As the demand for emissions reductions credits grows, so does the secondary markets in emission reduction credits. Those who traditionally offer commodities in secondary commodities markets are increasingly stepping into the role of marketers for the purchase and sale of emission reduction credits in the secondary markets.
Notably, in these secondary markets for emission reduction credits – unlike traditional commodities markets – there is a greater possibility that emission reduction credits may end up in the hands of consumers.
One major aspect of a well-functioning, efficient and transparent secondary market in emission reduction credits is the transmission of truthful and reliable information. This is why it is important for emission reduction credit marketers to be aware of the FTC’s Green Guides.
The role of the FTC is to protect American consumers and business competition. Its Green Guides were created to help marketers avoid making environmental claims that mislead consumers. The Guides lay out the FTC’s enforcement approach for environmental claims, including claims involving emission reduction credits.
A bit of background
When the Wall Street Reform and Consumer Protection Act (popularly known as the Dodd-Frank Act) was enacted it 2010, it established an interagency working group made up of designees from the Commodities Futures Trading Commission (CFTC), the Secretary of Agriculture, the Secretary of Treasury, the Chairman of the Securities and Exchange Commission (SEC), the Administrator of the Environmental Protection Agency (EPA), the Chairman of the Federal Energy Regulatory Commission (FERC), the Administrator of the Energy Information Administration (EIA) and the Chairman of the FTC, and tasked them with studying the emissions reduction markets, to ensure they are efficient, secure and transparent.
The emissions reduction credits markets can be broken into a primary market and a secondary market. The primary market is where the emission reduction credit is introduced to the marketplace from either a government entity or registry. The secondary market occurs after the emission reduction credit is introduced to the market through the primary market; it allows market participants to trade emission reduction credit freely based on supply and demand.
Requirements set out in the Green Guides
Here are the most important requirements of the Green Guides as applied to emission reduction credit marketing:
- Emission reduction claims must be supported by “competent and reliable” scientific evidence, which the FTC defines as “evidence based on the expertise of professionals in the relevant area, that have been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.” Typically, claims consistent with governmental and industry certifications will satisfy this standard, but those claims should be reviewed to ensure that they don’t overstate or misrepresent those certifications.
- To the extent that any emission reduction credit marketing relies on accounting, that accounting must be based on appropriate, professional accounting methods.
- The marketer should not market benefits from the emission reduction if those reductions are otherwise required by law – in other words, the marketing materials cannot claim a beneficial result for such emissions reductions if that beneficial result would need to happen anyway, without the marketer’s efforts.
- The marketer should make appropriate disclosures in its marketing of any material qualifications or limitations to the emission reduction claims. In particular, the marketer is to be sure to disclose whether the environmental benefits it claims may not be realized for two years or longer – the Green Guides specifically call out such claims as problematic if they lack clear disclosures.
- Also with respect to disclosures, note that the FTC requires disclosures in advertising to be “clear and conspicuous.” If disclosures are made in a footnote or in small “mouse print” at the bottom of the page, the FTC may likely find that they are not sufficient to warn consumers about qualifications of the emission reduction claims. Often, it is preferable to include qualifying language in the body of the marketing materials, rather than in a fine print disclaimer, and with a bit of care these qualifications can be accomplished without diminishing the effectiveness of your advertising.
Change is in the air
Finally, marketers need to watch this space – the FTC has indicated that it will review and update the Green Guides this year. DLA Piper expects that these revisions will provide important additional guidance for emission reductions credit and environmental marketing, including the FTC’s strategy to combat “greenwashing” – marketing and public relations activities that falsely portray a company or organization as environmentally friendly.