The Legal Risk of Advertising Carbon ‘Offsets’: Risks and Compliance Considerations

by | May 9, 2023 | Carbon Trading, Trending

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Are you promoting carbon offsets to offset your company’s carbon footprint? Beware of the legal risks and compliance challenges that come with this green marketing strategy. From false advertising to fraud, there are many ways that your carbon offset claims could land you in hot water with regulators and consumers. In this article, we’ll explore the legal landscape of carbon offsets and highlight the key risks and compliance considerations that you need to know. We’ll cover topics such as FTC guidelines, state and federal laws, voluntary standards, and best practices for transparency and verification. Don’t let your good intentions backfire – read on to learn how to navigate the legal risks of advertising carbon offsets.

What are Carbon offsets?

Carbon offsetting is the process of using “carbon offsets” or “carbon credits” to make up for greenhouse gas (GHG) emissions that were produced somewhere else. Many businesses are incorporating carbon offsets into their sustainability and carbon reduction plans. A carbon credit is a tradeable certificate that certifies the removal of one metric tonne of carbon dioxide (or an equivalent amount of another GHG) from the atmosphere. A regulatory or other competent, independent organization should approve the certificate. It is possible to claim an emissions reduction using carbon credits. To prevent double counting, items used should be “retired” and removed from the market.

advertising carbon offsets

Several businesses utilize the notion of carbon offsetting to claim that their emissions have been balanced or that their products are “carbon neutral.” It often entails making a small contribution to projects that address climate change, most frequently planting or protecting trees, in exchange for a hypothetical “carbon credit.” The idea behind it is straightforward: by funding initiatives that reduce carbon emissions, you can either make a product “green” or enable a business to achieve net zero emissions.

Why is the marketing of carbon “offsets” problematic?

One tonne of CO2 equals around the same amount of carbon dioxide released on a trip from Paris to New York, and one tonne of CO2 is what a carbon credit is predicted to eliminate or avoid. The purchase of these credits supports initiatives to reduce climate instability by supporting innovative natural or technological solutions.

These environmental initiatives may be helpful in the fight against climate change. Protecting vital natural habitats, including forests, which serve as “carbon sinks” by absorbing damaging greenhouse gases, is aided by good examples that assist local populations. Nevertheless, “quality” in the uncontrolled carbon credit market can be difficult to find and even more challenging to verify. Too many projects have been discovered to hurt the interests of local communities and make misleading claims that they are genuinely reducing the quantity of CO2 absorbed and stored. This industry is frequently referred to as the “wild west.”

Another problem is that there isn’t enough space on the earth to grow as many trees as would be required to balance out the current level of emissions without compromising the food supply. To put this in perspective, one oil and gas corporation intends to “offset” its emissions by using a tenth of the world’s accessible undeveloped land. Improving natural sinks would only get us so far; with a drastic cut in emissions, reaching net zero by 2050 is feasible.

Carbon credits do not compensate for losses like a profit does. The correct description of these credits is simply a gift to climate-friendly initiatives, not, as marketing for high-carbon products frequently implies, as a way to “balance” the adverse effects of the products we purchase on the environment.

What is the legal risk of advertising carbon “offsets”?

Offsetting marketing’s legal danger is rising, but so is the chance that we may miss opportunities to cut emissions in the real world. Cash must be allocated to initiatives to safeguard the planet’s essential ecosystems and green technologies to achieve climate targets and close the enormous financing gap for climate loss and damage. This is where financial contributions made through carbon credits can be helpful, but financial incentives must be used appropriately to prolong necessary reduction actions.

Carbon credits must be kept apart from emission reduction plans to be helpful for a future with a liveable climate. Stopping the release of greenhouse gases at the current catastrophic rate is the only way to resolve this catastrophe. By artificially offsetting the image, we only postpone that crucial action.

Risks with carbon offsetting

More legal risk is being attracted by the deception of carbon offsetting, including risk from shareholder action, non-compliance, litigation, and regulatory enforcement. Shell has received two consecutive reprimands in the Netherlands, first for marketing “CO2-neutral” automobile fuel and then for attempting a different claim that carbon credits mean “CO2 compensation.” The business unsuccessfully convinced the Dutch advertising watchdog that the facts supported the offset advertising in both instances. Client Earth is defending a lawsuit against the airline KLM for violating consumer law with its CO2 compensation marketing. A case in Germany has been filed against eight businesses, including Total Energies, for making false claims about their “carbon neutral” status. According to legal scholars, using offsets in marketing claims is against European consumer law requirements.

The EU Commission has created a new “anti-greenwashing” consumer rule to tighten prohibitions on claims that products are “carbon neutral.” In France, the legislature passed a bill requiring businesses to disclose how emissions are genuinely lowered before being offset after a people’s assembly asked for a prohibition on “carbon neutral” claims. The French advertising watchdog has taken action in response to hazy statements made regarding fossil fuels based on carbon credits, noting that marketing exaggerates the impact of purchasing ‘carbon offset’ petrol. Competition attorneys have also seen the potential for violations of competition (antitrust) rules with situations of greenwashing amongst rivals.

What are the FTC guidelines for advertising Carbon Offsets?

The Federal Trade Commission (FTC) has issued guidelines to help companies avoid deceptive or misleading claims when advertising carbon offsets. These guidelines apply to all forms of advertising, including websites, brochures, and social media. Here are some key points to consider:

Substantiation: Companies must have a reasonable basis for any carbon offset claims they make. This means they should have competent and reliable scientific evidence to support their claims.

Qualifications and disclosures: Companies should disclose any significant limitations or qualifications that may affect the carbon offset claim, such as the specific methodologies used, the timing and location of the offset, and the possibility of reversals.

Clear language: Companies should use clear and specific language to describe their carbon offset claims, avoiding vague or exaggerated terms that may mislead consumers.

Comparisons: Companies should avoid making unfair or misleading comparisons between their carbon offsets and other products or services, such as claiming to be “100% carbon neutral” without disclosing the limitations of the offset.

Monitoring and verification: Companies should have a system in place to monitor and verify the carbon offset projects they support and disclose the results to consumers.

Failure to comply with these guidelines may result in enforcement actions by the FTC, including fines and injunctions. Therefore, it is essential to consult with legal counsel and sustainability experts when advertising carbon offsets to ensure compliance with these guidelines and other relevant laws and regulations.

The Bottom Line

Reduced emissions are necessary to meet climate targets; however, using carbon credits to “offset” or “neutralize” a company’s or product’s impact is problematic. Although it is urgent to direct funds towards advancing carbon sinks and supporting carbon removal technologies, encouraging financial support shouldn’t cause delays in lowering emissions. Several businesses already take actions that are consistent with this, such as purchasing carbon credits independent of reduction targets and based on historical emissions.

Carbon credits are required to distinguish reductions from contributions. Both firm emission reduction goals and the marketing of high-carbon products need clarity and transparency. One option to reduce transparency is to use carbon credits as “offsets.” Using “offsetting” to “green” high-carbon products and hiding corporate decarbonization intentions pose actual and rising dangers from a legal and regulatory standpoint.

Also Read: ChatGPT’s Carbon Footprint

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