In early October, the Federal Trade Commission (FTC) released a draft of its Guides for the Use of Environmental Marketing Claims (the "Green Guides"), which provide guidance for companies making environmental claims about their products. The Guides will significantly tighten the standards for a range of environmental claims, such as "green," eco-friendly, biodegradable and recyclable. The public has until December 10, 2010 to submit comments to the FTC on these draft Guides and thereby influence how the FTC enforces marketing laws.
The Guides are designed to set forth FTC's views regarding whether specific green marketing claims are deceptive or unfair under the Federal Trade Commission Act. While they do not have the force of law, they serve as an official FTC statement of what the law means in this context. Moreover, many states expressly incorporate these standards into their own laws, and provide for state attorney general enforcement. The FTC has already brought seven "green" advertising enforcement actions in the last 18 months. The National Advertising Division of the Council of Better Business Bureaus has heard over a dozen such cases in the last year.
This article summarizes several aspects of the proposed Guides that are of particular concern to the business and operations of manufacturers. For a more complete summary of the Guides, we refer you to the FTC's own website, at www.ftc.gov/bcp/edu/microsites/energy/about_guides.shtml.
General Environmental Claims
In what is likely the most significant development in the draft Green Guides, the FTC promises to clamp down on general, vague, unqualified environmental claims such as "eco-friendly" and "green." Because such unqualified claims are likely to deceive a significant percentage of consumers, the FTC says, "marketers should not make unqualified general environmental benefit claims."
For example, the FTC would find it deceptive for product packaging to indicate that it is "environmentally friendly" on the basis that it contains 25% post-consumer recycled content unless the claim itself is prominently and expressly qualified to link the statement of environmental benefit to the recycled content claim. Gone will be the days of industrial conglomerates airing vague, feel-good advertising about being "eco-friendly," which feature children running barefoot through swaying fields of grass in the bright sunlight. Regulators will be looking for concrete quantification and qualification, and will be seeking high-profile enforcement opportunities.
For the first time, the Guides address marketing messages about "carbon neutrality" and carbon offsets. Most sales of offsets today take place in the context of a voluntary compliance market - that is where no federal agency has regulatory authority, even though the Department of Energy (DOE) does maintain a greenhouse gas emissions registry. Numerous offset certification and registration programs have arisen under the sponsorship of individual corporations, NGOs, and ad hoc coalitions. These have varying standards and methods for qualifying offset projects and their claimed emissions reductions.
In light of this complexity, the FTC declined to define carbon offsets specifically, but instead made three recommendations regarding advertising the use or availability of offsets.
- Since consumers assume that carbon offsets represent reductions in emissions that have already taken place or that soon will take place, marketers must disclose if the reduced emissions reflected by the offsets will not take place within two years.
- Companies must take steps to ensure that they are not double-counting offsets, since it is deceptive to claim a single carbon offset for multiple customers.
- Most controversially, the FTC has opted for the principle of "additionality," namely that, since consumers will assume that the offsets they purchase would not take place without their purchase, companies cannot market offsets for emissions reductions that are already required to take place under law.
There remain many open questions. For example, defining what reductions are "required by law" is more difficult than it might first appear. Can a company claim offsets for emissions reductions incidental to another legally mandated activity? The Guides do not say. The FTC also does not precisely clarify whether offsets will include emissions avoided, reduced or sequestered.
The Guides separately address marketing claims regarding the use of renewable energy in manufacturing. It will be considered deceptive to claim that a product is "made with renewable energy" if any part of it is manufactured using fossil fuels. A company could qualify such a claim, however, by stating that the product has been manufactured with, for example, 50% solar power along with energy from fossil fuel sources. But, this kind of calculation could become exceedingly complex for products having multiple components sourced both domestically and overseas, such as a television set, for example. It is already difficult to determine whether a product is "Made in the USA" under FTC Guidance. It may be doubly difficult to accurately prove that it is "Made with 50% Hydropower" when that hydropower is partly from China.
The FTC is concerned about double-counting here as well, because most renewable energy purchases, including those for voluntary and mandatory markets, are currently conducted by transferring renewable energy certificates (RECs), either with or without the associated energy. While energy regulators used to fear that transfers of RECs might result in "double-counting," i.e., selling multiple RECs associated with the same MWh of electricity or the use of such a REC to satisfy more than one compliance standard, the energy industry has largely adopted adequate tracking mechanisms.
Recyclable and Recycled Content Claims
The Guides propose a three-tiered approach to "recyclable" claims. If the entire product (except incidental components) is recyclable in a "substantial majority" (more than 60%) of communities where the product is sold, marketers can make unqualified recyclable claims. However, if the product can only be recycled in a "significant percentage" of communities, the claim must be qualified by phrases such as, "This product may not be recyclable in your area." If the product can only be recycled in limited areas, the claim must be qualified accordingly. Indicating only that a product is "recyclable where facilities exist" or telling consumers to "check to see if recycling facilities exist in your area" is not sufficient qualification. Furthermore, if any attribute of the product (size, shape, or components) makes it nonrecyclable, the claim must be qualified.
How does one establish that a product or package is recyclable in a substantial majority of communities? The FTC will likely not grant a "pass" to any company that lacks appropriate substantiation and which merely points to an unverified promise from a supplier in its supply agreement.
Recycled content claims present further thorny issues. The FTC will not permit such claims for products, unless the "recycled" materials have been diverted from the solid waste stream, either during the manufacturing process or after consumer use. Determining what would otherwise be discarded is relatively simple for post-consumer waste, but is not so simple for pre-consumer waste. For example, textile and fiber manufacturers long ago developed methods to re-incorporate scrap materials to their processes. Under the current draft of the Guides, such manufacturers may be prohibited from making recycled content claims simply because they have been doing it this way for so long that FTC considers it to be part of the original process.
Other Areas Addressed By the Guides
The Guides also deal with a variety of other common environmental marketing claims, such as the use of environmental certifications or seals of approval, standards for communicating compostability and biodegradability claims, the appropriate use of claims such as "non-toxic," "toxin-free," ozone-safe and refillable. Interestingly, the FTC decided to stay away from defining frequently used environmental buzzwords such as "natural," "sustainable" and "organic," finding those terms either too vague or too complex to address in the present regulatory proceeding.
It is not likely that the FTC will make major changes to the Guides from this draft version, unless it receives strong factual evidence in support of change. Any company interested in commenting on these proposed Guides has until December 10 to be submit its concerns.
Chris Cole is Partner in the Advertising, Marketing & Media practice at Manatt, Phelps & Phillips Michael Bhargava is an associate in the firm.