BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 722
Senator Steinberg
As Amended April 23, 2009
Hearing Date: May 5, 2009
Health and Safety Code
SK
SUBJECT
Greenhouse Gas Credits
DESCRIPTION
This bill would prohibit any person from representing in
advertisements or sales materials that the sale of a greenhouse
gas credit or emission reduction reduces greenhouse gas
emissions unless certain conditions are met. This bill would
require any person who represents in advertising that a
greenhouse gas credit or emission reduction results in a
reduction in greenhouse gases to maintain in written form and
make available to the public certain information and
documentation supporting the validity of the representation.
This bill would provide for civil remedies for a violation.
BACKGROUND
According to the U.S. General Accountability Office (GAO), a
"carbon offset," or greenhouse gas credit, is a "measurable
reduction of greenhouse gas emissions from an activity or
project in one location that is used to compensate for emissions
occurring elsewhere." In recent years, two primary markets have
developed for carbon credits. In the larger compliance market,
companies, governments, and other entities buy carbon credits in
order to comply with caps on the total amount of carbon dioxide
they are allowed to emit. In the smaller, voluntary market,
individuals and companies purchase carbon credits to mitigate
their own greenhouse gas emissions from transportation,
electricity use, and other sources.
Carbon offsetting is beginning to gain popularity among
(more)
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consumers who wish to counteract the potentially negative
environmental effects of their lifestyles by purchasing offsets.
However, due to their intangible nature, the quality of carbon
offsets is difficult for consumers to verify. This, coupled
with the lack of a uniform standard for the independent
certification of carbon credits, has created a situation where,
the author asserts, consumers risk purchasing credits that do
not actually yield any reduction in carbon emissions. Further,
industrial companies may be profiting from doing very little by
selling the carbon credits they have gained for implementing
"greener" technology or practices, which would have occurred
regardless of the sale. This bill would establish consumer
protections in the sale of these intangible products.
This bill was approved by the Senate Committee on Environmental
Quality on April 20, 2009.
CHANGES TO EXISTING LAW
Existing law requires the State Air Resources Board to adopt
regulations to require the reporting and verification of
statewide greenhouse gas emissions and to monitor and enforce
compliance with the program. (Health & Saf. Code Sec. 38500 et
seq.)
Existing law generally prohibits the use of false or misleading
statements in advertising. (Bus. & Prof. Code Sec. 17500.)
Existing law also provides specified remedies and penalties for
violations, including civil penalties and injunctive relief.
(Bus. & Prof. Code Secs. 17534.5, 17535, 17536.)
Existing law contains provisions relating to environmental
representations which:
1)require any person who represents in advertising or on a label
that the consumer good it manufactures or distributes is not
harmful to, or is beneficial to, the natural environment
through the use of certain terms (e.g., "ecologically
friendly," "earth friendly," "green product") to maintain in
written form certain information and documentation supporting
the validity of the representation which must be made
available to the public upon request;
2)prohibit any person from making any untruthful, deceptive, or
misleading environmental marketing claim; and
3)provide any violation of the above requirements is a
misdemeanor punishable by imprisonment in the county jail not
to exceed six months, or by a fine of no more than $2,500, or
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both. (Bus. & Prof. Code Secs. 17580, 17580.5, 17581.)
This bill would prohibit any person from representing in
advertisements or sales materials for the sale of a greenhouse
gas credit or emission reduction that the credit or reduction
reduces greenhouse gas emissions unless it meets one or more of
the following conditions:
1)the credit or emission reduction meets methodologies that have
been adopted by the State Air Resources Board as being in
compliance with the California Global Warming Solutions Act of
2006;
2)the credit or emission reduction complies with one or more
protocols for voluntary emissions reductions of greenhouse
gases adopted by the California Climate Action Registry; or
3)the person demonstrates and discloses in any advertising or
other sales or promotional material made available to the
public, that the credit or emission reduction meets all of the
following conditions:
a) the credit or emission reduction is quantifiable and
measurable, as specified;
b) the credit or emission reduction is surplus, and is in
addition to any greenhouse gas emission reduction that
would otherwise occur;
c) the credit or emission reduction is verifiable and
enforceable by a state, regional, or local agency within
the State of California; and
d) the credit or emission reduction does not cause or
contribute to a violation of any state or federal ambient
air quality standard or toxic air contaminant standard.
