Master Thesis
International and European Law: European Competition Law and Regulation University of Amsterdam
Faculty of Law
Corporate Renewable PPAs
in the Context of Integrated Policies in the EU:
Competition, Energy and Environmental Policies
K.H.M. Välimaa kristiina.valimaa@student.uva.nl 12337315 Supervisor: Dr. K.J. Cseres 6 January 2020
Abstract
Corporate renewable Power Purchase Agreements (PPAs) are agreements on the sale and purchase of power between a corporate offtaker and a power producer. These agreements may by effect restrict competition, as they move the sale of electricity from the open wholesale markets to closed and confidential negotiations where consumers may not necessarily have access to. This can result in the drying out of the electricity wholesale markets, leading to distorted prices and market signals, and the foreclosure of competition and facilitation of further collusion, and thus be prohibited under art. 101(1) TFEU.
Yet at the same time, corporate renewable PPAs mitigate the risk for the parties to the agreement and increase the bankability of these agreements, possibly allowing for investment in renewable energy projects which might not have otherwise been possible without the security the PPA offers. Thus, where corporate renewable agreements restrict competition, they may bring benefits that are valued under the non-economic policies of the EU, such as energy and environmental policy.
These benefits should be taken into account in the assessment of whether these agreements carry out efficiencies that may nevertheless justify the distortion of competition under art. 101(3) TFEU. EU policies should be interpreted in a mutually supportive manner, and therefore, the concept at the core of art. 101(3) TFEU, consumer welfare, should be interpreted through the integrated reading of EU competition policy with energy and environmental policy.
Table of Contents
Abstract ... 2
Abbreviations ... 4
1. Introduction ... 5
2. Competition Policy and its Integrated Reading with other EU Policies ... 7
2.1. Competition Policy ... 7
2.2. Energy and Environmental Policies ... 8
2.3. Theoretical Integration between the Policies ... 9
3. Corporate Renewable PPAs’ Effect on Competition and Analysis under Competition Policy Objectives ... 12
3.1. Effects on Competition ... 12
3.1.1. Drying Out of Wholesale Markets ... 12
3.1.2. Reducing Transparency ... 14
3.1.3. Restrictive Contract Clauses ... 15
3.2. Issues of Corporate Renewable PPAs under Competition Policy Objectives ... 16
4. Justifications for Corporate Renewable PPAs ... 16
4.1. Benefits of Corporate Renewable PPAs in line with the EU Environmental and Energy Policies ... 17
4.2. Justification under Article 101(3) TFEU ... 19
4.2.1. Narrow Application ... 19
4.2.2. Wide Application ... 24
5. Law in Line with the Policies ... 29
6. Conclusion ... 31
Abbreviations
Art. Article
EU European Union
CJEU Court of Justice of the European Union PPA Power Purchase Agreement
TEU Treaty on the European Union
1. Introduction
The energy field in European Union (EU) is facing the next biggest issue after the liberalization of the energy markets; the transfer to renewable energy. In the context of global politics1, international agreements2 and EU commitments3, it has been argued that renewable energy will become the major source of energy in the EU within the next years to come.4 These goals also oblige companies and energy producers to consider their actions and strategies. However, at the same time, renewable energy poses challenges due to its uncertain nature relating to the difficulty of steady supply and its varying prices compared to cheap and steadily-priced non-renewable fuels.5 Because of this, national wholesale markets are slow to react to the development towards renewably produced electricity6, so companies have found alternative ways to move towards renewables to fulfill their corporate sustainability responsibilities through means that offer economic benefits and reliability that buying electricity from the grid cannot offer.7
Power Purchase Agreements (PPAs) offer some companies a solution satisfying their wishes. Corporate PPAs are long-term agreements on the sale and purchase of electricity. They are agreements between corporate offtakers and power producers to purchase electricity typically at an agreed price and quantity over an agreed period of time.8 Although not a new phenomenon, corporate
PPAs have gained popularity in recent years.9 What drives companies for PPAs is the security in supply and demand of power at steady prices they provide for as well as the possibility for companies to achieve their sustainability commitments.10 It must be noted that PPAs in themselves are not renewable, as all types of energy can, in theory, be subject to a PPA. However, this paper shall focus on renewable PPAs in particular, a model that has gained popularity in the last couple of years.
1 M. Kottari, ‘A new era for global energy governance? The environmental imperatives and the EU perspective (2016)
29 Politikon <https://iapss.org/wp-content/uploads/2014/10/124_Volume-29.pdf> accessed 6 Jan 2020.
2 i.e. Kyoto Protocol of 1997, Paris Agreement of 2015.
3 i.e. Strategies of renewable 20% by 2020, climate-neutral by 2050.
4 See e.g. ’REmap 2020: A Renewable Energy Roadmap Summary of Findings’ (Publication of The International
Renewable Energy Agency (IRENA), 2014)
<https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2014/IRENA_REmap_summary_findings_2014.pdf> accessed 6 Jan 2020.
5 D. Koutsoyiannis, ‘The unavoidable uncertainty of renewable energy and its management’ (2016, EGU General
Assembly) <https://ui.adsabs.harvard.edu/abs/2016EGUGA..1818430K/abstract> accessed 6 Jan 2020.
6 ‘Corporate Renewable Power Purchase Agreements’ (Publication of World Business Council for Sustainable
Development (WBCSD)) <http://resource-platform.eu/wp-content/uploads/files/knowledge/reports/WBCSD-Corporate-Renewable-PPAs-Scaling-Up-Globally.pdf> accessed 6 Jan 2020.
7 ‘The rise of corporate PPAs: A new driver for renewables’ (2015, Report by Baker McKenzie)
<https://www.bakermckenzie.com/-/media/files/insight/publications/2015/12/the-rise-of-corporate-ppas/risecorporateppas.pdf?la=en> accessed 6 Jan 2020.
8 Corporate Renewable Power Purchase Agreements (n 6).
9 ‘Corporate renewable PPAs: A framework for the future’ (Norton Rose Fulbright Publication, 2017)
<https://www.nortonrosefulbright.com/en/knowledge/publications/3ea24a79/corporate-renewable-ppas---a-framework-for-the-future> accessed 6 Jan 2020.
As these agreements are becoming more popular in the EU, the context in which they arise is relevant to assess. The core of this paper is to analyze corporate renewable PPAs in the EU competition framework, comprising of the EU competition law and policy. It will be analyzed whether corporate renewable PPAs would generally be in line with the EU competition laws, more specifically art. 101 TFEU. However, to answer this, the wider concept of EU competition policy determining the objectives that these laws were set up to achieve needs to be considered. But as competition policy does not function in a vacuum, its interaction with other EU policies is important to assess, mainly those of energy policy and its combined reading with environmental policy. This paper aims to answer the question of to what extent are corporate renewable PPAs in line with
EU competition law and the objectives of EU competition policy. To answer this, the following
sub-questions needs to be considered: To what extent can corporate renewable PPAs be read into
EU competition policy through the integrated reading of EU competition policy with EU energy and environmental policies?
