U
NIVERSITY OF
A
MSTERDAM
European Union Competition Law, Climate Change and
Sustainability: Competition Law as Part of The Solution and Not
Part of The Problem
Name: Livija Šepetytė
Student ID: 12801828
Master Track: International and European Law: European Competition Law and
Regulation
Supervisor: Joe V. Gote
Word Count: 135002
Abstract
Competition policy as a part of the Union legislation and policies must contribute to reaching the goal for Europe’s economy and society to become climate-neutral by 2050. Therefore, this research paper aims to investigate how can the consumer welfare standard be extended to support European Union’s climate change objectives under competition law. Research finds that the sustainability deficit within the competition law system exists when it is not possible to classify the sustainability benefits in the internal consumer welfare standard. It was found that there is a very fine line between green washing and genuine sustainability cartels. Thus, if justified, the authorities must be very careful when assessing the cases. Furthermore, the argument follows that it is false to leave the climate change to the markets and negative externalities must be considered when assessing the cases. It was suggested that consumer welfare can be substituted by the capability approach, however, as a new concept it might bring even more uncertainty within the system. Thus, the appropriate solution can be to take certain concepts of the capability approach, and in that way to broaden the consumer welfare standard. It is also suggested that the COVID-19 pandemic can enable competition law to become too flexible, thus harming the consumer welfare, since companies might use this situation as an opportunity to create industry changing cartels. As such, sustainable competition law is a nuanced and untested field. The Commission can broaden the consumer welfare approach from strictly economic efficiencies and short-term benefits for consumers to also consider the long-term benefits for the future generations and it would help to lower the negative externalities.
3
Table of Contents
1.
Introduction ... 4
2.
The Interplay Between Competition Law and Environmental Protection
Under EU Law ... 9
2.1. Introduction ... 9
2.2. Background: Sustainability Gap... 11
2.3. The ‘Constitutional’ Framework ... 14
2.4. Climate change cannot be left to the markets ... 16
3.
Understanding the Consumer Welfare Standard Under EU Competition
Law ...18
3.1. Introduction ... 18
3.2. Consumer welfare and competition law: What is ‘consumer’ and what is ‘welfare’? . 21 3.2.1. The European Commission’s approach to consumer welfare ... 21
3.2.2. What is consumer? ... 24
3.2.3. What is welfare? ... 25
3.3. The alternative to the consumer welfare standard ... 27
3.3.1. Capability approach ... 27
3.4. Interim Conclusion ... 30
4.
COVID-19, Climate change and Competition Law ...31
5.
Conclusion ...36
4
1. Introduction
The human activities impact the Earth system and endanger the future stability of the planet. The humanity wants more action to fight climate change, one of its biggest challenges.1 In addition, the climate crisis is having an extremely significant effect on the ecosystems and biodiversity of our world. However, this is not its only effect, since it is also changing the market within the European Union (EU) and the consumer behaviour in certain ways. Thus, the questions arise: Are governments ready to act? Are consumers ready to trade affordability for sustainability? Should the European Commission (EC) broaden the concept of consumer welfare under EU competition law? Is it possible for the European Union to fulfil its promises for the Europe’s economy and society at large?2 Can competition law be part of the solution and not part of the problem?
The urgency of climate crisis is encouraging policymakers to embrace sustainability in decision-making across various policy sectors. Sustainability has long been close to the heart of the European Union with the EU Treaties giving recognition to its social and environmental dimensions.3 The European Commission has recently proposed the new European Climate Law
which aims at regulating the goals set out in the European Green Deal – for Europe’s economy and society to become climate-neutral by 2050.4 This legislative proposal would merely set the
legal basis for further action, posing some food for thought. Recital 16 of the proposed Regulation suggests that ‘the transition to climate neutrality requires changes across the entire policy spectrum and a collective effort of all sectors of the economy and society <…>’. Also, it establishes that ‘all relevant Union legislation and policies need to be consistent with, and contribute to, the fulfilment of the climate-neutrality objective while respecting a level playing field <…>’. Therefore, competition policy, as a part of the Union legislation and policies, must also contribute to reaching these goals. In this context, a significant change in the Commission’s understanding of EU competition law would be required. It would be difficult to imagine how the concept of ‘consumer
1 According to the Special Eurobarometer 490, Climate Change, April 2019, 93% of EU citizens see climate change
as a serious problem and a significant majority of EU population wants to see increased action on climate change.
2 Commission, ‘The European Green Deal’ (Communication) COM (2019) 640 final. 3 See, among others, Treaty on the European Union (TEU) arts 3 (3), 21.
4 Commission (EC), ‘Proposal for Regulation of the European Parliament and of the Council establishing the
framework for achieving climate neutrality and amending Regulation (EU) 2018/1999’ (European Climate Law) COM (2020) 80 final.
5 welfare’ could still be defined only as an ‘economic benefit’. Nevertheless, the solution does not lie in the flexibilization of competition rules. This could, on the contrary, lead to recurrent instances of ‘greenwashing’.5
In addition to the proposed legislation, Article 11 of the Treaty of the Functioning of the European Union (TFEU) states that:
‘Environmental protection requirements must be integrated into the definition and
implementation of the Union policies and activities, in particular with a view to promoting sustainable development.’
Thus, there is the environmental integration obligation imposed by this article. However, it is important to mention that Article 11 TFEU is phrased in a way that its application becomes complex and context-dependent. For instance, we may ask ourselves, what is integration? How should such integration work in competition law and are there any opportunities for environmental integration in the area of competition? Recent academic developments have suggested that there is a significant sustainability gap in competition law, meaning that competition law is currently incapable of taking sustainability concerns into account.6 No extensive examination of this gap has
been carried out yet, revealing interesting opportunities for its definition and analysis.
Competition law has many meanings and goals. Some consider promoting social welfare as the primary objective of competition law and policy due to improved efficiency.7 Other scholars find the distributional objectives of competition law more relevant particularly with a view to the legislative history.8 Or, it is suggested that the political interests are the most relevant, warning that accumulated economic power may potentially threaten the stability of democratic governance
5 Greenwashing is the process of conveying a false impression or providing misleading information about how a
company's products are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company's products are environmentally friendly. See: <https://www.investopedia.com/terms/g/greenwashing.asp> accessed 12 June 2020.
6 Sustainability and competition policy: Bridging two worlds to enable a fairer economy (Brussels, 24 October 2019). 7 Richard A. Posner, 'The Chicago School of Antitrust Analysis' (1979) 127 University of Pennsylvania Law Review. 8 Robert H. Lande, ‘Chicago’s False Foundation: Wealth Transfers (Not Just Efficiency) Should Guide Antitrust’ 58
6 systems.9 Even though there is not one unique competition law goal in the EU, here, the focus will
lie on the consumer welfare protection. After 2004, the Commission took a clear economic benefit approach when assessing consumer benefit in competition law cases. For instance, the economists are testing the consumers’ willingness to pay, thus analysing what role non-economic interests play when assessing competition law cases. Another important change after 2004 is the decentralization of the competition law system in the EU. The National Competition Authorities (NCAs) have gained more responsibilities and tasks, as well as undertakings being responsible for self-assessments, regarding whether certain agreements would infringe competition law or not. In this decentralized context, companies may face significant issues when assessing which sustainability initiatives may amount to infringements under competition law.
