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FTC Proposes Changes to "Green Guides"

November 15, 2010

Proposed changes to the Federal Trade Commission's (FTC) "Green Guides" should be seen as a bellwether of further regulatory review and oversight on those businesses that market or otherwise provide products and services that include a renewable energy component.

The revised "Green Guides," first enacted in 1992 to assist companies to avoid making environmental claims that are unfair or deceptive under Section 5 of the FTC Act, contain guidance with respect to the marketing of environmental claims and products, including for the first time specific references to claims concerning the sale and sources of renewable energy and carbon offsets. 

The primary purpose of the Green Guides is to provide marketers and businesses with practical interpretations and guidance with respect to environmental claims. However, the FTC can take action against businesses for making environmental claims that are contrary to or otherwise not consistent with the interpretive guidance provided in the Green Guides. While the FTC has not previously made enforcement of the Green Guides a priority, due to the growing number of environmental claims made by businesses, which is in part fueled by the general public's desire to purchase environmentally-friendly products and services, FTC action in this area has increased. For instance, in 2009, the FTC brought actions against three separate companies for false and unsubstantiated environmental claims concerning the environmental attributes of a product or products. It is expected that the FTC's investigation of environmental claims in these areas will only increase as businesses continue to use environmental tags in their product marketing campaigns.

The proposed revised Green Guides recommend marketers not to make unqualified general environmental claims as they are difficult, if not impossible, to substantiate. Qualifications should be clear and prominent, and should limit the claim to a specific benefit. For instance, if a business was to advertise that a product was manufactured in a facility that is powered by solar power, the business should not market the product as being made with "green" energy or "clean" energy. Instead, the business or marketer should provide the appropriate qualifier to the general environmental claim (e.g., the product is made with solar powered energy). The purpose of the qualification is to reduce, and hopefully negate, any ambiguity or confusion that could be implied from a general environmental claim. 

Substantiation of any claim should also be verified by the marketer or business making such claim, and not based wholly on the review and assurances of a third-party. The proposed revisions to the Green Guides make clear that third-party certification does not eliminate a marketer’s obligation to have substantiation for all conveyed claims.

The proposed guidance for claims not previously addressed by the Green Guides should be of particular concern to energy suppliers, brokers, aggregators and utilities that market or otherwise provide renewable energy choices to customers. For instance, the proposed revisions to the Green Guides require marketers in the renewable energy industry not to make unqualified renewable energy claims, directly or by implication, if power generated from fossil fuels is used to manufacture or produce the advertised product or service.  

In addition, while the FTC declined to provide guidance on which specific types of energy sources consumers consider "renewable," the proposed revisions to the Green Guides did state that the term “renewable energy” should be qualified by the source of the renewable energy (e.g., solar, wind, etc.). This recommendation is likely derived from the fact that the term "renewable energy" holds a variety of meanings. Indeed, numerous states include biomass, municipal waste and chicken litter in their renewable portfolio standard programs; it is unclear how much of the general public would include these sources of energy in its general definition of "renewable energy." The FTC believes that disclosing the type or source of the renewable energy will not only help reduce or alleviate any misconception a consumer may have regarding a product or service at issue, but will provide the consumer with a better understanding of renewable energy.  

The proposed revised Green Guides also recommend that marketers should not advertise that a facility is powered by or otherwise uses renewable energy if the renewable energy is evidenced by renewable energy certificates (RECs) that the marketer was already required by law to purchase. In such instances, the marketer would need to purchase enough RECs in excess of the regulatory requirements to sufficiently demonstrate that the environmental claim was based upon the RECs purchased voluntarily, and not required by law or regulation.

The proposed revised Green Guides advise that it is also deceptive to make an unqualified "made with renewable energy" claim unless all or virtually all of the significant manufacturing processes involved in making the product/package are powered with renewable energy or conventional energy offset by RECs. For instance, if a company desires to claim that its store is powered with renewable energy, it is responsible to purchase the necessary RECs to offset nearly all of its power consumption, unless it can otherwise demonstrate that such store or facility is powered by behind the meter renewable energy generation (whose RECs were not sold or otherwise transferred to a third party). If an environmental claim cannot be properly substantiated, it should be appropriately qualified to remove any ambiguity or confusion from the marketing claim.

Likewise, marketers that generate renewable energy, but sell RECs for all of the renewable energy they produce, should not then claim that its facility is powered by renewable energy. Upon the sale of a REC, all of the tangible and intangible attributes of the renewable energy accompany the RECs. The FTC claims that allowing a marketer that sells its RECs to also market that its facility is powered by renewable energy would amount to "double-counting" of the same renewable energy.

The proposed revised Green Guides also discuss the use of environmental claims in connection with the burgeoning, and largely unregulated, market of carbon offsets. Given the complexities of carbon offsets, marketers should have competent and reliable scientific evidence to support their carbon offset claims, including using appropriate accounting methods to ensure they are properly quantifying emission reductions and are not selling those reductions more than once. Marketers should also disclose if the carbon offset represents emission reductions that will not occur for two years or longer. As similarly stated above with regard to renewable energy, the FTC has stated that marketers should not advertise a carbon offset if the activity that forms the basis of the offset is already required by law.

As mentioned above, the Green Guides provide general guidance to businesses and marketers on how to avoid making environmental claims that could run afoul of the FTC Act’s prohibition against unfair or deceptive acts or practices. Each business and marketer must analyze the statements and assertions made with respect to its products to ascertain whether the representation could be seen as crossing the line. How is this done? First, be sure any claim made by the business, environmental or otherwise, can be substantiated in the manner required by the FTC. Next, ensure that all internal review processes (operations, sales and legal) understand the need for legitimate substantiation of any assertion made with respect to renewable energy or claim of carbon offset. If any claim is ambiguous or unclear without the disclosure of certain qualifications, conditions or caveats, be sure such disclosures are included in the marketing materials, and are also clearly and prominently displayed in close proximity to the claim you are qualifying.

The FTC is accepting comments on the proposed revised Green Guides until December 10, 2010.