Commission’s Guidance on the application of the referral mechanism set out in Article 22 EUMR to render the referral mechanism for such cases compulsory.”
The recent clarification of the scope of the referral regime in Article 22 of the EUMR by the Court of Justice’s ruling of September 3, 2024, in the Illumina v. Commission case demands particular attention. Indeed, the Court of Justice has clarified that Article 22(1) of the EUMR cannot be interpreted as allowing the European Commission to assess and accept the referral of a concentration in a situation where the Member State requesting the referral is not entitled, under its national merger control legislation, to examine the concentration. This is typically the case when the proposed concentration does not meet the thresholds set by national legislation, thereby precluding the national authority from exercising control over that concentration. In particular, the Court of Justice has determined that “both the historical interpretation and the contextual interpretation of Regulation No 139/2004 reveal that the referral mechanism now set out in Article 22 of that regulation pursues only two primary objectives. The first objective which prompted the introduction of the referral mechanism in Regulation No 4064/89, referred to at the time as the ‘Dutch clause’, was to permit the scrutiny of concentrations that could distort competition locally, where the Member State in question does not have any national merger control rules. The second objective, introduced when Regulation No 4064/89 was amended by Regulation No 1310/97 and then reinforced by the adoption of Regulation No 139/2004, is, as has been pointed out in paragraphs 192 and 193 above, to extend the ‘one-stop shop’ principle so as to enable the Commission to examine a concentration that is notified or notifiable in several Member States, in order to avoid multiple notifications at national level and thereby to enhance legal certainty for undertakings. By contrast, it has not been established that that mechanism was intended to remedy deficiencies in the control system inherent in a scheme based principally on turnover thresholds, which is, by definition, incapable of covering all potentially problematic concentrations.”
This ruling calls for alternative avenues to be considered, including a reform of the EUMR, perhaps to include the value of the transaction as a relevant notification threshold, as has been done in other Member States. Nevertheless, these proposed changes have been met with some skepticism, particularly in light of the findings of the Draghi Report.
The potential for damage and its magnitude have also motivated other proposals that challenge various aspects of the European merger control regime. Examples of such suggestions include an appeal to a ‘balance of harms’; the reversal of the burden of proof in cases where the European Commission or national competition authorities can demonstrate a realistic prospect of damage; and the use of abuse of a dominant position (either as an alternative to or in conjunction with the merger control regime). This is particularly relevant in cases where there are a number of acquisitions of the same type over a period of time, thereby enabling the identification of an exclusionary strategy pursued by a dominant company. The introduction of an ex-post evaluation regime, with the potential modification of commitments in the event of a change in circumstances and intentions as signed by the parties when the concentration was assessed, is also considered. Alternatively, the introduction of ‘call-in powers’ could be contemplated once there are anti-competitive risks resulting from a concentration not subject to prior notification.
6. Concluding remarks
The multitude of proposals presented illustrates that, from the perspective of the doctrine, there are indeed potential avenues for resolution that challenge the assertion that solutions are unfeasible. It is, however, important to maintain focus on the fact that the majority of issues could be addressed through a practical alignment between the traditional objectives of competition and the evolving demands of a changing society. We would therefore like to make a modest contribution to the discussion.
In our view, the internalization of sustainability and environmental protection issues in the merger control regime (at the European or national level) is feasible on the basis of a set of assumptions (of legitimacy) and procedures (of legitimation).
Firstly, as the Green Agenda is a shared commitment between the Union and the Member States, as well as between public and private entities, it can be argued that the competition authorities have the legitimacy to assess the positive and negative impact of a merger on the environment and on the pursuit of green sustainability objectives. It could be posited that, rather than being driven by a sense of legitimacy, there is a clear obligation for them to do so (not as an obligation of results, but at the very least, as an obligation of means).
With regard to the legal basis, it is crucial to acknowledge that both secondary legislation and national legislation and regulations are subject to the rule of law and thus subordinate to higher parameters, namely fundamental rights and related diffuse interests enshrined in primary law (Treaties and the Charter of Fundamental Rights of the European Union) and in national constitutions. These are sufficient grounds for action.
It must be acknowledged that this credential is devoid of the requisite specificity and proceduralizing. In this regard, a number of proposals may be considered, including those previously mentioned. In our view, it seems that there is a way to introduce sustainability issues into competition proceedings while maintaining the traditional tests.