While discussing how to solve the issue of competition law and climate change, it is only appropriate to analyse the most current crisis happening in the world, the COVID-19 pandemic. The pandemic provoked a health crisis without precedent in living memory in the European Union. The irruption of the virus forced an almost world-wide lockdown, allowing for the development of an extensive economic recession. The economic crisis that has followed the coronavirus pandemic will burden societies for decades to come. The OECD suggest that ‘the same basic principles of competition economics apply during times of economic recession as during times of economic expansion’.10 It is important that, in times of crisis, competition policy helps to ensure
that the economic recovery takes place as quickly and as sustainably as possible.11 From the
responses proposed by the NCAs, the Commission and ECN, a lot can be learned and applied to combating climate crisis. During these difficult times, many industries lost demand for their products and services.12 However, other industries, such as healthcare or food supply chains, are facing expanded demand.13 The over-capacity or under-capacity can cause incentives or even the necessity to co-operate, which could infringe competition rules. For that reason, it is necessary to
9 21. CONG. REC. 2456 (1890) (statement of Sen. Sherman) John Sherman, 21 Cong. Rec. 2456–60 (1890). 10 OECD Policy Responses to Coronavirus (COVID-19),
<https://www.oecd.org/competition/competition-policy-responses-to-covid-19.htm> accessed 26 June 2020.
11 Ibid.
12 Such as: accommodation, food services, construction and educational services;
<https://www.mckinsey.com/featured-insights/americas/which-small-businesses-are-most-vulnerable-to-covid-19-and-when#> accessed 5 July 2020.
13 OECD Policy Responses to Coronavirus (COVID-19), ‘COVID-19 and the food and agriculture sector: Issues and
policy responses’ <http://www.oecd.org/coronavirus/policy-responses/covid-19-and-the-food-and-agriculture-sector-issues-and-policy-responses-a23f764b/#section-d1e117> accessed 12 July 2020.
7 analyse the competition policy responses to the coronavirus pandemic and to aim at applying the best practice to the issues of climate crisis and competition law.
The aim here is then to conceptualize the debate and the following research question will help to investigate this problem:
How can the consumer welfare standard be extended to support European Union’s climate change objectives under competition law?
In order to answer the research question, the following sub-questions have been developed. They will also form a skeleton of this thesis:
1. What is the interplay between competition law and environmental protection goals under the EU policies?
2. How can the consumer welfare standard be adapted to include non-economic interests when assessing EU competition law cases?
3. How can COVID-19 help to promote long-term sustainability agreements?
In the second part of the paper, the issue of competition law as a spectrum of the EU policies, as well as the issues of Article 11 TFEU and the interplay between the competition law and environmental protection goals will be tackled. However, it is important to first establish the so-called sustainability gap in EU competition law. By analysing Articles 3, 7 and 11 of the TFEU, the ‘constitutional’ obligations will be established. In addition, it is argued that climate change should not be left to the markets. The focus of the paper lies on the understanding of the consumer
welfare standard. Thus, the third part of the paper will analyse the dilemma of consumer welfare
definition under EU competition law. This section will focus not only on how the Commission currently approaches consumer welfare. This part will also search for an alternative to the
consumer welfare standard. It will be suggested that the capability approach can be the solution,
but as a new concept it has some significant shortcomings. In order to establish it, the Dutch Energy Agreement case14 will be applied. To give some depth to the analysis, the last part of the paper
14 Autoriteit Consument & Markt, ‘ACM analysis of closing down 5 coal power plants as part of SER Energieakkoord’
(2013) < https://www.acm.nl/en/publications/publication/12082/ACM-analysis-of-closing-down-5-coal-power-plants-as-part-of-SER-Energieakkoord> accessed 19 July 2020.
8 will analyse how responses by the competition authorities to the COVID-19 crisis can be applied to sustainability initiatives. It will conclude that the actions taken by the ‘crisis cartels’ might not always be beneficial to the markets and that the competition authorities must carefully assess all co-operations.
The research acquired in this paper does not adopt the legal model of interpretation of consumer welfare that is judicially accepted within EU law. Instead, it suggests what standard of consumer welfare should be adopted to reach the best results with regards to climate change. The method taken proceeds from an internal perspective, including prescriptive statements. In an effort to classify the legal method undertaken in this research paper – it may be said that the research methodology used follows most closely the doctrinal approach.15
The concept of sustainability encompasses a broad range of issues: The United Nations (UN) have developed seventeen Sustainable Development Goals (SDGs) that serve as a blueprint to achieve a more sustainable future for all.16 They address the global challenges humanity is facing, including those related to poverty, inequality, climate change, environmental degradation, peace and justice.17 The SDGs undeniably recognise the urgency of the climate crisis, encouraging the
use of sustainability initiatives in this context. The primary focus of this paper is on environmental protection because of the objectives set out in the Green Deal and proposed EU Climate Law. Therefore, the paper suggests that sustainable competition law initiatives, aimed at fighting climate crisis, can be used as a tool.
In the view of the fact that the proposed climate law derives from the European Union and its effort to promote sustainability, it was necessary to analyse the standpoint of EU’s competition law. The focus lies on agreements between undertakings that fall within Article 101 TFEU. Thus, the national competition rules of EU Member States will not be examined, and the legal basis will stem from the Treaties.
15 Jan Smits, The Mind and Method of the Legal Academic (Edward Elgar M.U.A. 2012), 11 – 12.
16 'About the Sustainable Development Goals' (United Nations Sustainable Development, 2020)
<https://www.un.org/sustainabledevelopment/sustainable-development-goals/> accessed 1 May 2020.
9
2. The Interplay Between Competition Law and Environmental Protection
Under EU Law
2.1. Introduction
The relationship between sustainability and competition law is an emerging field of analysis. In the 2019 conferences on competition law and sustainability, there was quite a debate on how EU competition law is incapable of addressing sustainability issues.18 However, from the goals set out by the European Commission and the proposed climate law, EU competition law must integrate sustainability considerations, or more precisely environmental protection into decision making. It is important to note that as of 2004, the companies are self-assessing whether a certain agreement infringes Article 101 TFEU. Because of this reason, sustainability should be integrated not only into decision making, but first and foremost, by providing guidance to the undertakings. For example, as the Dutch Authority for Consumer and Markets (ACM) has already stated:
‘in cases in which the competitive process is affected, […] ACM sees opportunities, because sustainable production may benefit current and future consumers. Such opportunities can be found in particular in initiatives that leave sufficient choice for consumers. But even when this is not the case, because market-wide sustainability arrangements are concerned, there is a certain margin […] particularly if a negative external effect is eliminated in such a way that current and/or future consumers will benefit.’19 (Italics added)
Commissioner Vestager also stated that ‘competition will have an important role in our industrial strategy’.20 Competition law is integrated in the EU’s ‘constitutional’ framework. Therefore, it is
subject to the sustainability requirement under Article 11 TFEU. It is applicable to competition
18 Sustainability and competition policy: Bridging two worlds to enable a fairer economy (Brussels, 24 October 2019). 19 Autoriteit Consument & Markt, ‘Vision Document Competition & Sustainability’ (2014).