This thesis is based on literature research. The results of this research paper are the outcome of the assessment of the different approaches taken in the literature around the topic, critically analyzing the common trends and approaches. The research question centers around the quantitative scope of EU competition, energy, and environmental policies, opinion of which was formed based on the analysis of the black-letter law, but because the focus is on policies, also highly the analysis of soft law and guiding principles. Based on these sources, the research focused on the factual concept of corporate renewable PPAs in the interdisciplinary context of economic and social disciplines, highly influenced by politics. The research methods used in this paper are both descriptive and evaluative, starting with a descriptive approach to the question and conducting the analysis on an evaluative basis.
Section 2 describes the EU competition policy as well as energy and environmental policies and explains the theoretical interaction of these policies in the EU. Section 3 analyses corporate renewable PPAs in the context of EU competition regulation and policy by considering corporate renewable PPAs under art. 101(1) TFEU and in line with EU competition policy goals, whereas section 4 looks at whether corporate renewable PPAs can be justified under art. 101(3), and considers to what extent non-economic justifications from other policies can be taken into account in this. Section 5 considers how the objectives of EU policies relate to competition law. Section 6 concludes.
2. Competition Policy and its Integrated Reading with other EU Policies
This section proceeds to describe the details of EU competition, energy, and environmental policies as well as the theoretical integration between them in general before the specific application to corporate renewable PPAs. That will follow in sections 3 and onwards.
2.1. Competition Policy
EU competition policy lies at the heart of the EU Single Market, as competition is essential for open market economies.11 Competition is accepted to result in lower prices, a better quality of products, increased innovation, wider consumer choice and increased efficiency in production.12 Classical economists argue that competition brings the best outcome for society.13 The EU has also adopted this approach as the basis of its competition policy since the very beginning already in the Treaty of Rome, where the EU internal market was established.14
The main goals of EU competition policy are the integration of the internal market, consumer welfare, effective competition, and economic efficiency.15 Measures of undertakings that restrict free competition are seen as problematic,16 but as the task of the competition regulators in the EU is not
active intervention on areas where competition is not perfect (as nearly all markets are imperfect) but to achieve effective competition in the internal market,17 the regulators should intervene only with anticompetitive behavior.18
Even if it has been established that ensuring the efficient working of competition is the main goal pursued by EU competition policy, consumer welfare is also at the core of the policy. Due to this, EU competition law does not forbid conduct that is anti-competitive but allows for justification of the conduct if it produces efficiencies that are seen to increase consumer welfare. However, how broad the concept of consumer welfare as a justification is has been debated, a discussion which will follow
11 M. Szczepański, ’EU Competition Policy: Key to a fair single market’ (Publication for the European Parliamentary
Research Service, 2019) <https://www.europarl.europa.eu/RegData/etudes/IDAN/2019/642209/EPRS_IDA(2019)642209_EN.pdf> accessed 6 Jan 2020. 12 Ibid. 13 Ibid. 14 Ibid.
15 Z. Daniel, The goals of competition law (5th ed. Edward Elgar Publishing 2012).
16 C. Damro, ‘Development of European Competition Policy’ in European Competition Policy and Globalization
(Palgrave Macmillan, 2016).
17 T. Baskoy, ‘Effective Competition and EU Competition Law’ (2005) 1 Review of European and Russian Affairs. 18 G. Monti, EC Competition Law (1st edn., Cambridge University Press, 2007).
in section 4. Traditionally, however, the concept of consumer welfare in competition policy has been centered strongly around economic objectives.
The main legal provisions adopted in line with the objectives of EU competition policy are found in articles 101 and 102 TFEU. Art. 101 TFEU prohibits agreements between undertakings that aim to reduce competition, whereas art. 102 TFEU prohibits dominant undertakings from abusing their dominance.
2.2. Energy and Environmental Policies
Likewise in competition policy, the internal market objective has played a role in EU energy policy since the 1980s and the Single European Act.19 There, the EU policies centered highly around the idea of one single European market, also for energy. Until then, energy markets were national and natural monopolies, for which positive action abolishing the barriers to competition was required.20 In earlier stages of EU energy regulation, from the establishing of EU internal electricity markets in 1989 until the introduction of the Third Energy Package21 in 2007, energy policy primarily focused on these economic objectives and liberalization of the energy markets.22 However, since the Third Energy Package and thus new legislation, EU energy policy also started to focus on the non-economic objectives and integrated environmental policy into EU energy policy.23 The main goal of environmental policy, to limit the harmful effects of production or consumption on the environment, achieved through means such as sustainable energy production,24 was added to the EU energy policy.
Since the Treaty of Lisbon, EU energy policy has its basis in Art. 194 TFEU, listing the main objectives: ensuring the functioning of the energy market; ensuring the security of supply; promoting
19 J. Vasconcelos, ‘Towards the internal energy market, how to bridge a regulatory gap and build a regulatory
framework’ (2005) 1 (1) European Review of Energy Markets <https://www.eeinstitute.org/european-review-of-energy-market/EREM1Vasconcelos.pdf> accessed 6 Jan 2020.
20 K. Talus, Vertical natural gas transportation capacity, upstream commodity contracts, and EU competition law (1st
edn, Kluwer Law International 2011).
21 Consisting of: Directive 2009/72/EC concerning common rules for the internal market in electricity and repealing
Directive 2003/54/EC; Directive 2009/73/EC concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC; Regulation (EC) No 714/2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003; Regulation (EC) NO 715/2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005; Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators.
22 J. Vasconcelos, ‘Energy regulation in Europe: regulatory policies and politics of regulation’ (2009) 3(3) European
Review of Energy Markets <https://eeinstitute.org/european-review-of-energy-market/EREM_9-_Comment_Jorge_Vasconcelos.pdf> accessed 6 Jan 2020.
23 Ibid.
24 ‘Competition Policy and Green Growth’ (2010, Joint Report by the Nordic Competition Authorities)
<https://www.kkv.fi/globalassets/kkv-suomi/julkaisut/pm-yhteisraportit/competition-policy-and-green-growth.pdf> accessed 6 Jan 2020
energy efficiency and energy saving; promoting renewable energy; and promoting research, innovation, and competitiveness. Moreover, there is extensive secondary law governing the energy sector.25
Like in competition policy, consumer welfare is also at the core of both energy and environmental policy. However, whereas in competition policy consumer welfare is understood through economic efficiency which increases the welfare of consumers and society, in the common reading of energy and environmental policy consumer welfare is increased through correcting environmental externalities.26 Therefore, each of the policies aims to achieve the same goal, but through different means.
Energy policy thus has two-fold objectives: those similar to competition policy, ensuring competitive internal energy market, and those similar to the goals of environmental policy. The reading of energy policy, therefore, relies on the integrated reading of all three policies: energy, competition and environmental policies. The conflict central to this research paper, the question of how these policies and their differing objectives are to be balanced with each other does not thus only exist between different policies but is also internal to energy policy.
