The current impasse on climate change legislation may leave the Federal Trade Commission (FTC), not the Environmental Protection Agency, with the strongest hand to set policy for carbon offset projects in the United States. In response to the increasing number of carbon-related claims being placed on consumer products (e.g., “carbon neutral,” “green,” “sustainable”), the FTC initiated several proceedings in the last six months to evaluate the need for formal guidance for the voluntary carbon offset markets.

FTC regulates false and deceptive advertising, including environmental marketing claims, through its oversight authority under section 5 of the Federal Trade Commission Act. FTC enforces such claims on a case-by-case basis, using environmental marketing guidelines (Green Guides) to establish presumptive safe harbors with respect to marketing practices. While the Green Guides are not enforceable regulations per se, the Commission uses them as a reference point in assessing the legality of specific marketing claims and emphasizes that “conduct inconsistent with the positions articulated in these guides may result in corrective action.”

FTC recently closed the period for public comments on whether the Commission should update its Green Guides to address the growing corporate and consumer retail carbon market. In this post, we analyze FTC’s options for providing guidance on a specific aspect of carbon marketing claims: whether and how emissions reductions projects must meet the criteria for “additionality.”

FTC Weighs its Options

FTC requested comments on “the relationship between the concept of ‘‘additionality” in carbon offset markets and the FTC’s standard for deception under the FTC Act.” The concept of additionality has been central to the creation of carbon credits used in compliance markets under the Kyoto Protocol, in offset schemes proposed under pending domestic legislation, and in voluntary carbon markets in the US and abroad. Essentially, Parties must demonstrate that greenhouse gas reductions resulting from an offset project “are additional to any that would occur in the absence of the . . . project activity.”

A broad range of stakeholders representing government, industry and consumers provided comments to the FTC. While most agreed that the principle behind additionality may be useful in theory, there was little consensus on whether and how the term should be addressed in FTC standards or guidance. Rather, commenters fell into a variety of camps:

• Develop an FTC-Specific Standard: Some commenters, including several consumers and a coalition of states (Vermont, Arkansas, California, Connecticut, Delaware, Illinois, Maine, Mississippi, New Hampshire, New Mexico, and Oklahoma) argued for FTC to develop its own additionality standard based on the subjective perceptions of consumers rather than the preferences of market providers.
• Rely on Existing Third-Party Standards: Offset retail sellers like Terrapass and Carbonfund, and offset origination and trading entities like EcoSecurities and the Carbon Offset Providers Coalition, took a middle of the road position, reiterating the importance of project additionality, but favoring reliance on one of the existing third-party standards over a new FTC-derived standard.
• Stay out of the Additionality Debate: At the other end of the spectrum, a number of commenters opposed any effort to develop or endorse a specific additionality standard at this time. Commenters voicing this position included companies with interests in carbon sequestration (Anadarko); soil sequestration and agricultural projects (the Fertilizer Institute); oil rerefining (Hydrodec North America LLC ); and power marketing (Edison Electric Institute, Exelon Corp., and Renewable Energy Marketers Association). Commenters expressing this position often appeared concerned that overly narrow standards could undermine their efforts to develop new forms of offset projects or technologies.

FTC’s Tricky Path Forward

The divergence of opinion on an issue as fundamental as “additionality” illustrates the challenge FTC faces in updating its Green Guidelines to protect consumers in the carbon-constrained economy. Consumers cannot see, smell, or touch the carbon instruments they are buying or the carbon emissions they believe they are preventing. If voluntary carbon markets are to have any positive impact in reducing carbon emissions, market participants must have confidence that carbon offset “products” are more than just a gaseous form of snake-oil.

At the same time, there is no more consensus among consumers than there is among carbon market experts regarding which one of many possible standards for additionality best comports with consumer expectations or with the environmental effectiveness of the voluntary market as a whole. Indeed, an overly restrictive or rigid definition may drive away offset project developers and purchasers alike, replacing the market’s current state of uncertainty with a greater problem - obsolescence.

For the moment, FTC’s best option may be to take the course recommended by an unlikely combination of stakeholders ranging from Consumers Union to Walmart and Weyerhaeuser: Don’t try to create a single substantive definition of “additionality.” Rather, do what FTC has done with its Green Guides in the past: establish clear standards for information disclosure, claim substantiation, and reasonable qualification of claims. That way, consumers, and not just carbon market gurus or FTC inspectors, can decide for themselves whether the marketplace is selling what they want to buy.

For further information about this topic, please contact Akin Gump.