20 European Commission (2019), ‘Mission Letter for Margrethe Vestager’
<https://ec.europa.eu/commission/sites/beta-political/files/mission-letter-margrethe-vestager_2019_en.pdf> accessed 15 May 2020.
10 law, as it is one of the policies of the EU.21 Even if this obligation applies, the article is not that
clear or easily understood. Furthermore, the urgency of environmental protection has only surfaced recently. Scholars have been debating about the interpretation of Article 101(3) TFEU.22 Therefore, from the inability to consider sustainability initiatives under EU competition law, the so-called gap is perceived.
It is important to note that anticompetitive horizontal agreements were excluded from cartel law because they supported sustainability as a public interest goal, as it sufficiently promoted it. The most known one is the CECED case, as the agreement had ‘collective environmental benefits.’23
The case concerned, 90% of the washing machine manufacturers, who agreed to stop producing certain types of washing machines which were less energy-efficient. The agreement can be exempted if it fulfils the conditions in Article 101(3) TFEU. The horizontal restriction of competition that contributes to ‘improving the production or distribution of goods’, must: ‘allow consumers a fair share of the resulting benefits’; ‘be indispensable to the attainment of these objectives’; and not afford the parties ‘the possibility of eliminating competition in respect of a substantial part of the products in question.’ In CECED, fair competition in the market remained on price, brand identity and technical progress both on the remaining product continuum between the manufacturers concerned and with third parties not bound by the agreement. The agreements would bring energy savings and environmental benefits to society, even if it had negative effects to competition. The important aspect is that the EC has been reluctant to allow such cartel exemptions, as the case happened in 1999. Also, while reading the Decision, it can be noted that emphasis is added at the individual benefit and the collective aspect is added as a support argument. Thus, the question is how this case would have been decided if there were no energy savings for consumers.
Another key issue that must be discussed is the strength of sustainable businesses in medium or long-term perspective. Studies have shown that genuine sustainability and environmental, social
21 Julian Nowag, ‘The Sky is the Limit: on the drafting of Article 11 TFEU’s integration obligation and its intended
reach’ in Beate Sjåfjell and Anja Wiesbrock (eds), The Greening of European Business under EU Law: Taking Article
11 TFEU Seriously (Routledge 2014).
22 See: Or Brook, ‘Struggling with Article 101(3) TFEU: Diverging Approaches of the Commission, EU Courts, and
Five Competition Authorities’ (2018) 56 CMLR 121.
11 and governance (ESG) practices correspond with lower operating costs, better profitability and superior share price performance.24 Major companies are investing to create green businesses
because, as it was with digitalization, sustainability is becoming a mega trend. The fact is that within twenty years, companies whose sole purpose is financial return will no longer exist.25 However, if a certain company decided to produce sustainable goods, the price of the production would increase, thus the prices of the products, and the burden would be on the consumers. It might occur that, if one company where there is fair competition in the relevant market invests to produce sustainable products, the price will increase, and the consumers can potentially choose the competitors for that product. Thus, companies are reluctant to be the first, for this reason, agreements between companies might be necessary in the long-term. The long-term efficiency suggests that it does not only have to be an economic interest which is protected, but the non-economic interest as well. The issue of consumer welfare and short-term efficiency analysis will be discussed in the part 3 of the paper.
The part 2 of the paper will discuss the interplay between competition law and sustainability under EU law. First and foremost, it is important to define the so-called sustainability gap within the competition law system. The second part will discuss the ‘constitutional’ obligation to include sustainability and environmental protection to EU competition law. The last part will incorporate an explanation as to why is it important not to leave climate change to the market: because ‘environmental economics is rife with market failures.’26 It will also include the possible forms of
collusion: on sustainability investments, production decision, or both.27
2.2. Background: Sustainability Gap
The sustainability initiatives could be labelled as ‘public interests’, ‘non-competition’ interests or ‘non-economic’ interests. 28 From a governmental perspective, their participation could be linked
24 Helena V Fiestas, ‘Is sustainability profitable?’ (Investors Corner 26 March 2019)
<https://investors-corner.bnpparibas-am.com/investing/sustainability-profitable/ > accessed 25 June 2020.
25 Ibid.
26 Maurits Dolmans, ‘Sustainable Competition Policy’ (2020) 6(1) CLPD <https://ssrn.com/abstract=3608023>
accessed 27 June 2020.
27 Leonard M. Treuren and Maarten Pieter Schinkel, ‘Can Collusion Promote Sustainable Consumption and
Production? Not Beneficially Beyond Duopoly’ (2018) Amsterdam Law School Research Paper No. 2018-02.
28 Christopher Townley, ‘Which Goals Count in Article 101 TFEU? Public Policy and Its Discontents’ (2011) ECLR
12 to internationally agreed climate change goals.29 Of course, the labels mentioned are the language
of competition law. These proposals then come within the realm of fair business behaviour, as it is fostered by the United Nations, the OECD, the EU and other national governments.30 The problem comes from the capacity of competition law to hinder sustainability initiatives.31 As it apparently happened with the Dutch Energy Agreement that will be discussed in the third part of the paper, or with the case of ‘Chicken of Tomorrow’, analysed below. However, there is a need to discuss and locate this deficit in competition law. According to Prof. Dr. Anna Gerbrandy, there can be a sustainability deficit only in those cases ‘where the sustainability benefits cannot be subsumed in the internal consumer welfare argument.32 This suggests that the issue occurs when evaluating agreements that can provide sustainability benefits but they are difficult to quantify, can only be partially quantified, or maybe even should not be quantified. This could also be the case when the consumers paying the higher price are not the ones benefitting from the sustainability, or if the benefits to the environment are long-term or even uncertain.33 It is also important to note that agreements might even lead to quantitative consumer welfare benefits, however that cartel is not strictly necessary. This is very important when analysing sustainable competition law cases, as only when it is necessary can it be justified. The following part of the Dutch case analysis is a good example of the struggle between sustainability initiatives and competition law.
