The EU's ban on false environmental claims protects consumers but also raises concerns

Monday, October 2, 2023

The Parliament and Council of the European Union have reached a provisional agreement on new rules to ban misleading advertisements and provide consumers with better product information. The new rules aim to protect consumers from deceptive practices and help them make better purchasing choices.

The ban will cover many types of vague and misleading environmental claims, including generic environmental claims, e.g., "environmentally friendly," "natural," "biodegradable," "climate neutral," or "eco," without proof of recognized excellent environmental performance relevant to the claim. Sustainability labels not based on approved certification schemes or established by public authorities will not be allowed.

The "claims based on emissions offsetting schemes that a product has a neutral, reduced, or positive impact on the environment" will be forbidden.  

The carbon neutrality claim has received a lot of criticism lately, and much of it is justified. Many NGOs, such as Carbon Market Watch , consider the new regulations a win for consumer protection. 

False climate claims deserve to be rejected. The Compensate Foundation wants to be clear about that. Consumers and the climate deserve better. 

However, the implications of the ban are still unknown. It may adversely affect climate action if it extends far beyond carbon neutrality and broadly forbids carbon credit-related claims.

Uncertainty about the implications

The ban is specific to consumer products and services. For example, a company might still declare itself carbon neutral in sustainability reports. But if a company claims overall carbon neutrality, including scope 3 emissions, does not that suggest its products are, too? This could be confusing for consumers.

The prohibition also extends to claims of "reduced or positive impact on the environment" via offsetting schemes. While making credible carbon neutrality claims in today's voluntary carbon market is difficult, acquiring credits from high-quality projects can mitigate the climate impact. Many companies are doing this already without making a counterbalancing carbon neutrality claim. 

Many companies now prefer alternative claims, like supporting beyond value chain mitigation, while still using carbon credits. It is uncertain if the EU's ban will cover these claims if "reduced or positive impact" through "offsetting schemes" cannot be communicated. Could this deter investments in carbon credits if companies cannot communicate positive impacts? 

Might the ban also affect net zero claims? For instance, SBTi's net zero standard allows, after 90-95% decarbonization, the use of carbon removals beyond the value chain to "neutralize" remaining emissions. If this involves carbon credits, is it a claim the EU seeks to ban because it communicates a "reduced or positive impact on the environment"?

Barriers to corporate climate action?

The sole uncertainty around the acceptability of claims prevents companies from taking action. This is something that we have witnessed already. Companies and other stakeholders need clarity on the acceptability of different claims immediately. 

In the current climate crisis, we need to incentivize the private sector to take mitigation action, and claims are a significant motivation to make such commitments.

It is becoming clear that the current VCM cannot provide sufficient quality assurance that a carbon credit would represent one tonne of carbon. Against this backdrop, one can understand the EU's stance on carbon neutrality claims. 

However, it is essential to remember that organizations use high-quality carbon for purposes other than offsetting, such as making contribution claims (which do not include a statement about the equivalence between an organization's emissions and credits bought). In the worst case, companies investing in high-quality credits could not communicate these efforts.

Suppose the net zero claims, contribution claims, and beyond the value chain mitigation (BVCM) become less appealing due to concerns of legal disputes and reputational risks. It would have an adverse effect on companies' voluntary climate action.

Text: Janne Rinne & Niklas Kaskeala

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