Netherlands: Authority for Consumers & Markets proposes a new take on fairness and efficiency to combat the effects of climate change

On 16 June 2022 the chairman of the Netherlands Authority for Consumers and Markets, Martijn Snoep, spoke at the XVth Treviso Antitrust Conference. He opened his speech with the ‘inconvenient truth’ of combating climate change, which is that the measures needed will inevitably increase the costs of living for consumers, hitting low-income consumers hardest. Taking these measures via the political process will therefore be hard; for consumers are voters, and hence unlikely to give their support. Martijn Snoep suggested a way out of this deadlock by stressing the important and prominent role to play for governments, companies, competition authorities, and most importantly the European Commission.

His speech started with nothing less than a reference to what he calls the biggest market failure in the history of humankind. The prices we pay for our products come with significant hidden costs, i.e., the costs of climate change. We do not yet face these costs, but we will in the future, especially the younger and future generations. This adds to the regulatory failure, as the measures needed to combat climate change inevitably result in increased prices. The majority of the consumers, being voters, are unlikely to approve of this. Furthermore, the younger generation which will suffer most from the effects of climate change are underrepresented in the electorate.

Martijn Snoep mentioned three points to resolve this deadlock. First, governments should set clear and measurable climate change reduction goals for each industry. This should be combined with trade adjustment mechanisms to protect against imports from countries without such goals. Second, governments should take tax measures to compensate low-income consumers for the increased costs of living, especially for heating, fuel and food. Third, to avoid governments having to micro-manage the economy, each industry should decide on how the industry goals set out by the governments can be met. Ideally, companies sit down to decide on how to meet these goals by themselves, or alternatively, through vertical cooperation, or if necessary, through horizontal cooperation. Horizontal cooperation could consist of agreements to jointly phase out polluting production processes (see for example the reduction of coal energy), or on the joint development of new, cleaner production processes, or to jointly stop selling products that negatively impact the climate.

With regard to the third point made, Martijn Snoep emphasised the role competition authorities should play. Instead of frowning upon horizontal cooperation, competition authorities should understand that they may well hold the key to solving the deadlock. The chapter on sustainability in the draft Horizontal Guidelines explains how the Commission intends to use this key. However, as said, any meaningful cooperation to combat climate change will increase the prices for consumers. Consequently, these types of cooperation are only allowed when the Commission finds that consumers are getting a ‘fair share’. According to the Netherlands Authority for Consumers and Markets this is where the draft Horizontal Guidelines lack clarity. Two policy driven principles could make it virtually impossible to meet the fair share-test, i.e., the consumer negatively affected should be fully compensated by the benefits, and where benefits are global, as is the case with climate change measures, the Commission seems to suggest that only a proportionate number of the benefits can be used in the fair share-test.

Martijn Snoep continued by putting out the question whether it would be fairer and more efficient to leave consumers, who are responsible for the pollution, uncompensated for the harm, as long as the cooperation has a total net positive effect for everyone, including these consumers. He also questioned the logic in limiting the number of benefits that can be used in the fair share-test when this makes the test insurmountable in practice.

According to Martijn Snoep the Commission lumps together all types of sustainability benefits, ranging from animal welfare to the reduction of greenhouse gasses, by making these benefits subject to the same fair share-test. However, it makes more sense to stay away from such hard and fast rules. Full compensation can be fair in some situations but not in other ones. Why, for instance, must business class travellers need to be fully compensated for the harms inflicted by a hypothetical agreement between airlines that requires taking into account the negative effects of flying?[1] Since the Commission is holding the key, more clarity on this is needed in the Horizontal Guidelines.

For more information, please contact Janneke Kohlen and Matteo Stainer.

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[1] We believe this to be a valid question, albeit that we do not see why it is relevant to distinguish between business class travellers and those who travel in economy class. Both types of travellers board the same plan and therefore cause the same harm to the environment. Also, we wonder if a person’s motive for travelling is something to take into account, i.e., does it matter whether one travels for leisure or to see long distance family? If motive matters, does that not make it even harder to apply to fair share-test?