The Federal Trade Commission (FTC), the federal watchdog for advertising, is currently reexamining its "Green Guides" (i.e., the "safe harbor" guidelines for green marketing claims published in FTC regulations) to address the tremendous growth in consumer interest for carbon credits. Green advertisers can help ensure that any action taken by the FTC is reasonable and balanced by engaging early in the process of submitting comments to the FTC by February 11, 2008. Moreover, active engagement by industry will help assure that those most knowledgeable about carbon credits and RECs take the lead in clearly and flexibly establishing workable standards that can adjust to future green innovations and related marketing claims.

The desire to purchase carbon offset credits and/or renewable energy credits (REC), two tradable energy commodities, is rapidly increasing in the U.S2 The environmental characteristics of these credits can allow product manufacturers to support green advertising claims, for example, that their products were produced using "sustainable" energy. These same characteristics may also allow the creators of the credits (such as a wind power generator or "green building" developer) to make "green" claims about their projects.

The potential size of the "green" industry is huge. A 2007 ImagePower™ Green Brands Survey found that consumers expect to double their spending on green products and services in 2008, totaling an estimated $500 billion annually or $43 billion per month.3 According to a recent article in the New York Times, consumers spent more than $54 million last year alone on carbon credits to support tree planting, wind farms, solar power generation and other projects to offset the greenhouse gas (GHG) emissions created from activities such as driving and flying. Many expect this number to increase dramatically. In addition, the Worldwatch Institute reports that sales of RECs more than quadrupled between 2004 and 2006, and officials at DOE estimate that by 2010, REC sales will be nearly three times the 2006 level. One industry expert estimates the 2010 sales to be somewhere between $700 and $900 million.

Arguably supporting these statistics is a fall 2007 AARP report which indicates that there are now approximately 40 million "green boomers" (about half of all "boomers") poised to spend their "hard-earned" money on environmentally safe products and brands. These environmentally conscious consumers are tuned into green advertising, both positive and negative and, based on several surveys, they exhibit high brand loyalty.4 While "green boomer" preference is likely contributing to the growth of carbon credit and REC sales, one downside may be, as a global advertising executive suggested in a recent AdAge article: "If consumers think they can catch you telling a half-truth, they will."

In late November 2007, the Federal Trade Commission (FTC), the federal watchdog for advertising, announced that it was considering revising its "Green Guides" (i.e., the "safe harbor" guidelines published in FTC regulations) to address the tremendous growth in public interest for carbon credits and RECs.5 The FTC also announced a workshop on the subject, which was held on January 8, 2008. In her opening remarks for the workshop, FTC Chairman Deborah Platt Majoras, stated that "this [consumer] interest may be influencing their purchasing decisions" and it is important that the Green Guides respond to "today's challenges and to consumer perceptions currently of these environmental claims." Thus, through the workshop and the opportunity to file comments (due by February 11, 2008),6 the FTC intends to decide what changes, if any, need to be made to the Guides and any other implementing authorities under its jurisdiction.

So, why is the FTC's effort important to you? To help put the answer in perspective, one first needs to understand the basics of the FTC's authority and how the Green Guides support that authority.

The FTC's authority derives from Section 5 of the FTC Act promulgated in 1914. Essentially, the Act authorizes the FTC to regulate and, as necessary, enforce with regard to "deceptive" and "unfair" acts or practices. Deceptive acts or practices are those which contain a representation or omission that would be material to consumers and, when they are acting reasonably under the circumstances, would mislead them. Unfair acts or practices are those likely to cause substantial consumer injury, either physical or economic, and are not reasonably avoidable by consumers and are not otherwise outweighed by other benefits to consumers or competition as a whole.

While these definitions are fairly straightforward, it is important to understand how the FTC has interpreted them in the context of actual enforcement cases. First, FTC looks at all advertising claims from the viewpoint of a reasonable consumer (rather than a reasonable advertiser). Second, advertisers must have substantiation for all claims, whether express or implied, that a consumer might reasonably take away from an ad. Third, if a claim is truthful only under certain circumstances, advertisers must carefully qualify the claim. Finally, if a disclosure is needed to ensure a claim is not deceptive, the disclosure must be clear and conspicuous. With all these factors to consider, making a green energy claim based on carbon credits or RECs will not only be challenging, but will likely present some risk to the advertiser if FTC requirements and guidance are not cautiously (and perhaps painstakingly) followed. This is why clear and unambiguous guidelines for compliance are needed and this is where the Green Guides come into play.

The Green Guides, codified at 16 C.F.R. Part 260 and created in 1992, were last revised by the FTC in 1998. They are interpretive in nature and are not themselves enforceable regulations. However, they offer "safe harbors" for advertiser claims if the guidelines are followed.7 In terms of format, the Guides provide some general principles for determining what constitutes appropriate advertising, but focus primarily on specific examples of legal and illegal green marketing claims. The specific examples mainly focus on products and packaging, and how such items can be validly marketed as biodegradable, compostable, recyclable, or ozone safe or friendly.

