Waste-recycling sector under scrutiny in two abuse of dominant position proceedings in Italy

Out of the three proceedings for abuse of dominance opened by the Italian Competition Authority (“ICA”) so far in 2021, two deal with environment protection, and relate, more specifically, to the waste-recycling sector. The first proceeding relates to waste-management of electrics and electronics, while the second one concerns the waste-management of goods made in polyethylene.

Both markets are characterised by the presence of two incumbent operators holding a dominant position: Erion and Polieco, respectively.

In the first investigation, Erion is accused of abusing its dominant position through a complex abusive strategy, consisting of three main types of conduct:

• the imposition of a best-price clause to waste-management systems it contracts with. By operation of this clause, the waste-management installations are obliged to ensure that Erion is offered the best price both in relation to transport services and waste-treatment tariffs, provided that Erion gives them the biggest volumes of electronics to be processed. Considering that Erion holds a market share of 70%, in the ICA’s opinion, it will easily be the operator which manages the biggest volumes of electronics waste in the market;
• a strategic use of the surplus funds from previous budgets: in the compliance-services market, Erion requests extremely competitive contributions (the so-called “environmental contributions”) from electronics producers. In the view of the Authority, Erion can artificially lower the contributions requested, by resorting to the surplus funds accumulated in previous financial years. Such conduct is judged unlawful by the ICA not only from a competition point of view, but also because it goes against the “polluter pays” principle, derived from EU law, as the amount of the contribution required to electronics producers does not correspond to the effective waste-management costs incurred;
• the inclusion of an exclusivity clause in Erion’s Statute, pursuant to which it is forbidden to electronics producers that have joined Erion to adhere to alternative waste-management systems active in the electronics waste-management market.

The three described behaviours are aimed, in the ICA’s view, at excluding competitors from the market by both retaining electronics producers already subscribed to Erion and gaining new ones by offering conditions that cannot be replicated by other waste-management systems already present in the market and ultimately impede the access to the market of new waste-management systems.

In the second investigation, the subject under scrutiny is Polieco, a consortium made up of producers/importers/distributors of goods made in polyethylene. Polieco represents the historical incumbent in the market, having been the only mandatory consortium under the relevant Italian environment legislation since 1997. However, recent regulatory interventions have opened-up the possibility for new consortia to operate in the market, subject to obtaining a Ministry authorisation. Following these changes in the law, Ecopolietilene, a newly constituted consortium, obtained the requested authorisation in June 2020 and started to operate in the market dominated by Polieco.

Faced with a potential competitor, Polieco, according to the ICA, started to put in place an abusive strategy aimed at reducing the number of Ecopolietilene potential clients and at increasing the market-entry costs to be sustained by the new consortia. In particular, in the Authority’s view, Polieco:

• included in its Statute a provision making the granting of certain benefits for the payment of outstanding contributions conditional on prior registration with Polieco. The latter would only grant relief on payment of outstanding contributions only to those companies that decide to join Polieco, while it would require the full payment of contributions from those companies that never joined Polieco in the past or that intend to withdraw from Polieco. In the ICA’s opinion, such conduct would allow the incumbent operator to discourage the producers of polyethylene goods from joining the new entrant consortium Ecopolyethylene;
• made companies believe that such benefits are stemming from the Italian environmental regulatory framework, whereas they are, in reality, the result of the application of a Statute provision introduced unilaterally by Polieco.

The ICA’s intervention occurs at a crucial moment for the liberalisation of the environmental compliance services in the attempt to overcome the monopolistic structure of the waste-management market, traditionally characterised by the presence of a single economic operator.

The alleged abusive conduct, put in place by the two operators under investigation, risk both a reduction in the competitiveness in the market and negative impacts on the environment, in terms of a reduction in the number of goods recycled and of worse quality levels offered to final consumers in terms of environmental compliance services.

In particular, in the polyethylene case, an indirect effect of reducing competition in the market by means of exclusionary behaviours may be, according to the ICA, to increase the levels of the environment contributions paid by the producers of the goods to be recycled that risk to turn into an increase of the prices of the goods themselves, ultimately harming the final consumers.

In the electronics market, the abusive strategy allegedly put in place by Erion may similarly generate downsides in terms of environment protection. By artificially imposing lower environmental contributions on its subscribers, Erion may discourage competitors to invest and search for efficiency-gains, since they will not be able to transfer them on electronics producers. This will thus undermine the overarching goal of rendering the waste-management process as much sustainable as possible.

The ICA has now until autumn 2022 to end these two investigations. The launching of these investigations suggests that National Competition Authorities are increasingly focusing on the challenges posed by climate change and on exploring how competition law can help tackling them.

The two ICA decisions communicating the launch of the proceedings are available here and here (in Italian only).

For further information, please contact Federico Marini Balestra.