2.3. Theoretical Integration between the Policies
In the essence competition policy, energy policy and environmental policy share the same objective – maximizing social welfare – but as stated before, through differing means. Each is a device to correct market failures, but the failures objectified are not the same.27 Where they push for the same objective, it is only natural that the other policies do not prevent or hamper the effectiveness of one, but ideally reinforce each other’s effectiveness.28 Where the policies exist in harmony, there is no question of whether one can be used to support another. However, in situations where a measure promotes a goal of one policy but clashes with a goal of another, the issue becomes complicated. To what extent is the reading of the policies integrated, and to what extent do they function independently?
Understanding the policies independently would essentially mean that one policy would be primary to another, as in certain situations one policy should rather be applied in preference for
25 European Commission, ‘Overview of the secondary EU legislation that falls under the legislative competence of DG
ENER and that is currently in force’ (2016)
<https://ec.europa.eu/energy/sites/ener/files/documents/Overview%20of%20ENER-related%20legislation%20%28by%20policy%20areas%29%20update%2014.03.2016.pdf> accessed 6 Jan 2020.
26 Competition Policy and Green Growth (n 24). 27 Ibid.
another. Such an argument would imply a so-called ‘hierarchy of policies’. Hierarchy in the EU law is typically only visible in the structure of primary, secondary and tertiary law. Considering the competition, energy and environmental EU action under this framework, competition regulation can be mostly found in the primary EU law, whereas energy as well as environmental regulation are strongly based on the secondary EU law. The objectives of energy and environmental law are of course also found in the treaties, but how the objectives should be achieved is highly specified in the secondary law of the EU.
Also, the treaty provisions on energy law are interconnected with competition law. The specific energy sector regulation has been adapted on the basis of the internal market, to achieve the objectives of competition policy.29 Thus, translating the simple conclusion that EU competition law is primary law and EU energy law is secondary law into each of the policies would imply that EU competition policy is superior to EU energy policy. A natural assumption would be that the competition policy would be primary to energy policy. Competition policy is one of the founding policies of the EU with its important role around the construction of the internal market and the four freedoms. Competition policy is integrated into many other EU policies as well, including the EU energy policy. Overlap of competition policy in various areas might explain the willingness to accept competition as a higher policy.30
Thus, as EU energy policy is shaped by the competition policy, the conclusion quickly formed from this is that the competition policy is the main regime setting out the objectives, which are supported by the reading of the energy policy. Yet, this would be an incomplete picture. Where EU energy policy comprises of objectives of competition policy, relating to the internal energy market and its objective in competitiveness, part of the energy policy is also comprised of the sustainability objectives which are derived from an integrated approach of environmental and energy policy.31 Moreover, art. 11 TFEU states that “environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view of promoting sustainable development”. This would almost suggest that environmental policy is superior to all other policies of the EU, thus also including competition policy.32
Yet, I argue that concluding that one policy should be prioritized over another in all cases would not be a working solution. The integrated approach to policies implies the mutual, supporting reading
29 P. Larouche, ‘Contrasting legal solutions and comparability of EU and US experiences’ in F. Leveque & H. Shelanski
(eds.), Antitrust and regulation in the EU and US: legal and economic perspectives (Edward Elgar, 2009).
30 Ibid.
31 Vasconcelos (n 22). 32 Monti (n 18).
of several policies together.33 In this case, all three, competition policy, energy policy, and environmental policy are so overlapping that the integrated approach needs to be taken, weighing the costs and benefits in each individual case. It cannot be argued that all policies in the EU would not serve an important and specific purpose. Ensuring the competitiveness of markets is essential and at the core of the proper functioning of the EU internal market. Especially for energy, where the market is a natural monopoly, the interruption of the Member States on the natural working of the markets is needed. Thus, positive integration and active competition policy have an important role in ensuring the working of the energy markets. However, energy is also not a normal good and simple rules of competition cannot be directly applied to the energy markets. Energy has an important role in the fight against the global environmental crisis, and by introducing ambitious goals for sustainability and environmental protection the EU has itself lifted these aspects of energy policy on a higher stance. For renewable energy to fulfill its potential, the policy framework needs to be supportive of this.34
This approach is also supported by the principle of consistency, which has an important role in EU law. It relies on the assumption that the law only makes sense when it is “considered as a whole by being rational and orderly”.35 Art. 7 TFEU states that the EU “shall ensure consistency between
its policies and activities, taking all of its objectives into account”. This implies that the policies should be interpreted in a way that would not allow for conflicts between them. This would support the integrated approach of EU competition policy with other EU policies, allowing for the consideration of other policies in the reading of EU competition policy. No policies of the EU can be implemented in a vacuum, but they need to be consistent with the development of the whole European project.36 The outcome is that each of the policies, the competition, energy, and environmental policies has a fundamental role in determining the desired direction the decision-makers should take. However, with somewhat conflicting objectives, the importance of coherent policies would also need to be emphasized. To maximize social welfare, the policies need to be mutually supportive.37
33 Vasconcelos (n 22).
34 Commission, ‘A European Strategy for Sustainable, Competitive and Secure Energy’ (2006 Green Paper)
COM(2006)105 final.
35 E. Herlin-Karnell & T. Konstadinides, ‘The Rise and Expression of Consistency in EU Law: Legal and Strategic
Implications for European Integration’ (2013) 15 The Cambridge Yearbook of European Legal Studies <https://research.vu.nl/ws/portalfiles/portal/45936738/07_06_2.pdf> accessed 6 Jan 2020.
36 G. Monti, ’Article 81 EC and Public Policy’ (2002) 39 Common Market Law Review. 37 Competition Policy and Green Growth (n 24).
3. Corporate Renewable PPAs’ Effect on Competition and Analysis under Competition Policy Objectives
After having described the competition policy and its integration with other EU policies (the EU energy and environmental policy), the research will continue into how corporate renewable PPAs fit into this context.
3.1. Effects on Competition
Corporate renewable PPAs are agreements between undertakings, typically those undertakings competing on different levels of production. Thus, the main framework applying to them is art. 101 TFEU, prohibiting agreements between undertakings that restrict competition, and the Block Exemption Regulation on vertical agreements. PPAs are not included in the black-list prohibitions under EU competition law, that being, under the hardcore restrictions under the BER, meaning that they would be per se prohibited. Thus, whether or not they would be allowed under EU law depends on the analysis under art. 101 TFEU.
With this being the case, whether they restrict competition must rely on a thorough economic analysis of the effects they produce.38 However, the economic analysis of the effects should be conducted on an ad hoc basis, analyzing each case individually and in detail. But here, as the analysis is not focusing on a specific corporate renewable PPA but the group of corporate renewable PPAs as general, the focus is on the aspects of the agreements that generally would have the effect of restricting competition. These include (1) by-passing trade on wholesale markets of electricity, resulting in the drying out of wholesale markets, for the detriment of the individual consumer; (2) reducing transparency due to the confidential nature of corporate PPAs, resulting in markets that do not reflect the actual market situation; and (3) foreclosure and softening of competition as a result of restrictive contract clauses. Each of these will be assessed next.
