Renewable energy and carbon offset credits are an increasingly popular marketing tool for all types of companies. But the rapid growth of the markets for renewable energy credits and carbon offset credits has not gone unnoticed by the Federal Trade Commission. The FTC’s proposed, revised Guides for the Use of Environmental Marketing Claims published last fall – the “Green Guides” – for the first time address the issue of marketing green energy and carbon offsets. Producers, resellers, and consumers of “green” certificates and credits should take notice.
The FTC published the revised Green Guides for public comment in October and will likely issue a final version this year. The Green Guides are not binding regulations in and of themselves, however. The Guides provide interpretations that the FTC may use to define deceptive marketing claims under the FTC Act. The FTC Act, in turn, gives the agency broad powers to prosecute “deceptive acts or practices,” including misleading advertising and marketing. The new 2010 version of the Guides cover the same issues addressed in earlier versions, but they now add specific guidance on renewable energy and carbon offset claims, signaling the FTC’s new focus on these types of green marketing claims.
Renewable Energy, Carbon Offsets
The guidance on renewable energy and carbon offset claims addresses a few key concepts. For one thing, it is important to not overstate the use of renewable energy. It may be tempting for a manufacturer that purchases wind energy for its factories to label products as “wind-powered,” but if manufacturing also requires use natural gas, and trucks burn diesel fuel to deliver products to stores, a “wind-powered” claim will be deemed as deceptive.
An even more troubling problem identified by the Green Guides is the issue of double counting renewable energy or carbon offset credits. If a manufacturer sets up a rooftop solar facility, the Guides declare that it would be misleading to claim the factory is “solar powered” if the manufacturer in fact sells off its solar energy credits to others. Likewise, if a company purchases renewable energy certificates in good faith, in order to tout itself as “powered” by renewable energy but the certificates have been “recycled” or double counted by unscrupulous or careless resellers, the company runs a risk that its claims could be deemed deceptive. The FTC holds marketers responsible for the claims they use to attract consumers – so regardless of who’s responsible for double counting, the marketer is potentially liable if the poor accounting makes its renewable energy claims false.
With respect to the Green Guides treatment of carbon offsets, the Guides appear to be principally concerned with claims that products are “carbon neutral,” when in fact offsets are speculative or uncertain. For example, carbon offsets premised on planted trees that may or may not grow in the future may be misleading. The Guides directly warn against claiming offsets that will not occur in less than 2 years; if new trees won’t offset carbon emissions for twenty years, that fact should be clearly disclosed. Another area of concern concerning carbon offset claims is the impact of environmental regulations. Under the new Guides it is considered to deceptive to tout reductions in greenhouse gas emissions if those reductions were mandated by regulation. If carbon offsets are required by law, marketers should not give consumers the impression they were voluntary. Finally, as with renewable energy certificates, the Guides prohibit “double counting” carbon offset certificates or credits.
Certifications and Seals of Approval
Another key issue in marketing renewable energy use and carbon offsets is the use of certification marks and seals of approval. Dozens of third-party organizations have emerged in recent years offering seals that indicate green energy use, conservation measures, and carbon offsets of various types. Many marketers often rely on such third party certifications to validate their green claims, others have devised their own certification programs.
The new Green Guides devote attention to certification programs generally, because as both the FTC and marketers recognize, it appears that consumers tend to trust third-party certifications and seals of approval. The Guides explain that a certification must accurately reflect the fact that a given product has met objective criteria required for a certification. In addition, the criteria should reflect verifiable environmental benefits. Also, as with green energy claims based on credits supplied by others, the FTC has established that marketers are ultimately responsible for the substance behind seals and certifications. Relying on a disreputable or sloppy third party certification to validate renewable energy or carbon offset credits is risky.
The Green Guides also note special risks associated with “self-certification.” A self-certification program can mislead consumers if it suggests that a third party granted the certification. Even if a program is scientifically rigorous, it will be deceptive under the new Green Guides if a seal or certification mark for the program gives consumers the impression that it was conferred by an independent organization.
The Broader Enforcement Environment
The FTC’s focus on renewable energy and carbon offset claims must be read in the context of related rules and regulations, because just as the Green Guides define “deceptive practices” under the FTC Act, the new guidance on misleading green energy claims may apply to other enforcement regimes. The recent consumer class action filed in December 2010, against the makers of Fiji bottled water for claiming that its product is “carbon negative,” provides a great example of how green marketing may be subject to challenge. State regulators, consumers, competitors, and even the Better Business Bureau may invoke principles set forth in the Green Guides in several types of legal actions:
§ State Attorneys General – All 50 states have consumer protection laws that prohibit false and misleading advertising. Many states have laws that incorporate FTC guidance and policy; California, Maine, Minnesota, and Rhode Island directly apply the Green Guides to their state consumer protection laws.
§ The National Advertising Division – Competitors, consumers, and the Division itself (a non-government organization, subsidiary of the Council of Better Business Bureaus) can bring claims against misleading advertising. Compliance with rulings is voluntary, but the Division will notify the FTC when defendants fail to comply.
§ Consumer Claims – Consumer protection laws in many states allow individual consumers and groups of consumers to bring private causes of action against misleading advertising claims.
§ Competitor Claims – Companies may challenge false and deceptive advertising claims made by their competitors under the Lanham Act.
§ The Court of Public Opinion – Excluding legal liability, there is always a risk that consumers will reject individual products or even whole companies, due to negative publicity about claims inconsistent with the Green Guides.
Best Practices Drawn from the Green Guides
The new Green Guides provide an important warning to environmental marketers about the risks associated with green energy claims, but they also validate certain types of environmental claims that should not be deemed misleading. Manufacturers, marketers and retailers should carefully review the Green Guides to identify specific advice that may apply. In addition, certain best practices clearly arise from the Green Guides:
§ Avoid Broad Claims – Broad, unqualified claims are easily deemed misleading. It is misleading to label a product with a term such as “green powered” or “carbon neutral” and leave the meaning of that term to the imagination of consumers. Broad claims require clarification and qualification.
§ Clarify and Qualify all Claims – Even specific claims benefit from clarification. For example, it is deceptive to broadly label a product as “wind-powered” unless all aspects of the product’s manufacture, distribution, and sale are conducted using wind energy. A simple qualification can eliminate the potential for deception.
§ Competent and Reliable Scientific Evidence – Claims must be supported by objective proof. For claims involving measurable, testable facts, a marketer should conduct or collect research supporting the claims. For example, claims about carbon offsets arising from replanted forests should be supported by evidence showing when and how new trees will recapture and retain carbon dioxide.
§ Carefully Choose Seals and Certifications – Third-party certifications may provide context, clarification, and are often be trusted by consumers. However, it can be counterproductive to choose a third party certification that is itself suspect. Well-intentioned use of an unreliable or sloppy certification program may generate liability for the company that advertises the certification.
§ Caution with Comparative Claims – Comparisons against competitors are always risky. If a claim is even slightly incorrect, competitors are likely to challenge it. Also, competitors frequently change their products. Claims that rely on comparisons with prior versions of products can be misleading.
Green energy claims are extremely popular in the current economy, and they undoubtedly will remain so for a long time. However, there are significant risks associated with false and misleading claims. On examination of the FTC’s new Green Guides and related consumer protection regulations, it is clear that renewable energy and carbon offset claims should be made carefully. Even if based on good intentions, claims that cannot be substantiated may provoke hostile enforcement actions from regulators, competitors, or consumers.
Joseph Eckhardt is an associate at Stoel Rives LLP.