This bill would require any person who represents in advertising
that a greenhouse gas credit or emission reduction results in a
reduction in greenhouse gases to maintain in written form and
make available to the public the following information and
documentation supporting the validity of the representation:
1)the basis for the claim; and
2)information on any adverse environmental or public health
impacts associated with the creation and maintenance of the
credit or reduction.
This bill would provide that a violation of the bill's
provisions is subject to a civil penalty, not to exceed $2,500
per violation and the cost of the purchase of the credit,
offset, or reduction.
This bill would provide that a violation of its provisions
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creates a civil cause of action that may be brought by any
person who can show harm or by any governmental entity. Under
the bill, reasonable attorney's fees and costs are available for
any action brought.
This bill would become operative on January 1, 2011 and would
become inoperative if the Federal Trade Commission adopts rules
or regulations to protect consumers regarding claims or
representations for greenhouse gas emission credits or
reductions.
This bill would contain related definitions and legislative
intent.
COMMENT
1. Stated need for the bill
The author writes:
Carbon offsets are "essentially promises to use money in a way
that will reduce emissions" (Louise Story, "FTC Asks if
Carbon-Offset Money is Well Spent," The New York Times,
January 9, 2008). Individuals and corporations purchase
carbon offsets to compensate for the greenhouse gas emissions
they create or to which they contribute. However, it has been
reported that "finding projects that legitimately reduce
humanity's carbon footprint is hugely expensive and prone to
abuse." (Jason Kirby, "Absolving Green Guilt," McCleans, March
19, 2008.)
Currently there are no guidelines, regulations, or oversight
to ensure that advertising claims for carbon offsets are
valid. Although the Federal Trade Commission held workshops
in 2008 concerning carbon offsets and renewable energy
certificates as part of its effort to examine marketplace
developments and consumer perceptions of environmental claims,
the FTC has yet to revise its environmental advertising
guidelines which were last updated in 1998. . . . As more
people purchase these reductions to compensate for their
carbon footprint, questions arise as to what is being done to
ensure that people are buying genuine carbon offsets.
2. Growth of carbon offset industry highlights concern for
transparency
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An August 2008 report by the GAO entitled Carbon Offsets: The
U.S. Voluntary Market Is Growing but Quality Assurance Poses
Challenges for Market Participants discusses the recent growth
in the carbon offset industry:
The scope of the U.S. voluntary carbon offset market is
uncertain because complete data on the volume of transactions
do not exist, but available information shows that the supply
of offsets generated from projects based in the United States
is growing rapidly. . . . Over 600 entities develop, market,
or sell offsets in the United States, and the exchange of
offsets may involve a wide range of participants, prices,
transaction types, and projects.
Data on the total volume of offsets traded in the United
States are not available and the market's transparency is
limited. Despite the lack of complete data on the overall
volume of transactions, available data show a significant
increase in the supply of offsets generated in the United
States. Specifically, the supply has increased approximately
66 percent, from about 6.2 million tons in 2004 to about 10.2
million tons in 2007.
Other press reports state, "[t]he voluntary market for carbon
offsets and credits has grown from almost nothing five years ago
to $91 million in 2006 and likely more than $200 million in
2007, according to Ecosystem Marketplace estimates. Some
analysts see it nearing $4 billion within three years. Growing
along with it is a heated debate among climate experts,
environmentalists and policy makers over the true measure of
emissions reductions from projects sold as squeaky green; the
potential for fraud; and whether government standards would
help." (John Simerman, "Offset industry sparks debate," Inside
Bay Area, 5 Feb. 2008.)
The rapid growth of the industry coupled with a lack of common
standards and the intangible nature of carbon offsets themselves
arguably makes it difficult, if not impossible, for consumers to
verify that they are receiving what they paid for and creates a
significant potential for deceptive claims. This bill is
intended to ensure that carbon offsets meet specified standards,
and to provide appropriate recourse to consumers.
3. Bill would create a civil right of action for false
advertising in the sale of carbon offsets; harm requirement
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This bill would provide that a violation of its provisions
creates a civil cause of action that may be brought by any
person who can show harm or by any governmental entity.
