On July 28, 2022, a group of environmental nonprofits filed a lawsuit in Washington D.C. Superior Court against a utility alleging that various marketing statements referring to natural gas as “clean,” “carbon neutral,” “low carbon,” and “sustainable,” violated Washington, D.C.’s consumer protection laws, including the unfair and deceptive practices laws.¹  While the bulk of the complaint focuses on current and past marketing of traditional natural gas, the suit also alleges that marketing involving its future “net-zero” plan, which relies on a combination of renewable natural gas (RNG), hydrogen, and carbon offsets, is similarly deceptive. Specifically, the suit targets claims that RNG is a “zero carbon” fuel. Although this appears to be the first suit in the United States to allege greenwashing in the context of using carbon offsets and other environmental attributes bundled with products to make claims about greenhouse gas (GHG) emissions, it almost certainly will not be the last. Last year, environmental groups filed a complaint with the Federal Trade Commission (FTC) alleging that claims made by an oil major regarding the use of RNG, renewable energy, and other measures amount to unlawful greenwashing.²  As environmental attribute markets become standardized and new regulations, such as the US Securities and Exchange Commission’s recently proposed climate disclosure rules,³  require increased disclosures, it will become easier for the public to identify and make greenwashing allegations. 

FTC regulations and most state unfair and deceptive practices laws require claims to be defensible based on the information known to the company and to stand up to any reasonable interpretation. Companies that rely on offsets and other environmental attributes as part of an emissions reduction plan or “net-zero” plan must respond by carefully evaluating the quality of their claims around such products. As an initial matter, parties that are purchasing environmental attributes must demand to know the identity of the project(s) from which the attributes are sourced and should seek to obtain as much information as possible to verify the methodology of calculating a project’s GHG intensity and to verify the project’s performance on an ongoing basis. Companies that lack information about their credits may struggle to defend their claims. As part of this, it is essential to negotiate contractual protections from sellers of credits in the event a credit is later invalidated. Even if all necessary information is disclosed, however, purchasers of credits still need to be exceedingly careful about how they represent environmental attributes to the market and the public to avoid greenwashing lawsuits. Below are some common issues that companies should consider when crafting environmental claims based on bundling a product with environmental attributes generated by another project.

Avoid Broad and Vague Claims

Broad, unqualified claims such as a product is “clean,” “sustainable,” or “eco-friendly” will generally be deemed to be deceiving. Almost all products have some environmental impact. It is a best practice for companies to qualify claims by saying a product is clean or sustainable relative to some baseline or widely accepted standard, usually the status quo. Additionally, claims that a specific product is clean or low- or zero-emissions arguably could be interpreted as meaning the product itself meets those conditions without the aid of an offset or other environmental attribute. To mitigate greenwashing risk, companies should consider disclosing when products are bundled with environmental attributes in order to make safe sustainability claims.

Disclosing the Scope of Emissions Covered by the Claim

Unless specific circumstances make a contrary view obvious, any claim that a product results in low- or zero-emissions could arguably be interpreted to cover the full lifecycle emissions of the product and its component materials. Where a claim is only being made about a certain portion of the lifecycle, companies should consider disclosing which portion of the lifecycle is covered by the claims. For example, fashion retailers such as Allbirds have been accused of greenwashing for making emissions claims while only considering a part of its emissions lifecycle.⁴  To mitigate risk, companies should specify if their claims are meant to cover the full lifecycle or limited to a certain portion. 

Use the Right Method to Calculate Emission Reductions

Companies should always ensure that the methodology used to calculate emissions of a product and emissions reductions associated with environmental attributes is appropriate for the claims being made. Some government programs treat the diversion of a product from a higher emission use to a lower, but still positive, emission use as carbon neutral or carbon negative. For example, the California Low Carbon Fuel Standard treats RNG as carbon negative by essentially deeming the avoided emissions from captured methane to be offsets that outweigh the downstream combustion of the gas. Unqualified claims of carbon negativity of RNG made outside the context of transportation fuel use or similar programs may be interpreted by some as misleading. Additionally, some popular tools used to conduct full lifecycle analyses shift emissions from one part of a supply to another to ease accounting and avoid double counting emissions. Using such tools to make claims that only apply to a specific portion of the supply chain that was impacted in the model by such shifting may be viewed as deceiving when not disclosed. To mitigate risk, companies should consider disclosing the methodology used to calculate emissions underlying any claims.

Ensuring Claimed Reductions are Additional

The central tenant of carbon offsets and similar environmental attributes is that the associated emissions reductions are additional and would not have occurred but for the generation and sale of the attribute. It is critical that purchasers of environmental attributes include language in their purchase contracts that the seller represents that neither it nor any person upstream of it in the supply chain has made environmental claims based upon the attributes and that it will not sell the attributes or the rights to make claims based upon the attributes to any other party. 

Additionally, purchasers of attributes should consider conducting due diligence reviews of the projects underlying their attributes to ensure that the emissions reductions would not have occurred but for the sale of the attributes. This is especially important given the recent growth in government subsidies of renewable energy and carbon capture projects, such as the funding and tax incentives in the likely soon to be passed Inflation Reduction Act. Projects that receive government benefits or otherwise arguably would have been profitable even without selling environmental attributes should be treated with skepticism by potential attribute purchasers.

Disclosing Whether Emission Reductions are Like-for-Like

Different greenhouse gases have varying levels of impact on climate change both in terms of intensity and duration. Despite this, most emissions reduction claims are made on a carbon dioxide equivalent basis by converting the impacts of any given GHG to what the projected impacts would be if the GHG were carbon dioxide. As a result, some consumers may expect that claims from specific industries, such as the natural gas industry, represent reductions in the types of emissions those industries are responsible for (e.g., industries known for methane emissions use offsets that are based on projects that actually reduced methane emissions). If claims about methane emissions are instead made on a carbon dioxide equivalent basis using offsets based on reductions in other GHGs, companies should consider disclosing that fact to mitigate greenwashing risk. 

Conclusion

We anticipate that as environmental attribute markets mature, regulators and environmental groups will focus more on the validity of claims attached to those markets. Companies relying on environmental attributes such as carbon offsets to reach climate change goals should be as careful and specific as possible when making such claims to avoid negative press and/or regulatory or legal violations. Periodic reviews of such statements is warranted to keep up with a rapidly evolving landscape. 

____________

1 Client Earth v. Washington Gas Light Co., 2022 CA 003323 B (D.C. Super. Ct. 2022).

2 See Crowley, K., Chevron ‘Greenwashing’ Targeted in Compliant Filed with FTC, Bloomberg (Mar. 16, 2021), available at https://www.bloomberg.com/news/articles/2021-03-16/chevron-greenwashing-targeted-in-complaint-filed-with-u-s-ftc#xj4y7vzkg.

3 SEC, The Enhancement and Standardization of Climate-Related Disclosures for Investors, 87 Fed. Reg. 21334 (Apr. 11, 2022). 

4 Doyle, M., Greenwashing Check: Is Allbirds As Sustainable As It Claims To Be?, Ecocult (Nov. 1, 2021), available at https://ecocult.com/allbirds-sustainable-greenwashing/.

[View source.]