In September last year, the Austrian legislator incorporated a sustainability exemption into Austrian competition law ("Sustainability Exemption"). This was unprecedented given that, so far, the competition authorities in the Netherlands and Greece had only issued vision documents, discussion papers and guidelines on the components of cooperation to increase sustainability between competitors.
As directed by the legislative material accompanying the amendment, the Austrian Federal Competition Authority ("AFCA")recently published Guidelines, following the preliminary involvement of the Federal Ministry for Climate Protection.
The Guidelines aim to facilitate the application of the Sustainability Exemption and as such they constitute important practical guidance for companies when performing a self-assessment of their sustainability initiatives under Section 2 para 1 of the Cartel Act.
The following paragraphs briefly summarize the most significant points in the Guidelines.
The new Sustainability Exemption
Similar to its European equivalent, Section 1 para. 1 of the Cartel Act prohibits agreements and concerted practices between two or more independent firms which have as their object or effect the prevention, restriction, or distortion of competition in Austria.
Because of this, firms are generally well advised to adopt (ideally) sustainable production processes on their own.
However, doing so on its own is not always feasible. In choosing more sustainable products for the market, firms must make significant investments, incur costs and risks by increasing prices and are thus at a competitive disadvantage.
The recently introduced Sustainability Exemption acknowledges this. The Exemption seeks to reduce the "first mover disadvantage" and to incentivise firms to cooperate by exempting agreements restricting competition from being prohibited as long as cooperation contributes significantly to, inter alia, an ecologically sustainable or climate-neutral economy.
Under the previous version of the exemption in Section 2 para. 1 of the Cartel Act, it was already permissible to cooperate if firms could demonstrate that:
Through the recent amendment, Section 2 para. 1 of the Cartel Act was modified and the following qualifier was added:
“Consumers shall also be considered to be allowed a fair share of the resulting benefit if the improvement of the production or distribution of goods or the promotion of technical or economic progress significantly contributes to an ecologically sustainable or climate-neutral economy."
The Guidelines clarify at the outset that the scope of application of the Sustainability Exemption is limited to agreementswhoseeffects are confined to Austria and do not significantly affect trade between EU Member States, since the new Section 2 para. 1 of the Cartel Act deviates from the general concept under Article 101(3) TFEU. In practice, this means that only small-scale sustainability agreements to which neither EU competition law nor the de minimis rule in Section 2 para. 2 of the Cartel Act apply will be able to benefit from the Sustainability Exemption.
TYPES OF COOPERATION UNLIKELY TO RESTRICT COMPETITION
Leaning on the views of the European Commission ("Commission"), the AFCA recognizes that certain types of cooperation are typically less likely to restrict competition. The Guidelines mention in particular:
TWO POTENTIAL WAYS TO EXEMPT A SUSTAINABILITY COOPERATION
The Guidelines set out that under Section 2 para. 1 of the Cartel Act there are two ways in which horizontal or vertical (sustainability) cooperation that is likely to restrict competition can be justified. That is either by applying:
According to the Guidelines, the following criteria must be met cumulatively for a cooperation to benefit from the Sustainability Exemption:
I. Efficiency Gains
The cooperation must lead to efficiency gains, i.e. an improvement in production / distribution of goods or promotion of technical / economic progress.
The Guidelines clarify that efficiency gains mean an improved use of scarce resources, which increase the welfare of society as a whole.
Significantly, parties must demonstrate these gains, and not assume them. The gains must also be objective, concrete and verifiable through estimates. Monetary (i.e. cost savings) as well as non-monetary efficiency gains (i.e. innovation / environmental benefits) are both acceptable.
The Guidelines are inclusive of non-immediate gains and recommend that the time horizon in which the gains occur must be foreseeable, if not certain.
II. Contribution to an Ecologically Sustainable / Climate-Neutral Economy
Importantly, while the new sustainability chapter in the revised draft Horizontal Guidelines of the European Commission recognizes different types of sustainability aspects (e.g. human rights, fostering resilient infrastructure or ensuring animal welfare), the Sustainability Exemption, on the other hand, refers only to efficiency gains that contribute to achieving an ecologically sustainable, climate neutral economy.
According to the Guidelines, such a contribution is deemed to exist in particular if the efficiency gains resulting from the cooperation contribute to the following ecological sustainability goals:
III. Material or Essential Contribution to Ecology / Climate Neutrality
In addition, the Materiality criterion requires companies to demonstrate that efficiency gains under the cooperation contribute significantly to ecological sustainability. To demonstrate materiality, parties must balance positive and negative effects of the cooperation, i.e. positive environmental benefits should at least compensate for the negative effects on competition in the market.
