Skip to content.

Home

Allens Arthur Robinson

Focus: Climate Change – February 2008

ACCC investigates carbon offset claims

In brief: The Australian Competition and Consumer Commission (ACCC) has signalled that it will closely examine advertising containing references to carbon offsets and 'green' products to ensure that it is not misleading or deceptive. As part of its focus on this area, the ACCC has recently instituted proceedings in respect of particular advertisements and has also released an issues paper outlining its concerns over this form of advertising. Partner Grant Anderson (view CV) and Lawyer Adam Ross report.

How does it affect you?

  • The ACCC has indicated that it will be scrutinising claims regarding carbon neutrality, carbon footprints, carbon offsets and 'green' products in general.
  • Businesses making such claims have effectively been put on notice and need to ensure that, where they offer these kinds of products, or make claims based on their acquisition of these kinds of products, they are able to properly substantiate those claims.
  • 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 emissions trading scheme.

Background

Section 52 of the Trade Practices Act 1974 (Cth) (the Act) prohibits a corporation from engaging in conduct that is misleading or deceptive, or is likely to mislead or deceive.1 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. In addition, 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.

One area that often gives rise to actions under s52 of the Act is advertising, where the desire to sell the advertised goods or services may result in advertising 'puffery' crossing the line into 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 ACCC, which has recently instituted proceedings in respect of particular advertisements and released an issues paper on the advertising of carbon offsets.

Return to top

ACCC proceedings

The ACCC has instituted proceedings against GM Holden Ltd, the Australian supplier of Saab motor vehicles, for misleading and false advertisements it claims breach sections 52 and 53(c) of the Act. The advertisements made statements including 'Grrrrrreen', 'Every Saab is green' and 'Carbon emissions neutral across the entire Saab range'. The ACCC alleges that these statements give the misleading impression that new Saab vehicles would be carbon neutral over their entire life, whereas, in fact, vehicle emissions would only be offset for one year.

Return to top

Issues paper

It is increasingly common to see advertisements for products and services that purport to be 'green' or that purport to offset the environmental effects of other activities. For example, many energy retailers offer 'green' energy (ie commit to purchase a percentage of the electricity that they supply to their customers from renewable energy sources) and some businesses which sell products or services that generate greenhouse gas emissions purport to offset those emissions by acquiring carbon offsets (as in the case of the Saab advertisements referred to above).

In addition, there has been the relatively recent emergence of 'brokers' who calculate the emissions of their clients and purchase carbon offsets for them. Examples include the Origin Carbon Reduction Scheme and the Morgan Stanley Carbon Bank. These brokers sometimes engage expert verifiers to calculate the emissions of their clients and the emission reduction value of the carbon offsets that they acquire to offset those emissions.

Issues arise, however, where claims relating to 'green' products and the offsetting of greenhouse gas emissions might be overstated or are not able to be substantiated scientifically, and the ACCC has voiced its concerns on these matters in an issues paper that it released in January 2008. Areas of focus identified in the issues paper include:

  • claims of carbon-neutrality that are based on an accurate carbon footprint but where the emissions encompassed by that footprint are inappropriately offset, eg as where the offsetting carbon credits have not been accurately calculated or do not result in the claimed reduction in greenhouse gas emissions;
  • claims of carbon-neutrality that are based on an inaccurate carbon footprint, eg as where the carbon footprint does not include all emissions sources or is calculated incorrectly;
  • claims of carbon-neutrality that are made without substantiation;
  • claims by a business of its transition to a position of carbon neutrality – such claims imply that all the emissions for which the business is responsible have been offset and therefore requires the accurate quantification of both those emissions and the offsetting carbon credits; and
  • claims of 'low carbon', in particular products or services – such claims have to be carefully framed to ensure they do not 'over reach', eg by suggesting that the carbon generated in the manufacture or use of the products or services is lower than that of competing products, or that it is negligible, where this is not able to be substantiated.

In its issues paper, the ACCC is calling for examples of the types of representations that are being made about the carbon impact of goods or services and whether such claims might be misleading, the methods that are being used to assess carbon offsets and whether these are sufficiently rigorous to avoid consumers being exposed to misleading or unsubstantiated claims, and examples of how claims regarding carbon offsets may be substantiated or clarified to avoid them being misleading.

