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Allens Arthur Robinson

Focus: Climate Change – July 2008

ACCC releases carbon offset guideline

In brief: The ACCC has released a guideline, Carbon claims and the Trade Practices Act, that is intended to inform both the providers and users of carbon offsets of their obligations under the Trade Practices Act 1974 (Cth) where they make claims based on those carbon offsets. Partner Grant Anderson (view CV) and Lawyer Adam Ross report.

How does it affect you?

  • The ACCC has released further guidance materials on claims by business regarding carbon neutrality, carbon footprints and carbon offsets that provide practical guidance about the risks associated with carbon claims and how to minimise them.
  • Businesses should ensure that, when they purchase carbon offsets on the voluntary carbon offset market, they are able to satisfy themselves of the integrity of those offsets, bearing in mind that even then such offsets might not be able to be used to meet any liabilities that arise under the proposed Australian Carbon Pollution Reduction Scheme.
  • Businesses that make carbon-related claims should consider instituting a compliance program that is aimed at educating their employees and agents about potential exposure under the Trade Practices Act, as well as robust procedures for the vetting of such claims before they are made.

Background

Section 52 of the Trade Practices Act 1974 (Cth) (the TPA) prohibits a corporation from engaging in conduct that is misleading or deceptive, or is likely to mislead or deceive. A corporation that breaches this prohibition may, among other things, be ordered by a court to pay damages for loss caused by the breach and to publish a corrective advertisement. Moreover, the court may order the termination or variation of any related contract, the refund of money, or the resupply of the relevant goods or services. Prohibitions on misleading and deceptive conduct are also contained in state fair trading legislation.

The TPA also prohibits a variety of false or misleading representations about specific aspects of goods and services. In particular, a corporation is prohibited from falsely representing that goods are of a particular composition, or from representing that goods or services have performance characteristics or benefits that they do not have.1 In addition to the sanctions referred to above for a breach of s52 of the TPA, a breach of these prohibitions exposes the corporation to a fine of up to $1.1 million and any of its employees or agents who are involved in the breach to a fine of up to $220,000.

One area that often gives rise to actions under these TPA provisions is advertising, where the desire to sell the advertised goods or services may result in advertising 'puffery' crossing the line into false, misleading or deceptive representations.

Increasing public awareness of the impact of greenhouse gas emissions on the environment has resulted in substantial growth in the market for voluntary carbon offsets and 'green' products, and a corresponding increase in the number of suppliers of these products. It is therefore not surprising that carbon offset and 'green' claims are now receiving considerable attention from the Australian Competition and Consumer Commission (the ACCC), which this year has already released a green marketing guideline (see Allens Focus: Climate Change – 19 February 2008). The ACCC's most recent guideline, Carbon claims and the Trade Practices Act, follows on from an issues paper on claims relating to carbon neutrality that the ACCC released in January 2008 (see Allens Focus: Climate Change – 7 February 2008).

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Carbon claims and the TPA
Carbon offset claims

The Federal Government has stated that it will develop a national carbon offset standard by the end of 2008. However, until that happens, there is no minimum standard that carbon offsets are required to meet. This means that businesses who sell carbon offsets, or who make claims on the basis of those offsets, need to ensure that they accurately describe the integrity of those offsets. The ACCC guideline draws attention to the following matters as affecting the integrity of carbon offsets:

  • Additionality – only offsets that result in a real and measurable reduction in greenhouse gas emissions that would otherwise not have occurred (ie offsets that are beyond business as usual and are not mandated by regulatory requirements) are 'additional' and therefore qualify as true offsets. As recognised by the Federal Government, additionality is a difficult attribute to establish, particularly given the incentives that the proposed new Carbon Pollution Reduction Scheme now provides to reduce emissions (see Allens Focus: Climate Change – 24 July 2008).
  • Timing – businesses should be wary of purchasing forward credited offsets, such as offsets that are to be produced by trees that have not yet been planted. Where a business is making claims on the basis of carbon offsets that are yet to be delivered, it should obtain a contractual commitment from the offset provider that replacement offsets will be issued if the project does not deliver the expected offsets.
  • Double counting – offset purchasers should ensure that the offsets they purchase are 'retired' at the point of sale to avoid them being re-used.
  • Permanence and risk management – where the delivery of the offsets is not certain (eg because the offsets are being generated by tree planting, in which case fire or disease may reduce or eliminate the amount of carbon dioxide that is sequestered by the trees), offset purchasers should obtain some guarantee that the purchased offsets will be replaced if they do not materialise or that the prospect of them being reduced has been factored into their calculation.
  • Use of reputable offset standard – the use of one of the many recognised (albeit voluntary) standards to substantiate the integrity of the offsets that are being purchased may give some comfort to offset purchasers as to the quality of the offsets.
Carbon neutral / low carbon claims

The ambiguity of the terms 'carbon neutral' and 'low carbon' means that the unqualified use of these terms should be avoided. In this regard, the guideline suggests that businesses should:

  • clearly explain what part of its product life cycle or business activities are covered by any claim of carbon neutrality;
  • clearly explain what emissions are covered by the claim of carbon neutrality; eg whether it is only direct emissions as a result of the manufacture of the relevant product, or extends to emissions that are attributable to the electricity that is used to produce the product or that are attributable to the downstream consumption of the product;
  • take care in using footprint calculators to assess their carbon footprint, as these often include a number of built-in assumptions that may not apply to the business (eg the size, type, speed and loading of an aircraft will affect its fuel consumption and therefore the carbon footprint of the passengers who travel in it);
  • ensure that a claim of 'going carbon neutral' by a specified date is backed by a structured implementation strategy to meet this goal; and
  • ensure that a claim that a product is 'low carbon' specifies the products against which it is being compared and is only made about a product that actually has a low absolute level of carbon.

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Conclusion

As reported in two of our February 2008 Focus: Climate Change publications (7 February 2008 and 19 February 2008), the ACCC has moved quickly to subject claims of green products and carbon neutrality by businesses to close scrutiny. Both those who sell voluntary carbon offsets, and those who make claims of carbon neutrality based on their purchase of such offsets, need to take particular care in their advertising to ensure that the claims they make in relation to those offsets are able to be understood by consumers and properly substantiated.

Footnote
  1. See ss53(a) and (c) of the TPA.

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