To better understand the issue, the ‘Chicken of Tomorrow’ case will be discussed. This agreement aimed at improving the chickens’ welfare in the Netherlands.34 The sectorial agreement was
extensively supported by the government and civil society organizations. However, after ACM conducted an economic analysis, it stated that the agreement infringed competition law, as consumer price could increase up to 1.46 € per kilo. The assessment was based on the Dutch
29 Paris agreement (2016).
30 United Nations General Assembly Resolution, ‘Transforming Our World: The 2030 Agenda for Sustainable
Development’ A/RES/70/1 (25 September 2015); European Commission, ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee Of The Regions on a Renewed EU Strategy 2011–14 for Corporate Social Responsibility’, COM (2011) 681 final.
31 Anna Gerbrandy, ‘Solving a Sustainability- Deficit in European Competition Law’ (2017) 40(4) WC 540. 32 Ibid, 544.
33 Ibid.
34 Autoriteit Consument & Markt, ‘ACM’s analysis of the sustainability arrangements concerning the ‘Chicken of
13 competition law that is equivalent to Article 101(3) TFEU, thus ACM monetized possible consumer welfare benefits.35 Benefits to public health, animal welfare and to the environment were
included in the assessment, which was done by a willingness-to-pay survey. The survey showed that consumers are not willing to pay for the ‘better’ chicken36, but the same consumers would pay more for even more sustainable chicken.37 This is because under the agreement in question, the living space of the chickens would have improved only slightly, and the same applies for a life before being processed for slaughter. Important to mention that the living conditions for the chickens that are exported would stay the same. Then it is clear why ACM concluded that this agreement infringes competition law.38 This is a clear case about how undertakings use sustainability or public interest to increase prices for consumers, without any actual benefit to the animals. This is a great example of how sustainability or public interest protection can be used for so-called ‘greenwashing’.
What is very true about competition law, is that from the very beginning of EU competition law, academics, companies and even regulators have struggled with the uncertainty that the exemption under Article 101(3) TFEU provides.39 It states that the agreement can be justified if it improves ‘the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit’. It is suggested that the wording of the article is vague and raises questions, such as, what is the nature of benefits or that it does not state who the relevant beneficiaries are.40 The former is raising doubts about less quantifiable benefits
and the latter is not providing whether only direct consumer or if indirect benefits to direct consumers or to society at large.41 If the issue, partially or as a whole, is left to be solved under
competition law, the Commission and NCAs have to be careful when assessing the cases and make
35 Barbara Baarsma and Nicole Rosenboom, ‘A Veritable Tower of Babel: On the Confusion Between the Legal and
Economic Interpretations of Article 101 (3) of the Treaty on the Functioning of the European Union’ (2015) 11(2-3) ECL 402.
36 Anna Gerbrandy, ‘Solving a Sustainability- Deficit in European Competition Law’ (2017) 40(4) WC 540.
37 Machiel Mulder and & Sigourney Zomer, ‘Dutch Consumers’ Willingness to Pay for Broiler Welfare’ (2017) 20(2)
JAAW Sci. 137 <https://www.tandfonline.com/doi/full/10.1080/10888705.2017.1281134> accessed 7 July 2020.
38 Autoriteit Consument & Markt, ‘ACM’s analysis of the sustainability arrangements concerning the ‘Chicken of
Tomorrow’’ (2014) ACM/DM/2014/206028.
39 See: Giorgio Monti, EC Competition Law (Law in context, CUP, 2007); Okeoghene Odudu, The boundaries of EC
Competition Law: The Scope of Article 81 (OUP, 2006).
40 Or Brook, ‘Struggling with Article 101(3) TFEU: Diverging Approaches of the Commission, EU Courts, and Five
Competition Authorities’ (2018) 56 CMLR, 128.
14 sure that the consumer welfare will not suffer just because businesses claim ‘sustainability’. Although, businesses are hindered to act because of fear of consequences. And the current system provides a great level of uncertainty how to assess sustainable agreements and what can be caught under Article 101(3) TFEU. Thus, now that the sustainability deficit within EU competition law has been identified and discussed, the following part will analyse the constitutional framework that the EU economic policy should accept.
2.3. The ‘Constitutional’ Framework
As suggested above, there is a sustainability deficit and it is because of the precedents set by the Commission and which address the concept of benefits more narrowly. The consumer benefit standard will be discussed in the third part of the paper and here it is important to analyse whether EU primary law allow or set legal basis to consider sustainability objectives.
It is of no surprise that one of the primary targets of the EU, also very significant from an economic point of view, is the development of a functioning internal market, as stated in Article 3(3) TFEU. Among other things, it must:
‘work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress and a high level of protection and improvement of the quality of the environment’.42
Here, as much as the protection of the environment matters, it is also important to do so when there is a highly competitive social market economy. This suggests that there must be a balance between the two. When discussing the sustainable or green horizontal agreements, it must be ensured that the competitiveness of the markets remains. Therefore, the proportionality principle must be applied in all sustainability initiatives cases. However, without broadening the consumer welfare
standard, it would in many cases ‘win’ over sustainability initiatives, as the long-term benefits are
not considered. Articles 7 and 11 TFEU provide a clear need to balance potentially conflicting goals. As, Article 7 TFEU states, ‘the Union shall ensure consistency between its policies and activities taking all of its objectives into account’. Paragraph 7 of the Parliamentary Report
15 suggests that ‘competition rules are treaty based and, as enshrined in Article 7 of the TFEU,
should be seen in the light of the wider European values underpinning Union legislation
regarding <…> environmental standards, climate policy and consumer protection’.43 Then, as the
proposed EU climate law includes that all European Union policies shall be subject to making the change, EU’s competition policy is of no difference. Even if it is EU’s economic policy.
Article 11 TFEU, which is under the heading ‘Provisions having general application’, proposes obligation to integrate environmental protection. If the integration requirement is applied, then competition authorities must balance competition with the interests of sustainability. It is even suggested that, where necessary, it should favour the sustainability initiatives.44 According to Julian Nowag, ‘environmental protection requirements’ are the aims, values and standards proposed by Article 191 TFEU.45 And then this article needs to be implemented in other areas of EU law. The connection between environmental and economic objectives is further strengthened by sustainable growth. This article proposes the integration principle, according to its wording, as confirmed by the its successor, Article 6 EC.46 However, it is interesting to see what the implications for the economic policies of the European Union are. For example, when two collide, which one takes priority. There are different ways how the integration principle can be implemented, from an obligation to take environmental protection requirements into account, leaving the institution with a broad discretion, to an interpretation that it must be applied at all times ‘in priority to all other potentially conflicting objectives’.47 Not going into depth, the latter
one, if applied, might endanger the consumers, as the whole focus would purely shift to environmental protection. Although, one could argue, if environmental protection is not applied
43 The Committee on Economic and Monetary Affairs of the European Parliament, ‘Annual Report on Competition
Policy 2018’ (31 January 2018), para 7.
44 Suzanne Kingston, ‘Integrating environmental protection and EU competition law: Why competition isn’t special’
(2010) 16 ELJ 780; Christopher Townley, ‘Which goals count in Article 101TFEU? Public policy and its discontents’ (2011) ECLR 441.