In particular, whenever mergers are involved which, due to their subject matter (product and/or service markets) and/or the companies involved, may have an impact on aspects of the green transition, it is our recommendation that the competition authorities implement an impact assessment procedure. Such a procedure should also be mandatory when companies put forth arguments pertaining to the environmental benefits of the transaction. In such a procedure, the competition authority should evaluate whether the application of the SIEC test and the consumer-welfare approach may result in a potentially conflicting analysis or outcome with that which may be necessary to accommodate the challenges of the green transition. In the event of a conflict, the authority should endeavor to ascertain whether it is feasible to accommodate the aforementioned requirements through a more flexible interpretation of the tests. This may be achieved, for instance, when there is an overlap between the consumers in the relevant market and the beneficiaries of the efficiencies, which will undoubtedly be the case in the context of environmental efficiencies. Furthermore, it is feasible to integrate green efficiencies into quality dimensions. In the event that the authority is uncertain as to the appropriate course of action, and particularly when considering the prioritization of the legal-competitive analysis of the environmental issue, it is recommended that the competition authority seek input from authorities with specialized competence. At the national level, this may include environmental agencies, while at the EU level, the European Environment Agency (‘EEA’) could provide a reasoned opinion regarding the potential negative or positive effects of the concentration on the pursuit of environmental and other green goals, with reference to the applicable legislation. This opinion will thus serve to guide the competition authority in order to legitimize its analysis.
In the event that the conflict cannot be overcome, it is believed that the competition authority will still be required to provide a substantiated assessment in order to ensure that the addressees understand it and can, in the event of insufficiency, have the decision reviewed by a Court.
In the absence of material and/or procedural defects, it is not within the purview of the Court to substitute the authority’s assessment for its own in instances where it is unclear what other decision would be required. It is thought that this is an area of technical discretion.
Nevertheless, the Court is duly authorized to rely on expert testimony and to render a judgment as a judicial body duly qualified to do so. This is particularly the case in instances of conflict and in matters of fundamental rights adjudication, where the Court’s legitimacy is especially important.
The procedure as a whole is consistent with the fundamental principles of competition law. Conversely, while maintaining its own area of expertise, the necessity for regulatory coordination is acknowledged. In order to guarantee legal certainty and transparency, it would be prudent to provide for this procedure in guidelines, whether those of the European Commission or national competition authorities, depending on the jurisdictional plans.
Ultimately, to guarantee the efficacy of the proposal, it is recommended that the relevant authorities investigate the potential for an open-door policy, whereby companies can, particularly at the outset of the proposed balancing exercise, substantive analysis, and ‘green impact assessment’, engage in dialogue with the competition authorities to ascertain how they might substantiate a possible claim of green efficiencies. This would enable the competition authority to engage with the companies at an earlier stage, thereby facilitating the procedure.
The imperative to address the climate crisis, safeguard the environment, and guarantee the rights of future generations are core objectives that competition authorities are duty-bound to uphold. They cannot claim to be without a mandate in this regard. In light of the foregoing, there is no impediment to amending the conventional decision-making criteria and procedures to accommodate the necessity of evaluating corporate consolidation strategies not only in terms of their impact on competition within the pertinent market and on consumer welfare, but also in terms of their effects - both positive and negative - on society as a whole and on citizens and companies as active agents of change. This openness does not present a conflict.
It is possible that further clarification and transparency may be required, both of which are fundamental principles of the rule of law. However, it is time to align abstract promises and fine and pompous statements with the material reality of applying competition law. For that to happen, an open-door policy and an enforcement structure that can address the challenges of the green transition, including those related to merger control, must be implemented. It is not feasible for competition authorities to maintain a defensive stance. Instead, a collaborative and close approach, involving both companies and other sectoral authorities, is essential to address this joint challenge.
According to Commission President Ursula von der Leyen, “The European Green Deal is, and always has been, Europe’s growth strategy. Clean growth brings real benefits to our industry, and they have embraced it. Because in the European economy of the future, competitiveness and sustainability will go hand in hand. Now that a predictable regulatory framework is in place, the Clean Transition Dialogues are an important way to work together with industry and social partners to implement it in the most effective way. The Dialogues showed that our partners are committed to getting the job done and delivering on our ambitious and essential targets. Based on their insights, Europe will continue to support industry in building a business model fit for a decarbonized economy.” Competition law rules must play their part.