3.1.1. Drying Out of Wholesale Markets
The Commission Energy Sector Inquiry states that long-term PPAs have similar effects to vertical integration, resulting in vertical foreclosure.39 With corporate renewable PPAs, the major concern is
38 Commission, ‘Guidelines on Vertical Restraints’ 2010/C 139/01, para 96. 39 Commission, ‘Energy Sector Inquiry’ COM(2008) 1.
the by-passing of the wholesale energy markets,40 as exclusive long-term PPAs reduce the need to trade on wholesale markets.41 The wish of major undertakings to sell and purchase electricity through corporate renewable PPAs rather than from the wholesale market will lead to the drying out of the wholesale markets.
Wholesale markets can only function when they are sufficiently liquid.42 This requires that there is a great number of active participants on the market and a number of new entrants with little dominance of single market participants, a high volume of trading and transparent prices.43 Only when the markets are sufficiently liquid, they reflect the actual market situation and maximize social welfare. Non-liquid wholesale markets will lead to high volatility and volatile prices. Increased volatility on the wholesale markets will encourage the producers and buyers to more vertical re-integration and long-term contracting, leading to a vicious circle,44 where competition on the wholesale market will be softened.
Where the wholesale market is not liquid, the possible effects will be increased prices that do not reflect the actual market dynamics,45 leading to alack of consumer trust in price signals.46 Where the consumers cannot trust the market, the results will be seen as reduced consumer welfare, obliging the consumers to seek other solutions. However, with individual consumers, the situation is more complicated. They have little countervailing power that would allow them to compete for the corporate renewable PPAs or other solutions alike. Thus, individual consumers are the parties most likely to stay on the wholesale markets, ending up as the losers of corporate renewable PPAs.
Moreover, where an energy producer sells energy both through corporate renewable PPAs as well as on the wholesale market, and there would be a need to raise prices, for example, due to increased costs of production, increasing prices would only be possible at the wholesale market level in cases
40 ‘The economic impact of enforcement of competition policies on the functioning of EU energy markets’ (2015,
Report by the ICF Consultancy Services & DIW Berlin, Non-technical Summary of European Commission, Directorate-General for Competition) <https://ec.europa.eu/competition/publications/reports/kd0216007enn.pdf> accessed 6 Jan 2020.
41 Commission (n 39).
42 A. de Hauteclocque, ‘Long-term energy supply contracts in European competition policy: Fuzzy not crazy’ (2009) 37
(12) Energy Policy <https://www.sciencedirect.com/science/article/pii/S0301421509005813#bib12> accessed 6 Jan 2020.
43 ‘Review and analysis of EU wholesale energy markets’ (2008, Report by The Moffatt Associates Partnership for the
European Commission GD TREN)
<https://ec.europa.eu/energy/sites/ener/files/documents/2008_eu_wholesale_energy_market_evaluation.pdf> accessed 6 Jan 2020.
44 De Hauteclocque (n 42).
45 D. Holt, ‘The long and short of it: the impact of long-term contracts as a commercial tool’ (2007, Oxera Agenda)
<https://www.oxera.com/wp-content/uploads/2018/03/The-long-and-short-of-it_Agenda.pdf> accessed 6 Jan 2020.
where the PPA includes a provision on set prices.47 Thus, any increase in prices would always be reflected in the wholesale price.
Liquid wholesale markets also function as the key for the erosion of market power.48 The fewer actors there are on the wholesale market, the greater are the possibilities for dominance on the market. Even if dominance is not problematic as such, the possibilities for abuse of dominance on liquid wholesale markets are less.
3.1.2. Reducing Transparency
Transparency is vital for open markets, that being the objective of competition policy.49 Transparency is also seen as essential to the wholesale markets to be efficient, liquid and competitive. It promotes competition, as actors can trust that the market provides them with the rights signals.50 Information asymmetry on the market will lead to distorted conditions of competition.51 Due to the benefits of transparent energy markets, the EU has also pushed for regulation enhancing transparency on the wholesale electricity markets in the REMIT (The EU Regulation on Market Integrity and Transparency).52
However, as the electricity traded in corporate renewable PPAs is not traded on the wholesale markets, corporate renewable PPAs are outside the regulatory obligations of transparency. Under corporate renewable PPAs, most electricity is traded through closed contracts, often with strict confidentiality clauses. Thus, the content is not public, at least not to the extent that it could be fully reflected on the market.
Where the contracts lack transparency, the results on competition on the market are much similar to those discussed above with the drying out of the wholesale markets. Reduced transparency may lead to distortions of market signals which cannot follow the actual situation on the market, resulting in artificial market conditions to the detriment of the consumer.
47 De Hauteclocque (n 42). 48 Commission (n 39).
49 P. Gulger, ‘Transparency and Competition Policy in an Imperfectly Competitive World’ in J. Forssbaeck & L.
Oxelheim (eds), The Oxford Handbook of Economic and Institutional Transparency (Oxford University Press, 2014).
50 E. Michetti, ‘Transparency in the European Wholesale Energy Markets: Filling the Regulatory Gaps’ (2011,
European University Insistitute Policy Brief) <https://core.ac.uk/download/pdf/45680578.pdf> accessed 6 Jan 2020.
51 Gulger (n 49).
52 Commission Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on
3.1.3. Restrictive Contract Clauses
When drafting a PPA, the parties often include different restricting clauses as securities to the contract to minimize the risk, for example, exclusivity clauses, obliging the offtaker to purchase all or majority of its electricity from the producer party to the contract, or take-or-pay clauses, where the parties agree on a certain quantity for purchase, which the offtaker needs to pay even if it would not wish to acquire the full quantity. For the parties, these types of clauses are advisable, but also, they have restrictive effects on competition.
Exclusivity clauses, such as non-compete, where the offtaker agrees to buy all or most of its purchases from one supplier, lead to foreclosure, softening of competition, and facilitating collusion.53 In Distrigaz, it was found that take-or-pay clauses have similar effects to non-compete.54 The case concerned a long-term gas supply agreements between Distrigaz and industrial customers in Belgium. The Commission found that certain aspects of the contracts were restrictive of competition, as they foreclose other gas suppliers’ access to the market.55 The issue with Distrigaz was that it was dominant on the market, and the contracts were long in duration (even indefinite) and covered a big quantity of the total sales.56 Distrigaz needed to agree on commitments considerably
restricting the volumes traded, the duration of contracts and the removal of restrictions of resale or use.57 The outcome of Distrigaz is that long-term energy sale and purchase agreements are not illegal
per se, but their impact must be evaluated on an ad hoc individual basis to determine whether they
restrict competition.58 Thus applying the same analysis to corporate renewable PPAs, it is clear that (1) the higher the market shares of the parties to the PPA, (2) the longer the duration and (3) the bigger the quantities subject to the exclusivity agreement are, the more significant the restrictive effects are likely to be.
The outcome derived from the Commission Guidelines on vertical restraints is the same: exclusivity clauses do not, in general, restrict competition with appreciable effect when they are limited in duration (to 5 years) and do not cover great portions (not more than 30%) of the market. Beyond that, exclusivity clauses are expected to appreciably restrict competition.
