FTC Shows Renewed Interest in "Green" Marketing Claims, Focusing on Claims Relating to Carbon Offsets, RECs, and Green Packaging
May 13, 2008
Spurred by strong interests inside the U.S. Federal Trade Commission (FTC) and in Congress, the FTC recently held public hearings on the application of the "Green Guides" to advertising claims relating to carbon offsets (i.e., greenhouse gas emission reduction products), renewable energy certificates (RECs or "green tags"), and green packaging.1 The Green Guides constitute the FTC's policy statements explaining how the agency will measure environmental marketing claims against its mission to prevent unfair or deceptive marketplace practices. FTC Commissioner Thomas Rosch also is scheduled to address the Green Guide workshop and review during his keynote presentation at the Regulatory Summit for Advertisers and Marketers in June 2008.
Interests within both the FTC and Congress have urged careful examination of the nature and permissible scope of green marketing claims aimed at consumers. Although the FTC pursued 37 actions concerning green claims in the 1990s, it has been relatively inactive in the area since 1999. The commission's renewed attention, however, is not accidental. The growth of these claims and markets, particularly the carbon offset and REC markets, and the proliferation of new companies seeking to access them, combined with strong congressional interest, means there is a probability that the FTC will take action, at least by revising the Green Guides in material ways.2 One should not discount the probability that the FTC also will commence investigations aimed at specific claims.
Two of the major issues that are generating many of the specific proposals for revisions to the Green Guides or for enforcement actions concern the doctrines of (1) unfairness and substantiation, and (2) deception and "literal truth."
1. Unfairness and substantiation. FTC regulations require that any claim made to consumers about a product (including any claim relating to the product's packaging) or service must be tested and substantiated before that claim is made, if the assertion is subject to objective verification.3 Thus, to say "all the energy that produced this product was supplied by solar power" is an objectively verifiable claim and must be substantiated before it is made. By contrast, simple puffery, such as "Our product is the most 'mega-rific' in the universe!" need not be substantiated, because consumers would not understand it to be a verifiable claim.
Proponents of increased FTC activism have expressed interest in developing methods for substantiating claims about RECs and carbon offsets. For example:
- Must RECs be measured in megawatts (MW)?
- Must offset claims be backed by verifiable and verified, as well as permanent, reductions in greenhouse gas (GHG) emissions (or increases in sequestration)?
- What scientific standards must be applied to measure MW or GHG reductions and must they be applied by persons with certain minimal technical skills or experiences?
Today, the markets for RECs and for carbon offsets both rely heavily on private certification and registration agencies. These agencies, which sometimes are non-profit, but not always, generally set many of their own standards and are self-policing. As certification is used to substantiate claims, the FTC will be strongly urged—and at least to some degree tempted—to set rules and standards for the conduct of certification programs, which raises a number of issues:
- Must the certifying agencies be staffed entirely by persons unaffiliated with the firms whose products they certify?
- Must they be subjected to independent audits?
- How long must records of the certification agency be kept and who must be allowed access to those records?
- Should producers who rely on certification be required to identify the certifying agency, its financial sponsor, and any fees it charged?
Thus, simple reliance on a certifying agency, without assuring that the agency itself is independent, reliable, and well-staffed, may be insufficient.
2. Deception and "literal truth." A recurrent issue concerns the statement that is literally true, but arguably deceptive. Suppose a firm states that "We generated solar power that was employed in making this product," but it also sold a REC to another firm that represented the solar power that was so employed? The statement quoted above is literally true. However, because the generating firm also chose to market the REC, which foreseeably will be employed by its purchaser to make a claim of environmental friendliness, the statement can be said to be deceptive. Arguably, the statement indicates to consumers that purchasing the product will reward solar power production when the production already was rewarded elsewhere.
Examples of potential confusion concerning "literally true" statements abound in the record of the FTC's workshop. As people in the industry know, purchasing a REC does not lead directly to the production of energy by renewable means. A REC represents energy that already has been produced from a renewable energy source. Buying the REC may well induce further production, by stimulating further investment, but typically it will not directly lead to electricity generation from renewable sources. Similarly, purchasing a carbon offset does not necessarily mean that the offset will occur simultaneously with the GHG emission being offset.
The unifying question relating to these types of claims is whether consumers need to be informed of just what the connection is between the marketplace event (purchase of REC; use of product said to be "carbon neutral" due to offsets) and the environmental improvement (avoidance of depleting natural resources; reduction in GHG emissions). How is a consumer to be able to judge whether he or she is paying for a project that would have occurred without the offset market, or is inducing beneficial environmental action at a later date? If a requirement of information is forthcoming, then exactly what must be disclosed?4
The concern about potentially "true, but deceptive" statements also underlies the question of the proper relationship between RECs and carbon offsets. May a REC constitute a carbon offset? On the one hand, generation of electric power using renewable energy resources can lead to reductions in GHG emissions. On the other hand, claims that a REC is also a carbon offset might be said to confuse or mislead consumers into believing that a greater amount of environmental protection was achieved than is actually the case.