45 Julian Nowag, ‘The Sky is the Limit: on the drafting of Article 11 TFEU’s integration obligation and its intended
reach’ in Beate Sjåfjell and Anja Wiesbrock (eds), The Greening of European Business under EU Law: Taking Article
11 TFEU Seriously (Routledge 2014).
46 See: Case C-304/01 Spain v Commission [2004] ECR I-7655, Opinion of AG Kokott; Case C-300/89 Commission
v Council (Titanium Dioxide) [1991] ECR I-2867, paras 22–24. Case C-379/98 PreussenElektra AG v Schhleswag AG [2001] ECR I-2099.
47 Suzanne Kingston, ‘Integrating environmental protection and EU competition law: Why competition isn’t special’
16 strictly, climate disaster is imminent.48 It is important to note that the latter interpretation can be
applied where in case of collusion of environmental initiatives and economic benefits is resolvable.49 Therefore, as will be suggested in the third part of the paper, the principle of proportionality might be the only solution under EU law.50
The issue with implementing this article into the competition law system is the principle of conferral, which can indicate that Article 11 TFEU ‘cannot serve to extend the powers the competition rules bestow upon the Commission’.51 This would mean that Article 101(3) TFEU
would be used as a balance mechanism, since, as it will be discussed later in the paper, competition rules can be ‘open-textured’.52 Therefore, even if the democratic legitimacy argument suggests
that there must be a parliamentary authorization, the Commission has already shaped the enforcement of the EU competition rules before.
2.4. Climate change cannot be left to the markets
It is well known that EU competition law is an economic policy, driven by economics. However, markets hardly ever achieve conditions of perfect competition, which means that consumer welfare has not reached its maximum and market failure occurs. There are several reasons why this may happen, such as barriers to entry, failure to provide information or inefficient taxation, but in this case the concern relates to the existence of negative externalities.53 Negative externalities are costs
suffered by a third party because of an economic transaction (See Figure 1).54 The first party is the
producer and the second party is the consumer, thus the third party can be an individual or resource that is indirectly affected.55 For example, one of the negative externalities can be the cost of
48 Ibid, 789. 49 Ibid.
50 Jacques Steenbergen, ‘Proportionality in Competition Law and Policy’, (2008) 35(3) Legal Issues of Economic
Integration 259, 266.
51 Edith Loozen, ‘Strict Competition Enforcement and Welfare: A Constitutional Perspective Based on Article 101
TFEU and Sustainability’ (2019) 56(5) 1265, 1275.
52 Suzanne Kingston, ‘Integrating environmental protection and EU competition law: Why competition isn’t special’
(2010) 16 ELJ 780, 783.
53 Suzanne Kingston, ‘Integrating environmental protection and EU competition law: Why competition isn’t special’
(2010) 16 ELJ 780, 800/
54 Maurits Dolmans, ‘Sustainable Competition Policy’ (2020) 6(1) CLPD 1, 4 <https://ssrn.com/abstract=3608023>
accessed 27 June 2020.
17 pollution from industrial production, when the marginal social cost (SC) curve higher than the private marginal cost (MPS) (see Figure 1).56 Social costs are costs which are not cover the price
of goods sold to consumers but is carried by the society as a whole. Thus, ‘the socially efficient output is where MSC = MSB’, 57 at Q2 (socially efficient allocation), which is a lower output than
the market equilibrium output, at Q1 (free market allocation).
Figure 1 58
It is suggested by Maurits Dolmans that to leave the climate crisis to the market would be irrational, as ‘environmental economics is rife with market failures’.59 Marits Dolmans, himself, suggests an
example: ‘there is oversupply of electricity from coal-fired plants because the price does not include the full cost of pollution – how much is included depends on the emission trading scheme. The producer and buyer get the benefit; society bears the cost.’60 And it is known to everyone that
because of pollution and/or carbon emissions is high. According to the data, there is between €39 and €200 billion spend on fossil fuel subsidies in the European Union.61
56 Ibid. 57 Ibid.
58 Ibid. Figure 1 portrays how social welfare losses arise when the market price of a good, which is polluting or in
other ways affecting negatively the society, eliminates social costs, resulting in production ‘that is higher than the social optimum’. Source: Maurits Dolmans, ‘Sustainable Competition Policy’ (2020) 6(1) CLPD 1 <https://ssrn.com/abstract=3608023> accessed 27 June 2020.
59 Ibid. 60 Ibid. 61 Ibid.
18 Economist Sir Nicholas Stern in his 2006 Report, stated and evaluated the social costs: ‘if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more. In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.’62
Consequently, the competition policy is raising many questions in the way consumer welfare
standard is defined, it is insufficient if market failures, for instance, price externalities, are ignored.
If the goal is to protect consumers, then the Commission and NCAs should behave in the manner where ‘true price’ is included in the assessment. As, ‘the true price is the market price plus the unpaid external costs. True pricing helps address all costs made in the production of goods and services by making hidden costs transparent. For instance, those costs that are paid by communities living next to a polluting factory, or the future generation that will have to deal with the increasingly disrupting effects of climate change.’63
3. Understanding the Consumer Welfare Standard Under EU Competition
Law
3.1. Introduction
One may ask what competition law has to do with environmental protection and climate change. It can do very little or a lot, depending on the specific market sector, or what individual actions everyone could take. However, if competition law cannot do everything, it does not mean it cannot do anything. It can be used as a tool to tackle climate crisis. The European Climate Law states that every policy sector has to be included to make sure that the certain environmental goals are achieved. As the Commissioner Vestager stated at a conference in Brussels on competition law
62 Nicholas Stern, Review of the Economics of Climate Change. The Stern Review (CUP 2007) 7.
63 True Price, ‘A Roadmap for True Pricing’ (2019) <https://trueprice.org/a-roadmap-for-true-pricing/> accessed 20
19 and sustainability: ‘every one of us− including competition enforces− will be called on to make a contribution to that change’.
In order to ensure the effective operation of markets, European competition law forbids undertakings from entering into anti-competitive arrangements and from exploiting a dominant position on the market. These prohibition stems from the well-known provisions of EU competition law: Art. 101 TFEU, prohibiting anti-competitive agreements. The main rationale for European competition laws lies in the welfare advantages of providing open markets for customers. Competition law thus aims to avoid a variety of economic benefits for companies, from being realized in order to achieve a greater collection of economic benefit for consumers. But in any case, companies sometimes enter into agreements to further a non-economic goal, such as making production facilities more environmentally friendly or ‘strengthening social cohesion in inner-city areas.’64
It is seen that the meaning of consumer welfare standard remains unclear, even though it might be considered the ultimate goal of EU competition policy. Consumer welfare, as a concept, is included only in the Commission Guidelines on the application of Article 81(3) of the Treaty (Guidelines)65.
