Competition and Environmental Policy in the EU: Old Foes, New Friends?

Abstract

European competition authorities consider environmental and competition policy to be complementary, as each has the objective of improving social welfare. Naturally, one would imagine that environmental considerations have already been accounted for in competition policy practice, but thus far, only in the case of voluntary environmental agreements. This paper analyzes the extent to which the two types of policy are complementary by examining the legal framework of competition policy, voluntary environmental agreements and three competition cases with equal relevance to the environment and then examines the basic theoretical economic observation that less competition implies lower pollution levels relative to more competition. This trade-off between the benefits of reduced emissions on the one side and increased competition on the other implies that disregarding environmental considerations in the implementation of competition policy entails a negative externality, which can be eliminated if environmental considerations are internalized in competition policy. The impact of the externality is found to depend on the emission level, the emission damage, and market size. Further, this implies that if competition authorities were to adopt a broad definition of the relevant market in competition cases, then environmental considerations would play a limited role in competition policy, whereas a narrow definition implies that environmental considerations should have a much more important place than competitive considerations in competition policy.