The California Senate is considering the nation’s first “truth in advertising” standards for claims associated with carbon credits or offsets. Pursuant to the proposed legislation (SB 1762), authored by Senate President pro Tem Don Perata, it would be unlawful for any person to represent in an advertisement or in any sales or promotional materials that a greenhouse gas “credit” reduces greenhouse gas emissions unless it meets certain conditions. Violators could face fines, as well as civil liability to recover the cost of the credit.

This is not the first time California has weighed in on the need for greater regulation of the carbon market. In February 2008, the California Attorney General co-signed a letter to the Federal Trade Commission (FTC) from 9 states (AR, CA, CT, DE, IL, ME, NH, OK, and VT) urging the Commission to take action to amend its green marketing guidelines to address the growing carbon market. Unlike the ongoing FTC proceeding, however, the proposed California legislation would provide specific standards applicable to offsets sold on the voluntary market in California.

In particular, the proposed legislation would make it unlawful for any person to advertise carbon credits unless the credits are approved by the California Air Resources Board (pursuant to AB 32), they comply with protocols adopted by the California Climate Action Registry, or unless the person can demonstrate that the emission reductions meet the following criteria: (1) they are quantifiable and measurable, (2) they are in addition to any greenhouse gas emission reduction that otherwise would occur, (3) they are verifiable and enforceable by a state, regional, or local agency within California, (4) they do not result in an increase in the emission of criteria pollutants or toxic air contaminants, and (5) they do not result in adverse environmental impacts.

According to Perata, “This legislation provides standards so consumers know the purchase of offsets is actually going toward the reduction of greenhouse gas emissions.” Notably, however, the proposed standards do not explicitly recognize carbon credits certified by certain organizations, such as certified emission reduction (CER) credits issued by the United Nations Convention on Climate Change. This omission could impede the trade of such credits in California unless, of course, the legislation is amended or the California Air Resources Board specifically approves such credits.

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