It states that ‘the aim of the Community competition rules is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources’.66
The term ‘efficient allocation of resources’ stands for sustainability as it is understood now (e.g. the renewability of those resources).67 However, the meaning and the definition of consumer welfare is not self-evident. Who qualifies as a consumer? What counts as welfare? There are other possible explanations as to why the concept is vague. This has to do with the origins of the concept and the context of its usage in antitrust literature. There is a belief by economists and lawyers that the term consumer welfare as used by the Commission has the same meaning as it is used in
64 Rutger Claassen and Anna Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a
Capability Approach’ (2016) 12(1) ULR 1, 1
< https://www.utrechtlawreview.org/articles/abstract/10.18352/ulr.321/> accessed 1 June 2020.
65 Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C 101/97. 66 Ibid, para 13 and 33.
67 Maurits Dolmans, ‘Sustainable Competition Policy’ (2020) 6(1) CLPD 1, 8 <https://ssrn.com/abstract=3608023>
20 economic textbooks.68 As the origins of the term stems from the United States antitrust law, it
strengthens the perception that the meaning was secured by economics.69 However, this does not
mean that looking into the US system, as it is interpreted in law, would provide much clarity, as will be seen later. Another confusion stems from the Court of Justice of the European Union (CJEU), as it traditionally resisted the value of consumer welfare and has refrained from using or describing the terms.
The goal of the third part of the paper is to understand the meaning of consumer welfare, to be able to provide with alternatives and see how best environmental protection could be integrated into the European competition law. Here, it is important to answer the second sub-question: How can the consumer welfare standard be adapted to include non-economic interests when assessing EU competition law cases?
The part 3.2 will discuss what is ‘consumer’ and what is ‘welfare’. The Commission takes a consumer welfare approach to the interpretation of EU competition law. Thus, while defining consumer welfare in the first part of the paper, the Commission’s approach must be included. If the consumer welfare standard is criticized, it is only fair to then propose an alternative. Thus, part 3.3 will propose alternative framework for interpreting competition law. It is the capability approach developed by economist Amartya Sen and philosopher Martha Nussbaum. This part will also include the application of the capability approach, proposed by Dr. Rutger Claassen and Prof. Dr. Anna Gerbrandy, to the Dutch Energy Agreement (Energieakkoord) case. This will show how the capability approach can handle those cases better than it was solved when consumer welfare
standard was applied. Therefore, it is difficult to assess competition law cases where economic
and non-economic interests are clashing while applying the consumer welfare standard. Lastly, the conclusions of non-economic interest incorporation into EU competition law will follow.
68 Victoria Daskalova, ‘Consumer Welfare in EU Competition Law: What Is It (Not) About?’ (2015) 11(1) CLR 131,
132.
21
3.2. Consumer welfare and competition law: What is ‘consumer’ and what is ‘welfare’?
3.2.1. The European Commission’s approach to consumer welfare
When starting to analyse the concept of ‘consumer welfare’, the question arises whether the term appears in either the Treaties or secondary EU law. The answer is that it only appears in the soft law adopted by the Commission. The first mention of consumer welfare in EU competition law emerged in the 1997 Green Paper on Vertical Restraints.70 It suggested that ‘an end-user surplus standard, namely a focus on the benefit to final consumers resulting from lower prices:’71
“To further the interest of the consumer is at the heart of competition policy. Effective competition is the best guarantee for consumers to be able to buy good quality products at the lowest possible prices. Whenever in this green paper the introduction or protection of
effective competition is mentioned, the protection of the consumer's interest by ensuring low prices is implied.”72
In 2004, when the modernization package was launched73, the consumer welfare definition was enhanced. The understanding was stringent to mere economic benefit of consumers. According to the Guidelines, consumer welfare and allocative efficiency are the goals of Article 101 TFEU.74 This understanding of welfare corresponds to that defined by Robert Bork –meaning, ‘a total welfare standard based on allocative efficiency considerations.’75 Bork, law and economics
scholar, effectively introduced consumer welfare into antitrust law in US.76 Although, according to scholars, he misrepresented consumer welfare to mean maximization of total welfare in the
70 Commission, ‘Green Paper on Vertical Restraints in EC Competition Policy’ (Green Paper on Vertical Restraints)
COM (96) 721 final.
71 Victoria Daskalova, ‘Consumer Welfare in EU Competition Law: What Is It (Not) About?’ (2015) 11(1) CLR 131,
143.
72 Commission, ‘Green Paper on Vertical Restraints in EC Competition Policy’ (Green Paper on Vertical Restraints)
COM (96) 721 final, para 17.
73 See: Press Release (European Commission, 2004)
<https://ec.europa.eu/commission/presscorner/detail/en/IP_04_411> accessed 1 July 2020.
74 Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C 101/97, paras 13 and 33.
75 See: Robert Bork, The Antitrust Paradox: A Policy at War with Itself (Basic Books, Inc., New York, 1978). 76 Barak Orbach, 'How Antitrust Lost Its Goal' (2013) 81 FLR 2253, 2272-2275.
22 sense of maximizing allocative efficiency.77 This ‘misunderstanding’ has been considered as ‘the
Chicago trap’.78 One then should not be surprised that scholars are interpreting this similarity as
Americanization of EU competition law and that is the way Chicago School’s approach was adopted.79
There are two ways how consumer welfare is understood or applied. First, in the narrow approach to consumer welfare, ‘agreements leading to an increase in price, a limitation in output (quality, quantity or range) or a limitation of innovation, are prohibited because they are considered detrimental to consumer welfare.’80 This approach is heavily advocated by the Commission and
other interests seem to be left outside the scope. That is where the tension between the value of consumer welfare and other public interests comes to play.81 Thus, when referring to ‘economic interests’ it is meant to include all the interests which fall within the scope of the narrow consumer welfare approach. And the ‘non-economic interests’ refer to the interests that fall outside the scope of the narrow approach. Simon Holmes suggests that there is no basis in EU primary law, nor secondary law that would provide basis for the adoption of such approach. Then, it is for the Commission, as a political institution, to decide which approach to take when assessing the competition law cases. The Commission’s functioning as a competition authority is well-established within the system, and the intention is not to challenge it. However, if the focus is only on the tools of economics, perhaps something can get lost on the way. The second approach is the broad understanding of consumer welfare and it is more open to include non-economic interests. When applying this standard, it includes ‘calculable non-economic benefits that are not directly related to the product in question but that do accrue to the consumers of these products’.82 It is not clear how strongly these benefits need to correlate to the community of customers in the same
77 Victoria Daskalova, ‘Consumer Welfare in EU Competition Law: What Is It (Not) About?’ (2015) 11(1) CLR 131,
140.
78 See Katalin Cseres, ‘Competition Law and Consumer Protection’ (2005) (KLI), 331-333.
79 See Andreas Weitbrecht, ‘From Freiburg to Chicago and Beyond – the First 50 Years of European Competition
Law’ (2008) 29(2) ECLR 81.
