• Attorneys General Urge FTC to Regulate Green Claims
  • March 13, 2008
  • Law Firm: Reed Smith LLP - Office
  • Attorneys general from 10 states are asking the Federal Trade Commission to develop standards to govern market claims concerning carbon emissions offsets and renewable energy certificates (RECs).

    In a letter to the FTC, Vermont Attorney General William H. Sorrell urged the agency to bring order to the greenhouse gas reduction market.

    “We need to ensure, by law, that carbon offsets are real, additional, verifiable, enforceable, and accompanied by some system that will permit average consumers to make informed decisions as to whether and what to buy,” stated Attorney General Sorrell. He was joined by the AGs from Arkansas, California, Connecticut, Delaware, Illinois, Maine, Mississippi, New Hampshire and Oklahoma.

    The letter followed an FTC workshop in January on carbon offsets and RECs. More than four dozen other groups and individuals filed comments in connection with the event. The workshop is one of several planned by the FTC as part of the agency’s review of its Guides for the Use of Environmental Marketing.

    Rising Concerns

    Carbon offset providers market methods to help individuals and businesses reduce their “carbon footprints” by purchasing offsets, which fund projects designed to reduce greenhouse gases. RECs are created when electricity is generated from a source that does not emit greenhouse gases, i.e., wind, solar and small hydro power. Electricity from these sources may be sold as zero emissions power, or as two separate products:
    (1) generic electricity with no environmental claims attached; and (2) RECs.

    The FTC has identified several concerns with the marketing of carbon offsets and RECs, such as how to determine whether projects funded through offsets actually reduce atmospheric carbon, and how RECs are tracked and verified.

    The AGs urged the FTC to research consumers’ perceptions of environmental claims, rather than rely on stakeholder input to determine the standards needed. The attorneys general also voiced skepticism as to whether disclosure alone would be enough to protect consumers.

    “There is a serious concern that given the complexity and intangibility of offsets and RECs, ordinary consumers will not make informed decisions but rather will be heavily influenced and easily deceived by non-material information,” the letter stated. “The alternative [to disclaimers] would be to rely less on disclosure as a cure for deceptive practices and more on standardization of attributes and definitions.”

    These concerns were echoed in comments filed by Consumers Union.

    “Claims are already being made on products that are confusing, misleading and potentially deceptive,” the organization stated. “[W]e believe the FTC should provide specific definition and boundaries around marketing claims used….”

    For example, Consumers Union stated that the agency should restrict the use of claims such as “carbon negative” and “carbon zero.” These claims “imply that the manufacturing of a particular product did not impact the environment in terms of carbon production,” the group said. “However, at the current time, this is not the case.” Companies are offsetting their carbon production by investing in renewable energy.

    “We believe that using these terms to describe indirect offset actions are misleading. These terms should be reserved for companies that are taking direct action to reduce their carbon generation,” Consumers Union concluded.

    Need for Flexibility

    Other commenters urged the FTC to refrain from creating specific standards.Wal-Mart Stores, Inc. recommended the agency stick to its standard principles that marketers must have a “reasonable basis” to substantiate their claims.

    “Rather than attempting to define offsets or RECs, the Commission should rely on the flexibility inherent in the ‘reasonable basis doctrine,’ ” Wal-Mart stated. “The fact that standards may differ from one seller to another simply reflects the fact that there is no consensus about what does, or should constitute a carbon offset.”

    Wal-Mart added, “FTC precedent provides no reason to choose one reasonable approach over another.”

    Given the complexity of carbon offsets, some form of self-regulation is likely to be part of the solution, other commenters suggested.

    Leading carbon offset provider TerraPass noted that recently two independent carbon offset standards have emerged. The Green-e Climate program was released by the San Francisco-based nonprofit Center for Resource Solutions. In addition, the Voluntary Carbon Standard (VCS) has been developed jointly by The Climate Group of London and the International Emissions Trading Association in Geneva.

    “Both Green-e Climate and VCS were reviewed by hundreds of stakeholders (e.g., carbon experts, industry participants, and environmental and consumer groups),” TerraPass said.

    “We believe that the voluntary market will coalesce around Green-e Climate and VCS—an outcome that will strengthen consumer confidence in carbon offsets,” stated TerraPass, adding that it and other offset providers “are moving toward” adopting both standards in 2008.

    Why This Matters:  The primary dispute that appears to be shaping up is how specific the FTC should be in revising its green guides. Some groups want the FTC to provide definitive standards that address new types of environmental claims such as those surrounding offsets and RECs. Others want to ensure the guides remain flexible so marketers can adjust to changing market conditions.