53 Commission (n 38) para 130.
54 Commission Decision of 11 October 2007, Case COMP/B.1/27966, Distrigaz. 55 Ibid.
56 Ibid. 57 Ibid.
58 ‘Take-or-Pay Clauses in Gas Supply Agreements and their legal evaluation’ (2014, Column by Metaxas & Associates
Law Firm – Attorneys at Law in EnergyPress) <https://energypress.eu/articles/take-pay-clauses-gas-supply-agreements-legal-evaluation/> accessed 6 Jan 2020.
3.2. Issues of Corporate Renewable PPAs under Competition Policy Objectives
Thus, the result of the analysis above is that corporate renewable PPAs are likely to distort competition, as competition on the energy markets is softened, drying out the wholesale markets for electricity, and leading to distorted market signals. They may lead to foreclosure on the market and facilitate further collusion. Thus, corporate renewable PPAs essentially function against the aim of the EU competition policy of efficient competition.
Corporate renewable PPAs are seen as problematic from the competition policy view, as they hamper the idea of a single European market for energy.59 They essentially function contrary to the aim of the EU competition policy objective to create open and competitive markets, as through such contracts, power is not traded on the open wholesale market, but ‘through the back-door’ to large companies, on markets where private consumers may not necessarily have access to. All the energy traded in corporate renewable PPAs is deprived of the wholesale markets and thus of private consumers, essentially countering the EU competition policy objective of consumer welfare.
Scholars argue that long-term energy purchase contracts “hamper the integration of a single European market for energy”,60 and the Commission Sector Inquiry has stated that long-term PPAs
“have adverse effects for the liberalization process”.61 The liberalization movement on the energy
sector took place because of the anticipated efficiencies and benefits they would bring to the consumer.62 Thus, the measures of competition and energy policy to free the energy markets become pointless where incumbents begin to use corporate renewable PPAs as a device to control the market.63
The next section will consider whether these agreements could nevertheless be in line with EU competition policy. This may be the case if they can be justified by the efficiencies they bring to consumer welfare, considered under art. 101(3) TFEU.
4. Justifications for Corporate Renewable PPAs
As stated before, next to achieving effective competition, important goals of EU competition policy are consumer welfare and economic efficiency. Thus, agreements between undertakings that result in
59 De Hauteclocque (n 42). 60 Ibid.
61 Commission (n 39).
62 L. Rathke, ‘The Effects of Electricity Market Liberalisation in the European Union’ (2015, Bachelor of Science
Thesis, University of Twente) <https://essay.utwente.nl/68210/1/Rathke_BA_BMS.pdf> accessed 6 Jan 2020.
the restriction of competition but at the same time increase economic efficiency and consumer welfare may escape the application of art. 101(1) TFEU. Where the benefits outweigh the negative effects, the distortive behavior may be justified under art. 101(3) TFEU.
Two approaches can be taken to understand this article. The first one is the narrow approach to art. 101(3) TFEU, followed by the Commission and EU courts, which would only allow the consideration of economic efficiencies, and the wide approach to art. 101(3) TFEU, supported by various scholars,64 which would also take into account other, non-economic efficiencies. The debate between the narrow and the wide approach has been going on for a long period of time, and the literature around the topic is extensive.
Whether other policy objectives than competition policy objectives, such as in this case energy and environmental policy objectives, may play a role in this analysis depends on the approach adopted. The narrow reading of art. 101(3) would not read the law in line with the integrated approach of EU policies, and thus would not allow for objectives of other EU policies to influence the understanding of ‘efficiencies’ under art. 101(3). However, the wider reading of the article would look at the overall efficiencies the measure would bring and thus interpret EU competition law in relation to all other EU policies next to competition policy.
However, before getting there, the next section analyses why corporate renewable PPAs should be justified in the first place.
4.1. Benefits of Corporate Renewable PPAs in line with the EU Environmental and Energy
Policies
When corporate renewable PPAs are assessed in the light of EU energy and environmental policies, they appear a lot more desirable than when reflected against the EU competition policy. As explained in section 2, EU energy policy does not only comprise of the objectives related to the well-functioning of the internal energy market (economic objective similar to the economic objectives under the competition policy) but since the reformation of the EU energy policy in the Third Energy Package, the non-economic goals related to the promotion of sustainable energy have also been important
64 For that, see e.g. D, Ehlermann, ’The Modernization of EC Antitrust Policy. A Legal and Cultural Revolution’ (2000,
EUI RSC Working Paper) <https://core.ac.uk/download/pdf/41100291.pdf> accessed 12 Dec 2019; N. Rosenboom, ‘How does article 101(3) TFEU case law relate to EC guidelines and the welfare perspective?’ (2013, Working paper of SEO Economic Research); C. Townley, ‘Which goals count in article 101 TFEU?: Public policy and its discontents’ (2011) 9 European Competition Law Review <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894837> accessed 6 Jan 2020; O. Brook, ‘Struggling with art. 101(3) TFEU: Diverging approaches of the Commission, EU courts, and five competition authorities’ (2019) 56 Common Market Law Review; G. Monti, ’Article 81 EC and Public Policy’ (2002) 39 Common Market Law Review; C. Townley, Article 81 EC and public policy (Oxford Hart Publishing 2009).
objectives. The main aims of the EU energy policy include the goals to “decarbonize the economy and move towards a low-carbon economy in line with the Paris Agreement” as well as to “promote the development of new and renewable forms of energy to better align and integrate climate change goals into the new market design”.65 According to art. 194 TFEU, EU energy policy works in line with the need to preserve and improve the environment.
Due to the nature of renewable energy sources, the production of renewable energy is often not stable. Wind power can only be produced on windy days and solar power on sunny days, and electricity storages are not (yet) developed to the extent required for wide commercial use. Thus, if the energy mix of a state is comprised of a great extent of renewably produced energy and traded on a wholesale market, the markets become highly volatile and uncertain.66 Likewise, the structural changes appearing on the energy markets, due to the transfer from conventional energy sources to renewable energy, may also increasingly lead to the unpredictability of the market.67 Moreover, the unpredictable social and political forces such as the climate change increase the uncertainty of trading on sensitive wholesale markets.68
Where the wholesale markets are uncertain, corporate renewable PPAs function as an insurance device that provides security for both parties. They provide a more stable flow of returns, due to which they also appear more favorable for investors, leading to increased investments.69 The stability
the corporate renewable PPAs offer also increases the ‘bankability’ of the project, meaning that the project gets more easily financed.70
Although it is generally understood that a stronger competitive environment leads to more innovation,71 in the case of corporate renewable PPAs, innovation is more likely to take place even where competition might be restricted. This is because corporate renewable PPAs allow for projects to emerge that might not have otherwise occurred due to the fact that they mitigate the risk of the investment,72 increasing the willingness of companies to invest in renewable energy projects. Even if renewable corporate PPAs as themselves are not renewable energy projects but simply agreement models, they work towards the EU energy policy goals by pushing for investment in renewable
65 European Parliament, ‘Energy policy: general principles’ (2019, Fact Sheets on the European Union)
<https://www.europarl.europa.eu/factsheets/en/sheet/68/energy-policy-general-principles> accessed 6 Jan 2020.