80 Rutger Claassen and Anna Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a
Capability Approach’ (2016) 12(1) ULR 1, 1.
81 See: Tony Prosser, The Limits of Competition Law. Markets and Public Services (OUP 2005); Daniel Zimmer (ed.),
The Goals of Competition Law (Edward Elgar 2012).
82 Rutger Claassen and Anna Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a
23 industry. Hence, the broader the approach to consumer welfare is expanded, the more problematic this definition is.
In recent years, it is seen that the Commission is leaning more towards formulation as ‘price, quality and choice’. As in 2010 Regulation exempting R&D agreements from the application of Article 101(1) TFEU, there is no mention that the goal of the EU competition law is the promotion of consumer welfare.83 Hence, the consumer welfare ‘is no longer the ultimate or primary goal, but rather one of the goals of EU competition policy and it appears on equal footing with industrial policy goals.’84 This could then imply that the approach of the Commission is not as a narrow
consumer surplus standard anymore, but it can be considered that it is modified by the broader objectives of the EU. It also means that it is no longer an independent legal discipline and surely has a regulatory agenda. Consequently, perhaps the environmental protection, as an objective of the EU, as it is the way to combat climate change, can also be undoubtably included in the competition law system.
Recently, ACM has proposed draft Guidelines for ‘Sustainability Agreements’85. The emphasis is added on the fact that in many cases sustainability initiatives can be applied without any major problems.86 These guidelines, if approved, will serve as a great practical tool for undertakings. It
provides four categories of allowed sustainability agreements, for instance ‘agreements that incentivize undertakings to make a positive contribution to a sustainability objective without being binding on the individual undertakings’.87 It also suggests that sustainability agreements can be
justified under Article 101(3) TFEU. When assessing the cases, ACM will consider that ‘benefits to wider society can be taken into account’ and that ‘quantification of sustainability benefits not always necessary’.88 The latter is the issue that many undertakings are facing when conducting
83 Commission Regulation (EU) 1217/2010 on the application of Article 101(3) of the Treaty on the Functioning of
the European Union to certain categories of research and development agreements [2010] OJ L 335/36. See also: Commission Regulation (EU) 330/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practice [2010] OJ L 102/1.
84 Victoria Daskalova, ‘Consumer Welfare in EU Competition Law: What Is It (Not) About?’ (2015) 11(1) CLR 131,
140, 147.
85 Autoriteit Consument & Markt, Draft Guidelines ‘Sustainability Agreements’ (ACM 9 July 2020)
<https://www.acm.nl/en/publications/draft-guidelines-sustainability-agreements> accessed 18 July 2020.
86 Ibid, 3. 87 Ibid, 7. 88 Ibid, 10.
24 self-assessment. The progressive approach proposed by ACM is very welcomed and it is hoped that the Commission will support the guidelines and propose a uniform perspective on the issue.
3.2.2. What is consumer?
As straight forward as it may sound, the term ‘consumer’ in ‘consumer welfare’ might be confusing for many lawyers, because it is necessary to know whose harm or benefit would count in competition law cases. The confusion is not only for lawyers but also courts89 and academics90. In some of the competition policy documents91 it seems as it deviates from ‘consumers’ to ‘customers’. The paragraph 84 of the General Guidelines takes a first step towards clarifying this: ‘Consumers within the meaning of the Article 81(3) are the customers of the parties to the agreement and subsequent purchasers.’92 However, in practice, it is not often that ‘subsequent
purchasers’ analysis is found. For example, when assessing the cases under the Article 101 TFEU, the authorities analyse the harm done to the customers of the ‘parties to an agreement’ and the customers of their competitors.93 For better transparency, it has been proposed that the ‘end-user’ welfare be used when the competition goal is the welfare of the final consumer and not to just another business in the supply chain.94 The economic definition does not provide the answer to the issue, whilst it is often presumed in the literature that customers are the final consumers-who go to the store or to a website to buy a good. 95 The distinction, however, is not made between
individuals and companies. To understand whose welfare is at stake one needs to examine the factual situation and the economic model at hand.96 The model may just as well state whether it
89 See Case C-8/08 TMobile Netherlands BV and Others v Raad van bestuur van de Nederlandse
Mededingingsautoriteit [2009] ECR I-04529, 36 and Opinion of AG Kokott, 55; Joined cases C-501/06 P, C-513/06
P, C-515/06 P and C-519/06 P GlaxoSmithKline Services Unlimited v Commission of the European Communities [2009] ECR I-09291.
90 Pinar Akman, 'Consumer' versus 'Customer': The Devil in the Detail' (2010) 37 (2) JLS 315.
91 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations
between undertakings [2004] OJ C 31/5.
92 Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C 101/97, para 84.
93 Svend Albæk, ‘Consumer Welfare in EU Competition Policy’ (2013), 75 <
https://ec.europa.eu/dgs/competition/economist/consumer_welfare_2013_en.pdf> accessed 29 June 2020.
94 Victoria Daskalova, ‘Consumer Welfare in EU Competition Law: What Is It (Not) About?’ (2015) 11(1) CLR 131,
137.
95 Massimo Motta, Competition policy: theory and practice (1st edn, CUP, 2004), 20-22.
96 Victoria Daskalova, ‘Consumer Welfare in EU Competition Law: What Is It (Not) About?’ (2015) 11(1) CLR 131,
25 involves agreements between two firms with market power, or whether it involves a monopolist selling to a reasonably open market of businesses, not individuals.97
Hence, if the competition law regime is based on consumer welfare, as one of the goals, then in order to establish liability under competition law, the focus lies on the impact of business practices on consumers.98 Thus, when those business practices are challenged, explicit proof of consumer harm should be required by competition authorities and/or courts. The distinction between the firms’ part of the supply chain and the consumer is necessary if the harm is not directly suffered by the final consumers, but by producers or agents, for example. Only considering the final consumers under the welfare standard can bring a great deal of uncertainty. This is due to the difficulty in assessing whether the consumer is harmed, without knowing if this surplus even makes it to the final consumer.99
3.2.3. What is welfare?
The second part of the concept ‘consumer welfare’ is welfare. The questions arise, what is ‘welfare’, how does one define what the welfare of consumers is. Simon Holmes states that this term is about ‘the health, happiness and futures of a person or group’.100 He adds, that welfare
cannot be considered only about ‘profit’ or ‘fortune’. Meaning that the adoption of a ‘narrow consumer welfare’ standard ignores the main idea of welfare. This might be the case if only economic benefit is considered when assessing the antitrust or merger cases. Article 3(1) TFEU states that the ‘Union’s aim is to promote <…> the well-being of its peoples’. It then should be able to enclose issues such as: ‘having enough food to eat; having clean air to breathe; and producing goods using fewer resources’.101
97 Ibid.
98 Katalin J Cseres, ‘The Controversies of the Consumer Welfare Standard’ (2007) 3(2) CLR 121, 146
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015292> accessed 2 July 2020.