Given this background, the question still remains - how might revising the Green Guides impact your business marketing? In many regards, the answer may lie in the differences between the Guides' traditional focus and the kinds of issues raised by carbon credits and RECs. One of these differences concerns the substantiation needed to support a green claim. Whereas substantiation for the products and/or packaging currently discussed in the Guides is based largely on objective data from testing or manufacturing, substantiation for carbon credits and RECs derives more from the processes and/or protocols used to document how these credits are certified, registered, allocated, traded and, ultimately, used and retired along the supply chain. These supply chain steps raise issues concerning ownership, reliance on third-parties, how credits are defined differently under various state laws,8 direct versus indirect environmental attributes and, to many interested parties, "additionality."9

Another important difference arguably concerns general consumer familiarity or knowledge about carbon credits and RECs. While concepts such as "biodegradable" or "recyclable" may not be per se simple, consumers seem generally aware of their meaning. On the other hand, what constitutes a tradable energy commodity, such as a carbon credit or REC, is at least on a relative scale, a much more complex question. Some interested parties argue that to achieve sufficient transparency for consumers, substantiation should be accorded only to green claims where the reliance on carbon credits or RECs causes a direct effect on the claimant’s energy use or carbon footprint.

On top of these differences and others, the carbon credit and REC "industry" is still evolving. There are still substantive debates, not only on the issues identified above, but on other issues as well, and this "moving target" can only contribute to the challenges of addressing the marketing of carbon credits and RECs. One such issue concerns the fact that RECs are defined differently by various states.

The need to address these differences may ultimately lead the FTC to revise the Green Guides, adding specific advice on appropriate advertising for carbon credits and RECs. If this occurs, what issues should you be concerned about, and what actions should you consider?

If the Green Guides are revised without adequate involvement of green advertisers, they potentially could result in overly stringent guidelines, which in turn might lead to increased green advertising costs, increased costs of obtaining or generating carbon credits and RECs and a concomitant dampening of "green" projects dependent on these credits. Advertisers could also face an increased risk of enforcement if the Guides do not provide clear, unambiguous guidance.

Given the challenges of substantiating and effectively communicating claims based on carbon credits and RECs, the continuing uncertainty of individual state treatment, and the general lack of knowledge of these subjects by consumers, the FTC will likely feel pressure to "fill the gaps' with specific (perhaps even restrictive) guidance. Moreover, with the possibility (though perhaps slim) that a climate change bill requiring mandatory carbon emissions reductions may still be signed before President Bush leaves office,10 the urgency for the FTC to address these issues is only growing. In addition to this pressure, the week after the FTC held its workshop on this issue, the Ranking Members of the House Committees on Energy and Commerce and Subcommittee on Oversight and Investigations sent a letter to the Comptroller General in the Government Accountability Office raising concerns about whether carbon offsets will become the "21st century version of snake oil." Lawmakers and regulators are clearly concerned about this issue and advertisers need to act now to help influence the actions that legislators and regulators take.

By engaging early in the process of submitting comments to the FTC (due February 11, 2008), green advertisers can help ensure that any action taken by the FTC is reasonable and balanced. Moreover, active engagement by industry will help assure that those most knowledgeable about carbon credits and RECs take the lead in clearly and flexibly establishing workable standards that can adjust to future green innovations and related marketing claims.


Endnotes

2. Greenhouse gas reductions called Verified Emissions Reductions or "VERs" represent the equivalent of one metric ton of carbon dioxide emission reductions. A renewable energy credit (REC) represents one MWh of energy produced from a renewable energy source. The definition of renewable energy varies state-to-state.

3. The survey was conducted by WPP’s Landor Associates, Penn, Schoen & Berland (PSB) Associates and Cohn & Wolfe (C&W).

4. In a recent survey for American Express of Generation Y (generally born after about 1977) and Baby Boomer business owners, both groups had similar views on global warming and green business. About 60% of business owners from each generation are concerned about global warming, and about two-thirds were willing to pay more for products from "green" businesses. This cross-generational appeal only raises the stakes for the regulation of claimed "green" attributes.

5. The Green Guides only address "green" advertising.

6. Guides for the Use of Environmental Marketing Claims, 72 Fed. Reg. 66,091 (Nov. 27, 2007).

7. See 16 C.F.R. §260.3.

8. For example, more than 25 states currently have a renewable portfolio standard, potentially creating a REC, but not all states allow those credits to be traded. Additionally, the US currently trades carbon credits on a voluntary market, but beginning next year, Northeast and Middle Atlantic states participating in the Regional Greenhouse Gas Initiative (RGGI) will begin mandatory carbon reductions, potentially creating more organized markets for carbon credits.

9. Additionality is established when there is a positive difference between the emissions that occur in the baseline scenario, and the emissions that occur in a proposed project, according to the World Bank Carbon Finance Unit.

10. The Lieberman-Warner bill (S. 2191) has been voted out of committee, and may be headed for a floor vote in the Senate, with vote counters estimating 50 votes in favor of mandatory carbon caps. Whether the bill will survive promised filibusters and vetoes depends on whether opponents want the opportunity to influence the bill under the current administration or take their chances on a bill in a future administration.


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