Understanding The Carbon Footprint - New Green Advertising Claims Under Scrutiny Despite Lack of FTC Guidelines

As global warming and climate change gain more attention, a new generation of environmental advertising claims has emerged around the issue of cutting carbon dioxide emissions. Consumers have ever increasing choices to purchase carbon offsets, renewable energy certificates and products that are "carbon neutral." This trend also means new advertising opportunities - and new potential legal traps for the unwary.

Offsets And Carbon Neutrality

Trade in carbon offset credits is estimated to be more than $100 million a year and growing. Here is how it works: if you add polluting emissions to the atmosphere, you can effectively subtract them by purchasing "carbon offsets." Carbon offsets are simply credits for emission reductions achieved by projects elsewhere, such as wind farms, tree planting, solar installations, or energy efficiency projects. By purchasing these credits, you can apply them to your own emissions and reduce your net climate impact.

Carbon offsetting opportunities have sprung up everywhere. For example, if you buy a Volkswagen, the company will offset the emissions from your first year of driving by planting a tree. Dell gives customers the opportunity to purchase carbon offsets for their printers and computer monitors, and travelers that book flights on Expedia.com can purchase offsets to balance the emissions created by their air travel.

Companies are also using carbon offsets to create environmental attributes for their products by examining their "carbon footprints" and advertising their products as "carbon neutral." For example, you can buy purportedly carbon neutral clothing, fruit, coffee, carpeting and taxi rides. The last Super Bowl and other major sporting events all claim to be carbon neutral in addition to many athletes and celebrities (Brad Pitt, Orlando Bloom and others).

Many consumers are interested in buying carbon offsets and carbon neutral products. Consumer product manufacturers are increasingly interested in making their products more attractive by advertising them as such. But questions and concerns emerge about these products, the claims being made for them and what consumers and businesses are really purchasing when they buy carbon offsets.

Is FTC Guidance Coming?

Currently, the market is outpacing government scrutiny, but that may be changing. Earlier this year, the Federal Trade Commission (FTC) held its first of a series of hearings that will examine carbon neutrality, offsets and renewable energy advertising claims.

The FTC has authority to prohibit false, deceptive and misleading advertising, and previously issued environmental advertising guidelines ("Green Guides") in 1992. Those guides dealt with advertising claims such as "environmentally friendly," "recyclable," and "biodegradable."

The FTC Green Guides were last updated in 1998, and thus do not address the recent emergence of "carbon" claims. The FTC's current plan is to solicit comments on how to update the guides to address this new area of environmental advertising. It is unclear how long the updating process will take.

In The Absence Of New Guidelines

In the meantime, companies need to remember that new environmental claims about carbon neutrality and offsets fall within the FTC's existing authority over advertising, even in the absence of new or updated guidelines. Companies contemplating the sale of carbon neutral products or offsets thus must answer certain questions and satisfy themselves that their advertising claims are not false or misleading to consumers.

Regulated "claims" include those that are expressly made or implied. The meaning of an express claim is based on the representations made in the advertising. Claims are also made by implication through the wording or images ( i.e ., what consumers understand about the meaning of the claim even if it is not expressly stated.) The FTC decides whether an implied advertising claim is deceptive. A "deceptive" claim is one that is likely to mislead consumers and is material to their decision to purchase a product or service.

As with other advertising claims, a key issue for carbon reduction claims is substantiation. Under the existing law, advertisers must have a sufficient basis for their advertising claims. For certain claims, such as those relating to environmental and scientific matters, the requisite standard for substantiation is that it must be "competent and reliable scientific evidence," which has been defined as "tests, analyses, research studies and other evidence based upon the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results." However, precisely what this means for carbon neutrality and offset claims is an extremely open question.

Currently, the science associated with carbon reductions, neutrality and assessing "foot prints" is uncertain. Experts disagree as to which carbon offsets legitimately reduce carbon dioxide or other greenhouse gases and how to measure the amount of such reductions. Similarly, consumer understanding of advertising terms such as "carbon offset" and "carbon neutral" are uncertain. For example, if the carbon offset value of a tree is based upon carbon absorbed by the tree during its lifetime, will consumers understand this or will an explicit disclosure be required in order to prevent consumer confusion or deception? More importantly, how will a carbon reduction, even if legitimate, be quantified, monitored and verified over the years? Numerous other questions and issues are sure to arise.

