Summary

On 23 February 2010 the Federal Court declared that Prime Carbon Pty Ltd (Prime Carbon) made false or misleading representations in connection with its agricultural soil carbon credit services.

This decision is one in a growing line of Australian Competition and Consumer Commission (ACCC) investigations and prosecutions regarding green marketing claims or ‘greenwash’. The importance of this decision when compared to other decisions in ACCC litigation of this type is that it involves claims made by one party about another. It therefore has potentially significant ‘supply chain’ implications.

Businesses that market on environmental grounds need to be careful that claims made are true and verifiable, or risk possible investigation, prosecution and enforcement action.

Consumers should also be careful in responding to green marketing.

Prime Carbon

Prime Carbon’s services

Prime Carbon sells a ‘soil carbon and sequestration program’ to farmers. The program aims to sequester carbon from the atmosphere by storing it in land and Prime Carbon provides farmers with:

  • design and facilitation of carbon sequestration and other greenhouse gas abatement and offsetting projects  
  • assistance in the creation and management of specific amounts of carbon dioxide sequestered or abated from the environment (‘carbon credits’), and  
  • assistance with the marketing and registration of those carbon credits.

False claims

The ACCC conducted an investigation of Prime Carbon’s marketing statements and commenced a prosecution with allegations that between July 2008 and December 2009 Prime Carbon, through its brochures and on its website, had made false claims:

  • that Prime Carbon was a registered broker and aggregator with the National Stock Exchange of Australia Ltd, and  
  • that the National Environment Registry Pty Ltd (NER), a company through which Prime Carbon supplied some of its services:  
    • was regulated by the Australian Government  
    • was the registry for all approved carbon credits in Australia, and  
    • had entered into an arrangement with the Chicago Environment Registry that would help Australian carbon credits being traded in the international market.

These claims related to other parties that Prime Carbon was involved with.

The Federal Court declared that these claims were false, with Prime Carbon consenting in recognition that there were inaccuracies.

Federal Court orders

The Federal Court made orders:

  • restraining Prime Carbon and its sole director Mr Kenneth Bellamy from engaging in such conduct  
  • requiring Me Bellamy to undertake trade practices compliance training and to not publish any carbon credit claims without first receiving legal advice that the publications do not breach the Trade Practices Act 1974 (Cth)  
  • requiring Prime Carbon and Mr Bellamy to send letters advising of the orders to all:  
    • landholders who had entered into a ‘Soil Enhancement and Carbon Sequestration Agreement’ with Prime Carbon, and  
    • people who had purchased carbon credits from or through Prime Carbon  
  • requiring Prime Carbon to display the Court’s orders on its website for a period of 60 days, and  
  • that Prime Carbon and Mr Bellamy pay the ACCC’s costs of $15,000.

Soil carbon

Prime Carbon’s media release following the court orders notes that there were no allegations of misleading representations regarding:

  • the integrity or viability of Prime Carbon’s soil improvement and carbon sequestration programs  
  • the improvement of carbon reserves in land by use of Prime Carbon’s soil improvement programs, and  
  • the potential to generate measurable carbon offsets by the use of Prime Carbon’s soil improvement and carbon sequestration programs.  

However, while soil carbon sequestration appears very promising, there does remain uncertainty as to its recognition internationally and therefore under the proposed Carbon Pollution Reduction Scheme (CPRS), with any such recognition still some way away. Soil carbon would be a focus under the Coalition’s alternative Emissions Reduction Fund (ERF) approach.1

ACCC response to greenwash

This case is the latest in a line showing the ACCC’s focus on greenwash. Green marketing is increasing globally in response to consumers’ increasing awareness of environmental issues and demand for sustainable goods and services. While there has been rapid growth in green demand and green marketing, there has perhaps been slower development of accreditation systems and standards to provide business guidance and consumer protection.

The ACCC has taken action against other companies, including GM Holden, Lloyd Brooks Pty Ltd and Sanyo Airconditioning. EnergyAustralia, Woolworths, Origin Energy, Daikin, DeLonghi and Hagemeyer Brands Australia have also been investigated by the ACCC.

The ACCC has also published a number of guides for companies who engage in green marketing,2 particularly in respect of carbon claims. These guides stress the importance of giving consumers full and accurate information. The ACCC has also published information for consumers.

It is important to note that any information produced by the ACCC regarding carbon claims is subject to review given the Australian Government’s evolving policy approach to climate change issues and the development of the CPRS or alternative approach. The ACCC is also currently investigating claims made by some companies regarding the CPRS’s negative impacts on those companies, at the request of the Australian Conservation Foundation and the Australian Climate Justice Program.

As a further related response the Australian Government has developed a National Carbon Offset Scheme, designed to establish accepted industry accreditation standards and therefore business and consumer guidance.3

Business implications

While green marketing is potentially fertile ground, care is still needed. In addition to potential legal consequences there can be significant reputational and thus commercial damage.

Typically, greenwash claims have involved companies making ‘green’ claims about their own products or services, for example, that their products or services are ‘carbon neutral’ or ‘green’ in some way. Prime Carbon’s alleged misrepresentations, however, are not exclusively in relation to the representations made about itself. Alleged misrepresentations arose out of statements that Prime Carbon had a certain relationship with a registry and that such registry has a certain status. Therefore, companies need to consider carefully what they are saying about associated entities so as to not mislead or deceive. For example, not saying that a supplier of theirs is ‘green’.

The development of the National Carbon Offset Standard Logo will mitigate the risk of claims in relation to companies representing that they are carbon neutral, or that they have relationships with certain the carbon-neutral third party entities. However, for statements that do not relate to carbon-neutrality, such as in the case of Prime Carbon that a related third party entity is the ‘sole registry that meets the standards required of carbon credit registries by the Australian Government and the carbon credits listed on the registry’, the Logo will not assist. This means, companies should continue to be aware of statements they are saying about themselves and related entities, just as they would be if they were participating in any other market.

These developments are only one aspect of increasing regulator scrutiny of climate change issues. The US Securities Exchange Commission has provided guidance for public companies’ potential disclosure filing obligations in respect of climate change related issues, matters which may also apply to Australian companies under the watch of ASIC and ASX.