Green Antitrust: the very thin red line between legitimate sustainability cooperation and illegal collusion

In The Wealth of Nations (1776), Adam Smith famously wrote that "people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." Today, as a result of our observations regarding sustainable cooperation agreements (see here), one might tend to correct him: cooperation, not competition, is the motive force behind sustainable development. And if the European Commission ("EC") is to be believed, various ways for companies to jointly pursue sustainability objectives already exist.¹

This may be true, but it is not quite as simple as that. Because even when it comes to saving the planet, antitrust rules apply. Rules the competition watchdogs have a keen eye on, of course. So it can be expected that if the EC has even the slightest suspicion that cartel greenwashing could be hiding behind well-intentioned ambitions, companies will face hefty antitrust fines. This expectation is no longer unfounded: the EC has given a foretaste in its hotly debated Car Emissions Cartel decision (Case AT.40178 – Car Emissions).² In it, the EC not only had to decide for the first time whether collusion on technical (sustainable!) development amounts to a cartel, but also rendered its first decision on an antitrust case that places the issue of the European Green Deal prominently at its centre. We have taken a closer look at this landmark decision.

The case

Let's go back to the beginning. As early as 2009, engineers at leading German car manufacturers have met regularly in working groups to discuss how to meet emissions criteria in diesel vehicles. To meet the increasingly strict exhaust emissions limits, many diesel cars use a fluid called AdBlue, which is stored in an additional tank. AdBlue is a non-toxic mixture of urea and de-ionised water (and not actually blue at all). The use of AdBlue is said to reduce NOx emissions in exhaust gases by up to 90 % or more. Although larger AdBlue tanks reduce more NOx emissions, the German car manufacturers agreed to use smaller tanks because they were "lightweight, did not cost much, and left enough space for golf bags in the trunk".³ Good for golf-loving lawyers, bad for competition, it seems.

The decision

The European competition watchdogs accuse the companies of hindering efforts to make even better exhaust gas cleaning. The car manufacturers would have known that better exhaust gas purification would have been possible with the jointly developed technology if larger tanks had been used.

At this point, two things need to be highlighted:

First, these proceedings solely concern non-compliance with antitrust law, not other areas of law. In other words, antitrust law does not factor in other regulatory rules when it comes to innovation competition. Therefore, the question of whether the tanks already exceeded the regulatory requirements for NOx cleaning was of no concern to the EC.⁴

Secondly, the car manufacturers did not actually introduce uniform
AdBlue tank sizes or ranges. Actual tank sizes remained well above the volumes discussed.⁵ Still, the car manufacturers were aware that, with even higher quantities of AdBlue, more effective NOx cleaning beyond regulatory requirements would have been possible ("over-fulfilment"). Through their common understanding that AdBlue consumption would increase with the introduction of stricter regulatory requirements, they signalled to each other that over-fulfilment was not strived for. In the eyes of the EC this was enough to restrict competition in terms of technical development in the field of NOx cleaning for new diesel cars and to limit choice for customers.⁶

The argument that golfers would prefer smaller AdBlue tanks is not explicitly mentioned in the decision. Although the EC acknowledges that smaller AdBlue tanks have advantages in terms of vehicle weight (and therefore fuel consumption and Co2 emissions) and available construction space, this was apparently not relevant enough to justify the agreement on the size of the AdBlue tanks.⁷

The great astonishment

Up to now, the harsh treatment cartels received was mainly meant to prevent "classic" cartel behaviour, such as price fixing, market sharing or customer allocation. This procedure exclusively concerns coordination concerning technical aspects, which has long been prohibited by law (see Art. 101 (1) (b) TFEU; restriction of technical development), but is now, for the first time, the basis of an EC decision.⁸

Reading between the lines, one cannot shake the feeling that the EC does not really blame the car manufacturers for the installation of smaller AdBlue tanks. As highlighted by the EU's antitrust chief, Margrethe Vestager, the decision is about "how legitimate technical cooperation went wrong".⁹ Or more prosaically, the cooperation was "kindly intentioned, but not considerate".¹⁰ Thus, the parties benefitted from being the first to be punished in two ways: A penalty reduction of 20 % and an additional letter, in which the EC provides guidance to the companies on aspects of their technical cooperation that raise no competition concerns (such as the standardisation of the AdBlue filler neck, its quality standards, or the joint development of a software platform for AdBlue). The build-up of an appropriate infrastructure for AdBlue supply was also outlined by the EC as not being of antitrust concern.¹¹

This is just the beginning

This decision is not just an example of the EC's determination to step up competition enforcement against practices that may obstruct environmental efficiencies. It also heralds the beginning of a period of more intensive antitrust enforcement, which – at least at first glance – will not always lead to predictable decisions.

Determining in advance whether a certain business practice has more negative or more positive effects on competition and consumers has never been easy. And maybe it is Adam Smith's idea mentioned at the beginning ("people of the same trade...") that has subsequently ensured that cooperation agreements of any kind cannot avoid the bitter taste of antitrust violation. However, this decision clearly shows how cautiously companies must proceed when it comes to cooperation for the benefit of sustainability. Agreements on sustainable development must not only be well-intentioned; at the end of the day, they must also stand up to rigorous (and not always predictable) scrutiny by the competition authorities. A slight glimmer of hope: the EC recently announced that it will provide guidance and legal certainty to enable sustainability cooperation "very soon".¹² We will of course follow this closely and keep you posted.

1 https://op.europa.eu/en/publication-detail/-/publication/63c4944f-1698-11ec-b4fe-01aa75ed71a1/language-en/format-PDF.
² https://app.parr-global.com/files/cases/1625409/EC%20fined%20German%20car%20manufacturers%20EUR%20875m%20for%20emissions%20cartel.pdf.
3 https://www.spiegel.de/international/germany/the-cartel-collusion-between-germany-s-biggest-carmakers-a-1159471.html.
⁴ European Commission AT.40178 – Car Emissions para 8.
⁵ European Commission AT.40178 – Car Emissions para 9.
6 European Commission AT.40178 – Car Emissions para 125.
⁷ As the European Commission put it in para. 120 of the decision: "Insofar as pro-competitive effects are claimed, they have to be relevant and solely caused by the restrictive agreement or concerted practice, if proven, to be so significant as to give reason to doubt that the agreement or concerted practice concerned sufficiently distorts competition and that it therefore constitutes a restriction by object."
8 European Commission AT.40178 – Car Emissions para 10.
⁹ https://ec.europa.eu/commission/presscorner/detail/ro/ip_21_3581.
10 Marilynne Robinson Gilead 121.
¹¹ https://ec.europa.eu/competition/antitrust/cases1/202146/AT_40178_8022302_3050_5.pdf.
12 https://app.parr-global.com/intelligence/view/intelcms-c7kzhp.

authors: Christoph Haid and Anna Sofia Reumann