How EU Competition law can support a greener future

The European Union (EU) is committed to fighting climate change and building a sustainable future. While most people know about the European Green Deal - a plan to make Europe the first climate-neutral continent by 2050 - fewer are aware of how the EU’s competition rules are being and could be adjusted to help reach this goal. Competition law might sound dry or technical, but it’s becoming a powerful tool to encourage businesses to be more sustainable.

This article is inspired by the thesis of Charline Marrony, an HEC Paris graduate of the Master in Management - International Tax and Legal Strategy major, written under the supervision of Professor Alberto Alemanno. Charline’s dissertation won second place in the 2024 HEC Paris and A&O Sherman Legal and Tax Prize, which was awarded at a ceremony on October 8, 2024. Her work offers valuable insights for anyone interested in how to implement the sustainability transition within the European Union, exploring the role of competition law in advancing these goals. It also highlights the real-world impact of competition rules, demonstrating how lawyers and law students can apply their technical expertise to address some of society’s most pressing challenges.
 

Why Competition law needs to adapt

At the heart of EU competition law is the principle of “competition on the merits”. This means that companies - or to be more accurate, in competition law terms: undertakings - should succeed in the market by offering better products, services, or prices— not by abusing their market power or unfairly excluding competitors. Traditionally, competition on the merits has been about ensuring fair prices and choices for consumers. But today, Europe faces another challenge: climate change. To tackle this, the EU must ensure that its policies encourage sustainability, not just market fairness. This means rethinking how “competition on the merits” can apply in ways that help undertakings contribute to environmental goals.
 

Supporting the Green Deal with new rules

The European Green Deal is the EU’s big plan to cut carbon emissions and create a greener economy. To support these goals, the EU is using its competition rules in new ways:

Encouraging green cooperation: In the past, if two competing undertakings wanted to collaborate on a project—like creating a recycling program or reducing plastic waste—the EU might have seen it as a potential risk to fair competition. Now, the rules are evolving to allow undertakings to work together on projects that benefit the environment, as long as they don’t hurt consumers. This shift means businesses can join forces to make meaningful environmental changes without worrying about breaking competition rules. Balancing big business and sustainability: When large undertakings merge or buy out smaller ones, the EU scrutinizes the deals to make sure they don’t stifle competition. Today, this analysis is starting to include environmental factors. For example, if a merger could result in new technologies that cut emissions or improve energy efficiency, that could be a reason to approve the deal. This new approach aims to balance economic growth with environmental responsibility, allowing undertakings to “compete on the merits” by contributing to sustainability.
 

Making supply chains greener

The EU could encourage undertakings to think about the sustainability of their entire supply chain. This includes how they work with suppliers and distributors:

Choosing sustainable partners: Undertakings can be more selective about the partners they choose, based on environmental criteria. For instance, a business might decide to work only with suppliers that use renewable energy or follow eco-friendly practices. Rewarding green practices: EU competition rules should make it easier for undertakings to reward partners who are more sustainable. For example, a undertaking could offer better terms or prices to distributors that meet high environmental standards. This will help incentivize more undertakings to adopt green practices, contributing to a wider shift towards sustainability across different industries.
 

Rethinking market power for a sustainable future

When a undertaking becomes dominant in its market, the EU keeps a close watch to ensure it doesn’t abuse this power. Now, there’s a push to rethink what it means for these undertakings to “compete on the merits”:

Encouraging environmentally responsible behavior: There are multiple solution to  ensure that large undertakings not only compete fairly but also contribute to environmental goals. For example, if a dominant undertaking adopts eco-friendly practices, such as reducing emissions or using more sustainable materials, it could be viewed more favorably. This approach encourages businesses to take the lead on climate issues, knowing that their efforts to compete on the merits—by making sustainable choices—might be rewarded rather than penalized.
 

Why it matters

These changes may sound technical, but they have real-world impacts. By allowing undertakings to work together on sustainability and encouraging larger undertakings to adopt greener practices, the EU is creating a market where doing good for the environment is also good for business. It’s a way of ensuring that Europe’s fight against climate change is supported by every sector of the economy, from big tech undertakings to small startups.
 

Building a greener market for everyone

EU competition law is slowly evolving to meet the challenges of our time. By incorporating sustainability into the market rules, the EU would ensure that its policies align with the broader goal of a climate-neutral continent. These changes will not only help undertakings to innovate and become greener, but also create a market that rewards these efforts. For citizens and businesses alike, this means a future where economic success goes hand-in-hand with environmental responsibility.