99 Victoria Daskalova, ‘Consumer Welfare in EU Competition Law: What Is It (Not) About?’ (2015) 11(1) CLR 131,
137.
100 Simon Holmes, ‘Climate change, sustainability, and competition law’ (2020) 8(2) JAE 354, 363. 101 Ibid.
26 Kate Raworth’s in ‘Doughnut Economics’ states that ‘economics’ originally meant the ‘art of household management’ and throughout most of history the subject has been concerned with broader social and political concerns (as the term ‘political economy’ clearly suggests).’102 Which
is important to remember when assessing which welfare standard should be applied. The author suggests to become agnostic about growth, rather than growth addicted, as ‘today we have economies that need to grow, whether or not they make us thrive: what we need are economies that makes us thrive, whether or not they grow.’103 Also, Vaclar Smil suggests that ‘the
fundamental problem is that economics has become so divorced from fundamental reality <...> [that] until economics returns to the physical rules of human existence, we’ll always be floating in the sky and totally detracted from reality’.104 It is important to remember this aspect when assessing
which welfare standard should be applied. Thus, while the whole focus lies on economic benefit of consumers, the sustainable development goals are set aside. For some reason, sustainable products, which are in turn environmentally friendly, are not considered to bring welfare for consumers in a long-term.
The issues presented reflect the endless debate of what goals should be pursued by competition law. However, from this analysis it has become clear that consumer welfare standard, understood in a narrow sense of consumer surplus, is not stated anywhere in the Treaties. On the contrary, the primary law sets out higher standards and the focus is not only on the competitive process but also on other core goals, as discussed above. It is easy to criticise the standard that is applied, which, within the EU, are those of consumer welfare and the economic benefit approach. However, one then should suggest alternative to such standard. Therefore, the following part will discuss the alternative to consumer welfare – the capability approach as suggested by legal scholars. The focus lies on two cases, firstly the case will be discussed in regards consumer welfare approach and then the capability approach will be applied to the same cases.
102 Kate Raworth, Doughnut Economics (Random House Business Books 2018) 33. 103 Ibid, 30.
27
3.3. The alternative to the consumer welfare standard
3.3.1. Capability approach
As an alternative to consumer welfare approach, academics suggest applying the capability approach. It was developed by economist Amartya Sen and philosopher Martha Nussbaum. The former suggests an alternative definition of welfare, focused on the moral theory of utilitarianism.105 Nussbaum's purpose was to propose an alternative to utilitarian and resourcist ideologies in the field of distributive justice theorizing.106 The starting point of this approach is that individuals have ‘capabilities to function’ in a specific way.107 Some of the examples are:
eating, being healthy, sleeping, driving etc, meaning, that one has the freedom to choose how to function. Scholars also emphasised that this approach can be used from a human rights perspective. Thus, ‘people should have rights to basic human capabilities.’108 This draws the connection to
competition law, as the states are responsible for the capability level of their citizens.109 Dr. Rutger Claassen and Prof. Dr. Anna Gerbrandy suggest that for this approach to be applied in competition law two principal questions need to be solved. Firstly, ‘which capabilities are the basic capabilities that people should have a right to?’. Secondly, ‘how to weigh them against each other and make trade-offs?’. These two issues on the selection and weighing of capabilities are still subject to interpretation and further improvement.
As a crucial first step, it will be important to recognize all the ability interests of the parties involved in a particular competition dispute. In order to adapt the approach to the competition-law sense, it is suggested to conceptualize such concerns as consisting of three distinct categories of
105 See: Amartya Sen, Commodities and Capabilities (OUP 1985); Amartya Sen, The Standard of Living (CUP 1987). 106 See: Martha Nussbaum, ‘Nature, Function, and Capability: Aristotle on Political Distribution’, Oxford Studies in
Ancient Philosophy (OUP 1998); Martha Nussbaum, ‘Aristotelian Social Democracy’ in R. Bruce Douglas et al. (eds.), Liberalism and the Good (Routledge 1990).
107 Rutger Claassen and Anna Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a
Capability Approach’ (2016) 12(1) ULR 1, 4.
108 Martha Nussbaum, ‘Capabilities and Human Rights’ (1997) 66 Fordham L. Rev. 273.; Amartya Sen, ‘Elements of
a Theory of Human Rights’ (2004) 32(4) Philosophy & Public Affairs 315.
109 Rutger Claassen and Anna Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a
28 capability sets: market-based capabilities, customer capabilities and third-party capabilities.110
With regards to how to weight customer capabilities question the first issue arises when considering how much weight every capability should be awarded since capabilities cannot be measured at market prices because they rely on the buying power and ability of each person to pay.111 The second issue is the principle of distribution that guides such a weighing exercise. The analogy with economic rationale suggests maximizing the overall level of capacity.112 The last question is whether the weighing act will take a quantitative from (‘calculation’) based on an economic cost-benefit analysis model or a qualitative form (‘balancing’). There are different opinions about this issue, some scholars argue that it is possible to calculate capabilities.113 If affirmative, then there is no ground-breaking opposition to a quasi-economic weighing of capabilities. However, other scholars are suggesting that it is important to see the incomparability of capabilities: each of them has a separate value and cannot be compared in terms of a common metric. Dr. Rutger Claassen and Prof. Dr. Anna Gerbrandy suggest that if one proceeds, it has to be done cautiously as one tries to measure non -economic interests. It may be possible to quantify where, in particular, one needs to balance price-related consumer capabilities against price-related market-based capabilities. But when non-economic interests come into the picture, quantification will always pose a skewed image of reality.114
As the theoretical background is set out, it is interesting to apply the capability approach to one of the antitrust law cases. The agreement aimed at lowering emissions of toxic gasses, thus its environmental aspect perfectly fits within the context of this thesis. This case concerns the Dutch Energy Agreement (Energieakkoord), a road map agreement for more renewable energy in the Netherlands in 2020.115 The Parties to the Agreement shall include energy producers, distributors, the Government and advisory bodies to the Government (Social Economic Council). These Parties
110 Ibid.
111 For further explanation see: Ibid. 112 Ibid.
113 Paul Anand and Martin van Hees, ‘Capabilities and Achievements: An Empirical Study’, (2006) 35 JSE 268; Paul
Anand et al., ‘The Development of Capability Indicators’, (2009) 10(1) JHDC 125.
114 Rutger Claassen and Anna Gerbrandy, ‘Rethinking European Competition Law: From a Consumer Welfare to a
Capability Approach’ (2016) 12(1) ULR 1.
115 Autoriteit Consument & Markt, ‘ACM analysis of closing down 5 coal power plants as part of SER
Energieakkoord’ (2013) < https://www.acm.nl/en/publications/publication/12082/ACM-analysis-of-closing-down-5-coal-power-plants-as-part-of-SER-Energieakkoord> accessed 19 July 2020.
