What corporate offset buyers can learn from consumer protection laws

The opinions expressed here by Trellis expert contributors are their own, not those of Trellis nor NYU School of Law. The information in this piece doesn’t constitute legal advice. ​

It’s a weird time to be a corporate offset buyer. Relying largely on consumer protection statutes, some environmental advocates have criticized and sued companies for making carbon-neutral or net-zero claims based on low-integrity offsets. Meanwhile, the anti-ESG movement has used consumer protection theories to attack companies’ use of other environmental attribute certificates to make claims about their electricity consumption, raising the possibility of similar arguments about companies’ use of offsets.

While the Federal Trade Commission (FTC) Act prohibits “deceptive acts or practices in or affecting commerce,” states also have their own consumer-protection statutes. Some state laws (for example, New York’s and Massachusetts’s) resemble the FTC Act so much that they have earned the moniker “Little FTC Acts.” Some states also enable private parties to bring lawsuits alleging violations, creating additional risks for corporate offset buyers in those states. 

Navigating federal and state requirements

As discussed in greater detail in a recent Institute for Policy Integrity report, an act or practice is deceptive if it’s “likely to mislead consumers acting reasonably under the circumstances and is material to consumers’ decisions.” Courts generally haven’t required a showing of intent to deceive. Thus, companies that make net-zero, carbon-neutral or related claims could potentially face liability, especially if they base their claims on low-integrity offsets. But companies aren’t liable if they adequately qualify their claims or have a reasonable basis for making them. 

Relevant disclosures could include (but aren’t limited to):

• Descriptions of the offsets on which a company bases its claims
• Accompanying statements of a company’s gross emissions
• Information about the extent of a company’s efforts to directly reduce its emissions (without relying on offsets)

A qualification’s form — how “clear, prominent, and understandable” it is — matters in addition to its content.

What counts as a reasonable basis depends on various factors, such as the cost of substantiating the claim and the amount of substantiation experts consider reasonable. Depending on the specific facts of a given case, these two factors could support companies’ reliance on project developers, crediting programs, and validation and verification bodies to ensure offset integrity. For example, companies could argue that market participants and standard setters have largely agreed upon the existing structure for validating projects, verifying emissions reductions and removals, and issuing carbon credits. The extent to which a court would agree with this argument remains unclear.

Given the similarities between the FTC Act and many state consumer-protection laws, corporate buyers may be interested in how cases brought under state laws play out. The ongoing case in California about Apple’s claims that certain Apple watches were carbon-neutral is a prime example. (The court recently found the plaintiffs hadn’t provided sufficient factual support for their allegations and dismissed the case for now, but the plaintiffs could still amend their complaint.)

Even though such cases don’t bind the FTC or the courts to interpret the FTC Act the same way, they could offer hints about how the Act might apply. At the same time, companies that sell their products in multiple states also need to pay attention to the specifics of state consumer-protection laws. 

Embracing uncertainty to improve accuracy

Ultimately, the emissions reductions and removals that underlie offsets are inherently risky and uncertain in ways that much of the voluntary carbon market doesn’t currently acknowledge. What’s more, these inherent risks and uncertainties are difficult or impossible to address within the market’s current dominant framework, given the centuries-to-millennia durations required for an emissions reduction or removal to truly “offset” an emission. 

Shifting the entire market to an equivalence framework that more fully and honestly accounts for these risks and uncertainties could help improve the accuracy of market participants’ claims. Another option is a contribution framework that highlights the dollar-value of companies’ investments in climate mitigation. Both types of frameworks could facilitate more accurate claims. And there may be others.With offsetting and other environmental claims currently under close scrutiny, companies may feel tempted to avoid them altogether. But even imperfect offsets can have social value. And greater awareness of the legal risks that may arise from offsetting claims can help companies better manage these risks while continuing or even increasing their efforts to address their climate impacts.