Dutch Competition Authority concludes that elements in the Dutch “Energy Agreement” violate competition rules

On 6 September 2013, Dutch private and (semi-) public organizations entered into the "Energy Agreement for promotion of sustainable growth". Within this context, four energy companies agreed to close down five coal-fired power stations in the Netherlands before the end of their economic life cycle. This arrangement was submitted to the Dutch Competition Authority ("ACM") with the request to provide its view on its compatibility with the competition rules.

On 26 September 2013, the ACM announced its provisional view that the agreement to close down the five power stations is not compatible with the cartel prohibition. Moreover, the ACM suggested there may be room for a similar arrangement if it is less harmful to effective competition while benefiting environmental policy.

This case provides a rare, if not unique, example of the application of the "exemption provision" for cartel agreements (i.e. Article 101(3) in the TFEU) in which the ACM quantifies in its assessment the environmental benefits and balances them against the quantified negative effects on competition and price.

The ACM first established that the agreement will lead to a reduction of production capacity in the Netherlands of approximately 10%. The ACM restricted its analysis to the Dutch market because it considers that the relevant markets are not yet broader. It concluded that the significant production reduction will result in upward pricing pressure for electricity sold on the Dutch market.

The ACM then examined whether the negative effects on competition are sufficiently counterbalanced by the environmental benefits. The closure of the power stations will result in reduced emissions of carbon dioxide (CO2), sulphur dioxide (SO2), nitrogen dioxide (NOx) and particulates (PM). The ACM concludes that the improvement of the air quality as a consequence of reduced emissions qualifies as benefits which can play a role in the assessment. However, the reduced emission of CO2 did not qualify as a benefit because it leads only to reduced need for CO2 emission rights which can then be traded with and used by third parties.

The ACM concluded that the environmental benefits do not outweigh the negative effects on competition. The ACM did not elaborate on the consequences of its preliminary view. It is up to the parties to determine whether the agreement is critical to the arrangements or whether it could be severed.