Other claims might be "literally false" but not deceptive. For example, suppose a firm buys RECs equal in quantity to its total electricity usage, which comes from conventional non-renewable sources. May the firm advertise that it is powered entirely by renewable energy resources?
Other Suggested Revisions
Over the course of the proceedings, several other suggestions have been advanced on how to best review and revise the Green Guides in order to keep pace with current technologies, practices, and marketing claims. Some of the noteworthy suggestions include:
- Reviewing the Green Guides more frequently than every 10 years given the constantly evolving nature of science, technology, and consumer perception of what it means to be "green";
- Revising the Guides to address terms and claims that have arisen and become popular since the Guides were last updated in 1998, such as "sustainable packaging" and "renewable";
- Providing guidance on how to parlay a single green attribute of a product or package into a grander green marketing campaign;
- Revising the Guides to better address general or vague claims, such as "all natural"; and
- Increased FTC outreach and enforcement in order to better publicize the existence of the Green Guides and to help limit the rising number of potentially dubious claims.
Sources of Legal Risk
Any firm that advertises directly to consumers concerning its green efforts should be aware that an FTC investigator may come calling. These are not, however, the only firms at risk. Producers and marketers of carbon offsets and RECs may be called upon by their purchasers to stand behind claims or to verify the accuracy and reliability of a certifying agency or to explain why a statement is not deceptive when understood in context. Further, state consumer-protection agencies (and, in this area, environmental regulatory agencies) often take their cues from the FTC, and class action lawyers also may be waiting in the wings. In short, any firm that makes green claims, or that sells, certifies, or advertises RECs or carbon offsets, needs to be fully aware of this new FTC initiative and relevant potential state regulations as well.
What specific steps should a firm active in these markets take now? First, there are a series of principles that market players should keep in mind:
- The FTC looks at advertising claims from the point of view of reasonable consumers, who may, for instance, be deceived by an ad that is literally true.
- Before making a claim, the advertiser must have substantiation for all claims—express and implied—that reasonable consumers would take away from the ad or package.
- If a claim is truthful only under certain circumstances, advertisers must qualify the claim carefully.
- If a disclosure is necessary to prevent an ad from being deceptive, that disclosure must be "clear and conspicuous."
Second, where a claim or its legal status (including its substantiation) is ambiguous, consult with counsel. An investigation or litigation can result in significant monetary and reputational costs.
Third, firms that are interested in the outcome of any of these issues and that have not already participated in the proceedings should consider doing so. Resolution of any of these issues could become memorialized in a revised version of the Green Guides. The commission has not closed its mind on these issues and is aware that no one is in a better position to educate the FTC on the dynamics of these markets than those who are active in them.
Wilson Sonsini Goodrich & Rosati's Clean Technology and Renewable Energy Practice
Wilson Sonsini Goodrich & Rosati counsels companies and entrepreneurs creating and commercializing clean technologies in a wide variety of industry segments. Our energy and clean technology practice is built on the firm's leadership in the fields of intellectual property counseling and patents, venture capital finance, project finance, technology transactions, mergers and acquisitions, real estate and environmental law, and advertising and consumer protection law. In particular, we advise clients on how to develop green marketing campaigns that advance their cutting-edge technologies based on our expertise, which includes experience at both the FTC's Bureau of Consumer Protection and the Department of Justice.
For more information relating to our practice, or to the FTC's review of its Green Guides, please contact Renata Hesse at (202) 973-8834, Bob O'Connor at (415) 947-2123, or Aaron Hendelman at (206) 883-2514.
1 The Federal Register notice announcing the hearings, public comments filed in response, and transcripts and webcast footage of the hearings are available at http://www.ftc.gov/bcp/workshops/carbonoffsets/index.shtml and http://www.ftc.gov/bcp/workshops/packaging/index.shtml.
2 At about the same time the FTC announced its review of the Green Guides, TerraChoice, an environmental marketing agency, revealed the results of a survey it conducted of 1,753 environmental claims relating to 1,018 consumer products. The survey tested the product claims against current best practices in environmental marketing and found that, of the 1,018 products examined, all but one made claims that were demonstrably false or that risked misleading consumers. See "Six Sins of Greenwashing: A Study of Environmental Claims in North American Consumer Markets," TerraChoice Environmental Marketing Inc., November 2007, available at http://www.terrachoice.com/Home/Six%20Sins%20of%20Greenwashing.
3 Significantly, the TerraChoice survey found that 26 percent of the 1,753 environmental claims surveyed could not be substantiated by easily accessible supporting information or by a reliable third-party certification. See id.
4 Similarly, should the FTC intervene to establish a program or a set of guidelines that will prevent marketers from inadvertently or intentionally selling multiple certificates based on the same carbon reduction or renewable energy activities? If a certification program is flawed, multiple certificates may issue inadvertently. If sellers are unscrupulous, they may sell RECs in both the mandatory and voluntary markets. To some, a firm that runs on solar power, sells RECs based on that solar power, and also claims that its product is solar-powered is engaged in double-counting. If a firm buys a REC and resells it rather than retiring the certificate, is that first buyer engaged in double-counting (or "facilitation of double-counting")?