FTC guidance in this area could provide useful parameters in this new area of environmental advertising. One option open to the FTC is the creation of "safe harbors" for specified carbon claims or programs. For example, when it issued its environmental advertising guidelines in 1992, the FTC provided specific criteria for certain types of claims and guidance on how to avoid overstating claims and environmental attributes of products. Although the FTC could take enforcement action against companies making unsubstantiated carbon claims right now, it will most likely wait to do so until guidance in this area is issued. However, advertisers should not assume they are immune from potential challenges.

State attorneys general have become increasingly active in the past five years in bringing challenges to deceptive advertising under state consumer protection laws. Consumer protection laws vary among the 50 states, with many state consumer laws providing that the challenger must prove that the advertising claims are false or deceptive. However, a number of states have passed so-called "little FTC Acts" under which the advertiser has the burden of proving that it has adequate substantiation for the challenged claims. An all too typical example is the recent announcement that 50 state attorneys general had reached a $51.5 million nationwide settlement with The Ford Motor Co. resolving allegations of false advertising by Ford in connection with its advertising and sale of Ford Explorers.

Attorneys general in several states are tuned into the emerging area of carbon-related advertising claims. In response to the FTC's recent public hearing process to update the Green Guides, attorneys general from ten states asked the FTC to address claims regarding the sale of carbon offsets, expressing concern that the lack of common standards along with the intangible nature of carbon offsets makes it difficult, if not impossible, for consumers to verify that they are receiving what they paid for. The ten states include: Arkansas, California, Connecticut, Delaware, Illinois, Maine, Mississippi, New Hampshire, Oklahoma and Vermont.

Aside from enforcement by state attorneys general, advertisers continue to be faced with a steady stream of actions by consumers, primarily class actions under state consumer protection laws. Logically, none of these consumer protection cases has the requisite commonality to be certified as a class action since each class member should be required to show reliance upon and harm caused by the challenged ad. However, courts in a number of states, including California, New York, Florida, Ohio and Illinois, have held that false advertising class actions may proceed without individualized proof of knowledge of and reliance upon the ad. For example, in January 2008, a class action was filed against The Dannon Company in a California federal court under California consumer protection laws alleging that Dannon's recent advertising of its new yogurt products was false and deceptive. The complaint alleged that Dannon did not have adequate substantiation for its claims, thereby placing the burden on Dannon to prove that its advertising claims were not false and misleading. Equally troublesome for advertisers, the case was filed on behalf of all consumers in the United States, thereby seeking to apply California law to consumers in all 50 states, even though a number of states do not permit consumer class actions.

Given the uncertainty and complexities involved, it is likely that many companies do not fully understand the carbon claims they are currently making. For carbon offsets, most companies are relying on third party providers who locate the reduction projects and sell the offsets. But most advertisers who purchase carbon offsets may lack the expertise to evaluate the effectiveness of what they are purchasing. Nonetheless, for the reasons outlined above, advertisers are well advised to make sure that they are acting with reasonable care in this area.

From a practical standpoint, this means putting certain procedures in place for reviewing carbon claims and asking questions of vendors from whom offsets are being purchased. First, the advertiser should have procedures in place for reviewing the carbon claims proposed for the product, and should satisfy itself that certain questions are answered:

1. Are the claims as specific and accurate as possible?

2. What kind and amount of substantiation is needed to support the claims?

3. Does the company have substantiation for the claims? If so, what type of substantiation is it and does it support the claim?

If carbon offsets are being purchased from a third party vendor, the advertiser should ask the vendor to provide appropriate documentation or verification of the underlying projects creating the offsets. For example, can the vendor verify or certify where the money from the offset purchase is going?

In short, until the FTC provides guidance on how certain terms and claims can be used, advertisers should take appropriate steps to ensure that the carbon reduction claims they are making are precise and supportable, and that the carbon offsets they are purchasing are as legitimate and transparent as possible.

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