66 S. Dong et al., ‘Volatility of electricity price in Denmark and Sweden’ (2019) 158 Energy Procedia
<https://reader.elsevier.com/reader/sd/pii/S1876610219308264?token=4F0F053F7FFBCCBC7E9CD085BAC7E5E004 0EB7C5746D666C2A4A2B6E198C4D98F4C21459144FAE223A65B456381D63CE> accessed 6 Jan 2020.
67 A. Borison & G. Hamm, ‘Better Power Contracts: Using Flexibility to Increase Value’ (2005) 18 (10) The Electricity
Journal <https://doi.org/10.1016/j.tej.2005.10.010> accessed 6 Jan 2020.
68 Ibid. 69 Holt (n 45).
70 Corporate Renewable Power Purchase Agreements (n 6). 71 Competition Policy and Green Growth (n 24).
energy, which in turn will reduce carbon emissions, working towards the realization of EU sustainability goals and by encouraging companies to work towards climate change goals. Even if the motivations for corporate renewable PPAs may be ‘selfish’ (for example where the only motivation for it is that it is cheaper than buying electricity from the grid), they still increase the share of renewably produced electricity. They ensure sustainable consumption and production patterns and enable progress towards renewable energy. By the 18th century economic theory of ‘the indivisible hand’, these benefits are also passed on to society at large.
The increase in the production of renewable energy has been argued to “fuel economic growth, create new employment opportunities, enhance human welfare, and contribute to a climate-safe future.”73 The benefits are both social and economic.
4.2. Justification under Article 101(3) TFEU
Thus, from the point of view of the environmental objectives of EU energy policy (the same does not necessarily hold true for the internal market objectives of EU energy policy, analysis of which would come to a similar conclusion as for competition policy), corporate renewable PPAs appear like a development the EU should push for. However, the question of to what degree should the environmental objectives be taken into account as justifications for agreements that restrict competition and thus go against the objectives of EU competition policy remains. To answer the question, the analysis should focus on the regulatory framework providing for justifications of restrictive agreements, and whether this allows for the inclusion of non-economic objectives.
4.2.1. Narrow Application
Article 101(3) TFEU can be used to justify conduct that is found to violate art. 101(1) TFEU. It states that agreements between undertakings are allowed if the agreement “contributes to improving the
production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
73 ‘Renewable energy benefits: Measuring the economics’ (2016, Report by The International Renewable Energy
Agency (IRENA)) <https://www.irena.org/documentdownloads/publications/irena_measuring-the-economics_2016.pdf> accessed 6 Jan 2020.
(b) afford such undertakings the possibility of eliminating competition in respect of substantial part of the products in question”.
The narrow approach to the interpretation of the article arises from the Commission policy from 2004, reflected in the Commission Guidelines on the application of art. [101(3)] of the Treaty74. According to this, a restrictive agreement can only be justified if it meets four cumulative conditions: (1) The agreement leads to efficiency gains; (2) a fair share of the benefit resulting from those efficiency gains is transferred to the benefit of the consumer; (3) the restriction is indispensable or at least proportionate to the achievement of the efficiency gains; and (4) the agreement should not afford the contracting parties the possibility of eliminating competition in respect of a substantial part of the products in question.
4.2.1.1. First Condition
The first condition of art. 101(3) TFEU requires the agreement to produce efficiency gains. However, this only covers economic efficiencies: improvement of the production or distribution of goods or promoting technical and economic progress.75 Thus, non-economic efficiencies that are not directly related to the subject of the agreement and not directly valued by the consumers within the relevant market are generally not accepted under the narrow reading of the article.76
There has been case law which would seem to imply that in some cases even non-economic justifications would be allowed. In Metro I the CJEU ruled that non-economic justifications may be accepted, but only in limited cases when they appear together with the economic efficiencies.77 In the CEDED-case, the Commission allowed for non-economic efficiencies, but this was only because it
could measure these efficiencies in economic terms.78 Thus, the inclusion of non-economic efficiencies is in reality only allowed under the narrow interpretation when they either support economic efficiencies or can be translated into economic efficiencies.
The Commission Guidelines on the applicability of art. [101 of the Treaty] to horizontal cooperation agreements do state that environmental benefits can be taken into account in assessing the efficiencies the agreement creates.79 However, there are strict requirements for this: the
74 Commission, ‘Guidelines on the application of Article 81(3) TFEU’ 2004/C 101/08. 75 Ibid para 33.
76 O. Brook, ‘Struggling with art. 101(3) TFEU: Diverging approaches of the Commission, EU courts, and five
competition authorities’ (2019) 56 Common Market Law Review
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3319454> accessed 6 Jan 2020.
77 Case C-26/76, Metro v. Commission [1997] ECLI:EU:C:1977:167. 78 Commission decision of 24 January 1999, case IV.F.1/36.718, CEDED.
79 Although these concerns horizontal cooperation agreements, the principles regarding the application of art. 101(3)
environmental benefits must be economic benefits in terms of reduced environmental pressure resulting from the agreement, as compared to a baseline where no action is taken, and they must outweigh the costs.80 Thus, this does not change the fact that efficiencies are required to be strictly economical.
The problem with sustainability efficiencies arising from corporate renewable PPAs is that they may also result in economic efficiencies, but even if this would be the case, often these are not easily quantifiable.81 Thus, corporate renewable PPAs could not be justified on the basis that they produce efficiencies connected to sustainable energy production unless these broader efficiencies could be translated into economic efficiencies. Compared to the baseline where no action is taken, benefits may be clearly visible, but when they are compared with the negative economic effects the agreements create on competition, putting the benefits on a scale similar to the costs is if not impossible, extremely hard. Thus, the Commission has decided to not include these types of benefits at all where they cannot be translated into economic terms.
4.2.1.2. Second Condition
The second condition requires that a fair share of the benefits is passed on to the consumer. The Commission has defined consumers as “all direct or indirect users of the products covered by the agreement, including producers that use the products as an input, wholesalers, retailers and final consumers”.82 Thus, the net effect to those directly or likely to be affected by the agreement needs to
be at least neutral, positive effect compensating for the actual or likely negative effects.83
The limited definition of a consumer seems to imply that the benefits only to those directly affected are taken into account. However, the Commission also recognizes benefits for the whole society where “the efficiencies lead either to fewer resources being used to produce the output consumed or to the production of more valuable products and thus to a more efficient allocation of resources”.84 However, like non-economic benefits cannot exist without the economic benefits, likewise here positive effects for the whole society can only add to the benefits for users, and not count alone.85
80 Commission, ‘Commission Notice – Guidelines on the applicability of Article 81 of the EC Treaty to horizontal
cooperation agreements’ 2001/C 3/02, para 193.
81 W. Swelsen, ‘Sustainability and article 101 TFEU: An economic approach’ (2012, Master Thesis, Tilburg University)
<http://arno.uvt.nl/show.cgi?fid=127141> accessed 6 Jan 2020.