The ACCC intends to issue a guidance paper on these matters for consumers and businesses in May 2008. Because the guidance paper might be taken as setting a reasonable 'benchmark' against which industry practices are to be measured for the purposes of the consumer protection provisions of the Act, it is important that both offset providers and consumers of their services have input into this process. Submissions in response to the issues paper are due by 15 February 2008.

Return to top

Voluntary carbon offset market

The ACCC's focus on the advertising of carbon offsets comes at a time when the integrity of such offsets is also being subject to considerable scrutiny and the prospect of either government regulation or industry self-regulation.

The market for voluntary carbon offsets has substantial potential for growth. A recent estimate valued it on a worldwide basis at US$90 million. While this is small compared to the size of the market in which carbon offsets are created and traded in order to meet mandatory emission reduction obligations (eg under the European Union emissions trading scheme and the New South Wales Greenhouse Gas Abatement Scheme), it is expected that this market will grow to about US$4 billion in the next five years.

The voluntary carbon offset market serves at least two useful purposes: it provides a source of carbon credits that can be purchased by businesses that are keen to enhance their commercial reputation by being seen as environmentally aware and active, and it provides a market for smaller-scale projects (particularly in the forestry area) where the costs of creating offsets that meet the more rigorous requirements of mandatory emission reduction schemes are too high. However, the voluntary carbon offset market is currently fragmented and the products traded in it are of variable integrity. This has led to such offsets being traded at a wide variety of prices (ranging from biosequestration generated credits at the lower end of the price scale to renewable energy generated credits at the higher end), and the loss of some consumer confidence in the market.

In order to address these issues, it is necessary to develop a set of widely accepted standards that voluntary carbon offsets should meet in terms of:

  • their additionality, permanence and actual contribution to emissions reduction, eg the carbon impact of planting trees is not additional if those trees would have been planted in any event, is not permanent if the trees are harvested or destroyed, and is not realised until the trees actually mature (which is when they begin to sequester carbon dioxide);2 and
  • the manner in which the emissions reductions attributable to the carbon offset-generating project are to be calculated, monitored and verified.

It is also necessary to ensure there is no double counting in the use of the voluntary carbon offsets, eg by establishing a registry that tracks their creation, transfer and surrender.

In recognition of this need, there has been some progress at the international level. For example, at the end of 2007, The Climate Group, the International Emissions Trading Association and the World Business Council for Sustainable Development launched a voluntary standard for offsets (the Voluntary Carbon Standard, or VCS) and an Internet registry for tracking the creation, transfer and use of such offsets.

In Australia, while in opposition, the Federal Australian Labor Party stated that it would regulate the required standard of voluntary carbon offsets. However, in the short time since winning government in November 2007, it has not yet released any further details of this proposal.

Nonetheless, there have been some useful innovations in Australia. For instance, in October 2007, in an attempt to improve the transparency of the voluntary carbon offset market, the Environment Protection Authority Victoria and Global Sustainability at RMIT University launched a website-based carbon offset service that lists carbon offset providers, the price being charged for their offsets, the location and type of the project that generates those offsets, and the accreditation (if any) of the offsets (eg under the New South Wales Greenhouse Gas Abatement Scheme, AGO Greenhouse Friendly, Gold Standard VER, VCS etc).

Having said this, it needs to be borne in mind that accreditation standards vary in terms of their coverage – some merely relate to the manner in which the carbon offsets are to be measured (and do not provide for the subsequent monitoring and verification of the carbon offset-generating project to ensure that the carbon reductions are actually achieved), and others are concerned merely with the initial accrediting of the particular product or services.
Moreover, purchasers of voluntary carbon offsets still need to be aware that those offsets might not qualify for compliance purposes under the proposed Australian emissions trading scheme.

Return to top

Conclusion

The increased public awareness of the impact of greenhouse gas emissions on the environment, and the corresponding growth in the market for voluntary carbon offsets, is leading the ACCC to subject claims of 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 properly substantiated.

If you would like further information on this area or assistance in drafting submissions in response to the ACCC's issues paper, please contact any of the people below.

Footnotes
  1. Other provisions in Part V of the Act also prohibit corporations from making false or misleading representations in a variety of contexts.
  2. It is for this reason that, for example, the New South Wales Greenhouse Gas Abatement Scheme only permits the creation of offsets from tree planting where the trees remain in situ for 100 years and risk management procedures are put in place to address their possible destruction (eg through fire or disease) within this period.

Return to top

For further information, please contact:

Return to top

Bookmark with

What are these?

Recent Climate Change publications