Throughout 2008, the Federal Trade Commission (FTC) will engage in a regulatory review of its environmental marketing guidelines (known colloquially as the Green Guides). The FTC has expedited its review – initially scheduled for 2009 – because of the large increase in “green advertising” claims. Specifically, the current Green Guides, which were first introduced in 1992 and last updated 10 years ago, do not address the emerging markets for renewable energy certificates (RECs) and carbon offsets. Thus, the FTC has concluded that an expedited review is warranted.

The Green Guides outline general principles for all environmental marketing claims (rather than detailing the environmental standards themselves, which are generally governed by the Environmental Protection Agency). The Green Guides also provide specific guidance about certain green claims, such as degradabilty, compostability, recyclability, recycled content, and ozone safety.

As part of its review, the FTC will be considering public comments on the Green Guides; those comments are due by February 11, 2008. The FTC has expressly requested comments on the costs, benefits, and effectiveness of the Green Guides, and raised questions on specific topics, including “sustainable” and “renewable” claims. The FTC also will host a series of workshops around the country related to the review of the Green Guides. The first such workshop was held on January 8, 2008, in Washington D.C., and focused solely on carbon offsets and RECs. Carbon offsets fund projects designed to reduce greenhouse gas emissions in one place in order to counterbalance or “offset” emissions that occur elsewhere. RECs are created when renewable power generators sell their electricity as conventional electricity, and then sell the environmental attributes of their power separately through a certificate.

The FTC’s January workshop on carbon offsets and RECs was valuable, both because these issues are not specifically addressed in the current Green Guides and as a precedent for the workshops that will occur throughout the year. The workshop included a mix of participants, such as environmental organizations, industry, the FTC, and academia. It was, for all practical purposes divided into two halves. The first was devoted primarily to educating the attendees on the carbon offsets and REC markets (voluntary and compliance) and the FTC's role in policing advertising and marketing practices generally. The second focused more generally on the types of disclosures and substantiation appropriate for environmental claims. This latter part of the day engendered a fairly heated debate on how to certify or verify the environmental claims, how to increase the precision of the statements, and how to coordinate the voluntary and compliance markets to confirm that certificates are appropriately retired after use. There was also a debate on whether RECs can credibly be considered substitutes for offsets.

Although the workshop and public comments resulted in few concrete conclusions regarding how and to what extent the FTC should police carbon offset and REC advertising claims, it seems likely that the FTC will address green advertising generally, and carbon offsets and RECs specifically, in the next edition of its revised Green Guides. In those new sections the FTC will likely describe in general terms its authority to prosecute “unfair or deceptive trade practices” relating to these types of advertising or claims. The FTC may give more specific guidance relating to the level of substantiation necessary for green advertising by providing one or more examples of legitimate and illegitimate advertising claims, or it may rely on the general principles conveyed in the Green Guides, and then engage in discrete enforcement activities thereafter. It has been reported that other countries, including Norway, Belgium, and the United Kingdom, have been pursuing enforcement activities against deceptive green advertising (“greenwashing”) based on their general consumer protection authority.

The FTC’s authority to act in this area derives from its authority to regulate “deceptive” and “unfair” practices on behalf of consumers. Under its authority to prosecute “deceptive practices,” the FTC considers whether a public statement or omission is likely to materially mislead a consumer into engaging in a transaction or relationship in which the consumer would not have engaged if they had known the truth. Under its authority to prosecute “unfair practices,” the FTC analyzes whether there has been substantial consumer harm associated with any activity, whether consumers could have reasonably avoided the harm, and whether the harm is not substantially outweighed by countervailing consumer benefits. The FTC can commence public or confidential investigations of companies that it believes are engaging in deceptive or unfair business practices. The Green Guides are not statutorily required, but are written guidelines by the FTC on what it considers “best practices.” For environmental marketing claims, if a company complies with the Green Guides, it is very unlikely to be subject to an FTC or law enforcement investigation, because it is meeting the FTC-endorsed standards. The FTC does not have the authority to issue fines for unfair or deceptive trade practices, but it could order disgorgement of profits associated with the improper practices.

It is anticipated that the FTC will examine the Green Guides, green advertising, and associated issues throughout 2008. Initial public comments on the Green Guides are due Monday, February 11. The FTC will publish these comments, which should give interested parties a greater understanding of the types of issues the FTC will consider this year. The FTC will also seek public comments in connection with each of the future public workshops regarding the Green Guides. Following these subsequent workshops, the dates and topics for which have not yet been announced, the FTC will issue revised Green Guides. Given the increased consumer and government attention to “green advertising,” companies should evaluate their environmental claims to ensure compliance with the current Green Guides and be prepared to comply with the revised Green Guides, including the anticipated guidance on offsets and RECs, in order to avoid investigation and civil prosecution by the FTC.