82 Commission (n 74) para 84. 83 Ibid para 85.
84 Ibid.
85 N. Rosenboom, ‘How does article 101(3) TFEU case law relate to EC guidelines and the welfare perspective?’ (2013,
Applying this to corporate renewable PPAs, the sustainability benefits (as established before, this is already problematic under the first condition, but assuming they would count as ‘benefits’) they imply are benefits generally to the whole society, not those on direct or indirect users. Thus, under the narrow interpretation, these benefits would not count, and neither would it be seen that they would be passed on to the consumers. Moreover, the problem with the narrow interpretation from the point of view of corporate renewable PPAs is that often the efficiencies that materialize only do so in the future, and thus the consumers that would be hurt by the corporate renewable PPAs would not be the same consumers that would enjoy the benefit of the efficiencies.86 Also, the pass-on to consumers would occur with a time lag. The Commission has stated that this does not exclude the application of art. 101(3), but requires that the greater the time lag, the greater the efficiencies to compensate for the loss.87
4.2.1.3. Third and Fourth Condition
The first and second criteria read together reflect the EU competition policy goal of consumer welfare. The third and fourth conditions do not have an impact on the consideration of whether non-economic public interests can be included in the assessment of justifications under art. 101(3) TFEU.88 However, as the four conditions are cumulative, for the sake of completion, the latter two are also included here.
The third condition requires that the restrictions are not indispensable to the attainment of the efficiencies. It requires that the restrictive agreement and the individual restrictions that flow from the agreement are necessary in order to achieve the efficiencies and that no less restrictive means are available.89 This condition reflects the proportionality principle.
Under the fourth condition, the agreement must not afford undertakings the possibility of eliminating competition. It implies that in the end, effective competition is prioritized over efficiency gains.90
4.2.1.4. Assessment of the Narrow Application
86 Swelsen (n 81). 87 Ibid.
88 Rosenboom (n 85).
89 Commission (n 74) para 74.
90 C. van der Weide, ‘Sustainability and Article 101(3) TFEU: The undertaking’s perspective’ (2013, Master Thesis in
Master Legal Research, Utrecht University) <http://renforce.rebo.uu.nl/wp-content/uploads/2013/12/Master-Thesis-CJA-van-der-Weide.pdf> accessed 6 Jan 2020.
As derived from the analysis before, even when corporate renewable PPAs would provide clear benefits with regards to promoting sustainability and a healthy environment, which are seen as beneficial to the society, none of these benefits would be recognized under the narrow interpretation of art. 101(3) TFEU unless these benefits could be measured in economic terms and could compensate for the loss caused to the same consumer group that it was inflicted on. Most likely this is not the case, as it is hard to measure the benefits and they are not reflected immediately afterward nor could they in other ways be reflected on the exact same group of consumers as which the harm occurred.
The benefit of the narrow application of justifications is that it offers legal certainty, which was what the Commission also aimed for when adopting the narrow interpretation. The parties to the infringement may predict with reasonable certainty what the outcome would be.91 The scholars in favor of this approach argue that “as soon as wider goals are being balanced, the final outcome is unpredictable”.92 They state that the task of competition authorities is to promote and preserve competition, not non-economic public interests (that task lies with the government).93 Essentially, the task of the competition authorities is to assess the effects to competition, and they cannot make a political decision on balancing of wider objectives,94 those being objectives outside of the competition
policy.
Relating to the consideration of legal certainty, until 2004, if the undertakings subject to an agreement restricting competition wished to rely on the exemption in art. 101(3) TFEU, they needed to request a permission from the Commission. But since the introduction of the Regulation 1/2003, the reliance of the exemption has depended on the self-assessment of the parties. However, a proper self-assessment would require that there is clarity and consensus on how the rules are enforced. Yet, there is uncertainty especially on agreements that cover non-economic interests.95 Thus, establishing clarity on the matter of when the parties may rely on the exemptions and what grounds are applicable is of essential importance. With non-economic benefits being hard to measure in any clear terms, the Commission has decided to leave these out for the sake of clarity of enforcement.
However, others argue that the objectives of other policies, here relevant the EU energy and environmental policies, fit into the interpretation of art. 101(3) TFEU.96 These scholars are in favor of the wide application of the article, which will be analyzed next.
91 Monti (n 18). 92 Ibid.
93 Swelsen (n 81). 94 Swelsen (n 81). 95 Van der Weide (n 90).
96 For that, see e.g. D, Ehlermann, ’The Modernization of EC Antitrust Policy. A Legal and Cultural Revolution’ (2000,
EUI RSC Working Paper) <https://core.ac.uk/download/pdf/41100291.pdf> accessed 12 Dec 2019; N. Rosenboom, ‘How does article 101(3) TFEU case law relate to EC guidelines and the welfare perspective?’ (2013, Working paper of SEO Economic Research); C. Townley, ‘Which goals count in article 101 TFEU?: Public policy and its discontents’
4.2.2. Wide Application
Although traditionally art. 101(3) TFEU is looked at through the narrow interpretation of the Commission, many scholars are of the opinion that art. 101(3) TFEU, in fact, offers grounds for a wider interpretation, also allowing for non-competition or non-economic concerns to be taken into account.97 The wider interpretation of art. 101(3) TFEU does not rely so strictly on the four cumulative conditions of the article and the nature of efficiencies and groups of beneficiaries, but instead, the core lies in the assessment on whether the efficiencies outlie the restrictive effects of the agreement to the extent that it increases consumer welfare, which is in the core of the EU competition policy. The theory of the wide approach argues that under the narrow approach introduced by the Commission, the competition law framework does not take into account the entirety of benefits realized by an agreement,98 due to which “there seems to be a gap between the legal stance of the Guidelines and the welfare perspective”.99
The wider application arises from a different approach in interpreting the EU competition policy goal of consumer welfare. There are generally three interpretations to what benefits should count towards the assessment of consumer welfare: (1) those benefits based purely on economic efficiency; (2) also counting benefits that are in the immediate and short-term interests of consumers; and (3) also counting long-term benefits to the society as a whole.100 Art. 101(1) without justifications follows the first approach, only looking at economic efficiency and not any possible balancing benefits. The narrow approach to art. 101(3) TFEU can be understood under the second interpretation and the wider approach under the third.
The wider approach extends the definition of consumers to both users and non-users, looking at the whole society.101 The approach looks at the society as a whole instead of as separate groups.102 This wider approach to consumer welfare supposes that a fair share of the welfare to the whole society is passed on to the individual consumer.103 The welfare approach often uses the social cost and benefit
(2011) 9 European Competition Law Review <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894837> accessed 6 Jan 2020; O. Brook, ‘Struggling with art. 101(3) TFEU: Diverging approaches of the Commission, EU courts, and five competition authorities’ (2019) 56 Common Market Law Review; G. Monti, ’Article 81 EC and Public Policy’ (2002) 39 Common Market Law Review; C. Townley, Article 81 EC and public policy (Oxford Hart Publishing 2009).