To this end, parties to cooperation can use qualitative or quantitative justifications when demonstrating materiality, but translating the restrictions / gains into approximate monetary values helps to demonstrate conclusively the materiality requirement.
While making an assessment, the AFCA advises parties to use credible and transparent methods and assumptions in their evaluation, given that parties may need to explain them before the authority. The AFCA recommends a mix of methods depending on the complexity of cooperation – from back of the envelope calculations to scientific studies and independent auditors.
Whether the methods used and assumptions made are appropriate will be decided on a case-by-case basis. The Guidelines specify that public perception, consumer perception or companies’ own perceptions are insufficient to make an objective assessment.
IV. Adequate consumer participation
The requirement of "adequate consumer participation" is presumed to be met once it is demonstrated that the cooperation is aimed at achieving ecologically sustainable or a climate-neutral economy.
Notably, in contrast to the original Section 2 para. 1 of the Cartel Act and Article 101(3) TFEU, the Guidelines explicitly accept "out-of-market" efficiencies; that is, efficiency gains arising in markets other than in the market in which parties cooperate. Regrettably, however, the AFCA missed an opportunity to illustrate its new pioneering approach with the help of concrete practical examples – which would have been most welcome.
Relying on the principle of proportionality, the AFCA in the Guidelines requires restrictions on competition to be indispensable for realisation of all claimed efficiencies – i.e. it should be the least restrictive way of achieving the efficiency-enhancing objective.
VI. No Elimination of Competition
Finally, parties must ensure that regardless of the size of efficiencies, some degree of residual cooperation should remain in the affected market.
To fulfil this criterion, parties must either continue to compete vigorously on at least one important aspect of competition or sufficient competition must exist from remaining undertakings.
Open Door Policy & Informal Assessment
Once the parties have independently assessed whether cooperation would be exempted, and still have justifiable doubts, the parties are encouraged to request that the AFCA conducts an informal assessment pursuant to Section 2 para. 5 of the Competition Act (Wettbewerbsgesetz).
In the face of current environmental challenges and net zero targets, companies are starting to ramp up their climate commitments. Green initiatives in competition policy can and will play a role in encouraging companies to do even more.
Having said that, the underlying Guidelines are detailed, explanatory and certainly useful for interpreting the application of the recently introduced Section 2 para. 1 exemption – which seeks to allow companies to benefit from suitable cooperation between firms, which would otherwise prevent, restrict or distort competition in the market.
However, it will be interesting to see their application to real-life co-operations, and teething troubles in the form of questions of interpretation are also likely to arise, in particular due to the lack of real-life examples in the Guidelines and the limited scope of the Sustainability Exemption (i.e. excluding co-operations triggering Article 101 TFEU).
 See Guidelines on sustainability agreements by the Dutch Authority for Consumers & Markets: https://www.acm.nl/en/publications/guidelines-sustainability-agreements-are-ready-further-european-coordination; see also the sustainability initiative by the Greek competition authority: https://www.epant.gr/en/enimerosi/competition-law-sustainability.html.
 AFCA’s Guidelines on Sustainability agreements for companies, published in September 2022 ("Guidelines"): https://www.bwb.gv.at/en/news/detail/bwb-veroeffentlicht-finale-leitlinien-fuer-unternehmen-zu-nachhaltigkeitskooperationen.
 Para 12, Guidelines.
 I.e. Article 101(1) TFEU.
 In the form of improvements in production / distribution of goods or promotion of technical / economic progress.
 Para 28, Guidelines.
 Para 52, Guidelines.
 Para 31, Guidelines.
 Para 62, Guidelines.
 I.e. the classic four conditions of Sec. 2(1) Cartel Act modelled upon Article 101(3) TFEU.
 This is if the sustainability cooperation leads to efficiency gains that are not (necessarily) related to ecological benefits, e.g. production cost savings. This will not always be the case, since sustainability cooperation oftentimes leads - at least in the short term - to production cost increases rather than savings.
 In this case, the efficiency gains must materialize in ecological benefits.
 See EC public consultation on the draft revised Horizontal Block Exemption Regulations and Horizontal Guidelines ("Draft HGL"): https://ec.europa.eu/competition-policy/public-consultations/2022-hbers_en.
 Para 28, Guidelines.
 Para 76 and 78, Guidelines.
 When aiming at a climate neutral economy, for example, the Guidelines recommend parties to assess reduction in CO2 emissions; see para 85 et seq., Guidelines.
 FN 60, Guidelines; In contrast, the draft HGL emphasises that consumers must receive a fair share of the claimed benefits, and collective benefits can only be accounted for when the group of consumers affected by the restriction and benefitting from the efficiency gains is substantially the same. The AFCA’s Guidelines are thus relatively more progressive in accepting "out-of-market" efficiencies than the draft HGL.