97 Ibid.
98 Van der Weide (n 90). 99 Rosenboom (n 85).
100 K. Cseres, ‘The controversies of the Consumer Welfare Standard’ (2007) 3 (2) The Competition Law Review
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015292> accessed 6 Jan 2020.
101 Rosenboom (n 85). 102 Ibid.
analysis, analyzing “all costs and benefits experienced by all parties in the community”,104 thus looking at all effects, both economic and non-economic. It recognizes that welfare benefits are not only those that can be measured in market price, such as the benefit to the environment.105 For these benefits, it is not required that they are translated into monetary terms, as this is often difficult or impossible to determine, but as they are still benefits that people value and that contribute to the overall welfare, they add a positive valuation to the overall balance of weighing of costs and benefits and are that way taken into account.106 The wider approach recognizes that even if these benefits cannot be measured in economic terms, this is not a reason to simply disregard them.107
4.2.2.1. Arguments in Favor of Applying the Wider Approach
The argued benefits of the wide approach to art. 101(3) TFEU are stated to include: “(a) consumers are not denied significant benefits;
(b) competition law does not block government goals; (c) consistency with standard cost-benefit analysis; and
(d) market integration and the harmonious development of the European Union.”108
The first advantage has to do with the fact that if not all benefits are taken into account when weighing the restrictive conduct against the possible efficiencies, the outcome may be that in the narrow view, the agreement does not produce benefits and it is prohibited. Thus, the benefits that would arise but are not taken into account would also be prohibited, and thus the consumers cannot enjoy them.
Secondly, in the light of the wider approach, there may exist a market failure that the restrictive agreement aims to correct, for the benefit of the whole society. The basic model of perfect competition implies that competition on a market will over time correct any market failures. However, some economists argue that because of limitations the real world poses, governmental intervention is needed.109 Nevertheless, from the point of view of free-market economists, the market is the only correct way to adjust inefficiencies.110 In the light of the wider approach, this seems to be true.
104 Rosenboom (n 85).
105 G. Romijn & G. Renes, ‘General Guidance for Cost-Benefit Analysis’ (2013)
<https://www.cpb.nl/sites/default/files/publicaties/download/cba-guidance.pdf> accessed 6 Jan 2020.
106 Ibid. 107 Ibid.
108 C. Townley, ‘Which goals count in article 101 TFEU?: Public policy and its discontents’ (2011) 9 European
Competition Law Review <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1894837> accessed 6 Jan 2020.
109 S. Ross, ‘How Is a Market Failure Corrected?’(2018, Investopedia)
<https://www.investopedia.com/ask/answers/042115/how-market-failure-corrected.asp> accessed 6 Jan 2020.
Allowing for non-economic benefits to be considered is justified because self-regulation can be a quicker, more flexible and less costly way to achieve government goals.111
Thirdly, cost-benefit analysis is a common tool used for the assessment of policy options.112 To achieve consistency in all EU policy-making and to generate a seamless regulatory environment,113 the standard cost-benefit analysis should also apply for the assessment of competition policy with other social and non-economic policies.
The fourth benefit relates to the previous. Not only should consistency be achieved among EU policy-making, but consistency should also be achieved between EU policy-makers. The Commission, EU courts and the NCAs have not agreed with regards to the approach that should be taken in assessing the justifications under art. 101(3) TFEU.114 These different approaches are not a technical matter, but “have a fundamental bearing on the nature and limits of EU competition law”.115 The disagreement possesses a serious obstacle to the EU competition policy goal of effective, uniform and certain enforcement.116 Neither is this in line with the goal of coherency, emphasized by the Commission. This not only concerns the coherence of the enforcement, but also coherency in line with the EU policy framework.117
Understanding consumer welfare under the wider approach is justified because when considering regulation, it also depends on the context in which regulators operate, the so-called ‘politics of regulation’.118 Policies and regulation reflect political choices, and cannot be understood without the broader legal, but also the broader economic and social context.119
In a study conducted on European opinion leaders, a great majority were of the opinion that the EU competition rules should be updated to reflect the political, economic and societal changes.120 The opinion of Professor Bork, in the most cited book on antitrust The Antitrust Paradox, is that on the question of what the competition law is, the answer should be the answer to the question of what is the point of law and what are its goals.121 Law should be interpreted purpose-over-text, analyzing the core of what purpose it was meant to serve. When looking at the purpose, analysis comes
111 Townley (n 108). 112 Romijn & Renes (n 105). 113 Townley (n 108). 114 Brook (n 76). 115 Ibid. 116 Ibid. 117 Townley (n 108). 118 Vasconcelos (n 22). 119 Brook (n 76).
120 P. Blanchard, ‘EU Competition Policy Study: Expectations for Change’ (2019, Brunswick study)
<https://www.brunswickgroup.com/eu-competition-policy-study-i12087/> accessed 6 Jan 2020.
automatically to the whole context in which the law arose: the political, economic and societal context.
Actions of undertakings that restrict competition are harmful, and thus exemptions should only be possible under limited circumstances. However, where they produce clear efficiencies to society as a whole, it should be considered whether it can be said that the conduct is still harmful. It should not be looked at from the point of view of only competition law, but in light of all the policies, and the results they wish to achieve. I argue that the purpose of law and the core objective of all the policies in the EU is the welfare of society. Thus, when analyzing a single action, the effects should be reflected in the light of the outcome to the society, not in the light of the objects of individual laws. In a democracy, at least in theory, the laws should reflect the wishes of the public.122 Thus, if conduct brings benefits to the public at large, the laws should, in theory, allow for its justifications.
4.2.2.2. Criticism of the Wider Approach
The wider approach has been criticized for its obvious problem in measuring non-economic benefits in terms that could be directly compared with the economic benefits generally accepted under art. 101(3), something that was discussed above in relation to the benefits of the narrow approach. Next to the problem of measuring the non-economic benefits, an argument is that the wider approach is unbalanced, as it only takes into account the economic benefits, but does not count in the non-economic costs. However, this argument is shortsighted. The analysis under art. 101(1) TFEU also takes into account the negative non-economic costs.123 Consider the negative effects of corporate renewable PPAs: these take into account the effect for market integration as well as for consumer protection.
There has also been reluctance in accepting this approach, because of the danger that it would undermine the competition policy of its essence in protecting economic efficiency. Simply accepting all vague arguments of unspecified and unquantified socials benefits brought forward would render competition policy ineffective and turn it into a part of some general social policy.124 It does make sense that most scholars would not accept these benefits into the scope of competition policy, but leave them to the assessment of under other policy goals. But, this does not seem like a solution on areas where there is a clear conflict like here, but rather an easy way out of a complicated discussion.
122 D. Toshkov, ‘Public Opinion and Policy Outputs in the European Union: A Lost Relationship’ (2009, Academic
paper for NIG Annual Work Conference, Leiden University)
<https://www.utwente.nl/en/nig/research/archive/2009/Papers/panel6papertoshkov.pdf> accessed 6 Jan 2020.
123 Townley (n 108).