California's Unfair Competition Law (UCL) protects consumers and
businesses from a wide variety of "unlawful, unfair or
fraudulent business acts or practices and unfair, deceptive,
untrue or misleading advertising." (Bus. & Prof. Code Sec.
17200 et seq.) Section 17500 makes it unlawful for any person
or corporation to induce the public through any manner or means
to buy products or services through untrue or misleading
advertising. Remedies for violations of Business and
Professions Code Section 17500 et seq. include injunctive
relief, restitution, and civil penalties of up to $2,500 for
each violation.
Essentially, this bill creates a private right of action modeled
after those currently available for victims of false advertising
under the UCL. The creation of additional consumer remedies in
the context of a rapidly developing market for carbon offsets is
arguably appropriate considering the potential for deceptive
practices. Consumers should have the right to certain
disclosures and assurances about the type of carbon offset they
are purchasing, just as in any other type of retail market,
particularly since carbon offsets are more intangible than other
products.
It is important to note, however, that this bill would require a
plaintiff to show harm. The author may wish to consider whether
or not there should be a harm requirement.
4. Opposition arguments
The Western States Petroleum Association (WSPA) opposes the bill
including its remedies provisions, stating:
. . . SB 722 would now create an entirely new cause of action
allowing any person who can show harm to sue anyone who
participated in a voluntary transaction that did not comport
with new California specific requirements. The bill's new
penalties are unnecessary to impose liability on those who
deal in the voluntary market improperly. Civil liability
already exists between parties in the market due to the
contract inherent in a purchase.
The California Council for Environmental and Economic Balance
(CCEEB) also opposes this provision of the bill, stating that it
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"creates a new citizen suit cause-of-action, bolstered by a
'bounty-hunter' provision of the award of attorney fees and
costs" which "will certainly chill the market for voluntary
offsets. . . . To the extent that some voluntary offsets are
offered for sale in California, we would expect the bounty
hunter award to spur frivolous lawsuits." CalChamber makes
similar arguments, stating that the bill "create[s] new
opportunities for litigation."
It is important to note with respect to these concerns that
while consumers may have some contractual remedies those
remedies would be limited and may be difficult to prove.
Furthermore, this bill importantly allows for enforcement by a
governmental entity which is not likely to be a party to any
contract involving the carbon offset. In addition, the
allowance for attorney's fees under this bill is two-way: a
plaintiff or defendant could obtain fees under the bill.
5. This bill is a proper exercise of the state's regulatory
powers
In 2006, the Legislature enacted the California Global Warming
Solutions Act (AB 32, Nu?ez, Chapter 488, Statutes of 2006),
which established a comprehensive program of regulatory and
market mechanisms to achieve reductions of greenhouse gases.
The State Air Resources Board is the state agency charged with
monitoring and regulating sources of emissions of greenhouse
gases that cause global warming in order to reduce emissions of
greenhouse gases. The California Climate Action Registry is a
private non-profit organization originally formed by the State
of California, which develops and promotes credible and
consistent greenhouse gas reporting standards and tools for
organizations to measure, monitor, and verify their greenhouse
gas emissions.
Currently, there are no federal greenhouse gas emissions
reduction mandates, nor are there federal standards for the
certification of carbon offsets. Without question, California
may regulate the sale of carbon offsets that occur within its
borders through intrastate commerce. Further, in the absence of
preemptive federal legislation, California may regulate the sale
of carbon offsets occurring through interstate commerce so long
as the regulation effectuates a legitimate local public
interest, and does not pose an undue burden on interstate
commerce. (See Pike v. Brace Church, Inc. (1970) 397 U.S. 137,
142 ("Where the statute regulates even-handedly to effectuate a
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legitimate local public interest, and its effects on interstate
commerce, are only incidental, it will be upheld unless the
burden imposed on such commerce is clearly excessive in relation
to the putative local benefits.").) California has an interest
in ensuring that products that are purposefully directed at
California residents meet specified standards designed for
consumer protection. This is consistent with existing law that
generally regulates the obligations of sellers in retail
markets.
Support : None Known
Opposition : California Council for Environmental and Economic
Balance (CCEEB); California Manufacturers and Technology
Association (CMTA); Western States Petroleum Association (WSPA);
EcoSecurities; CalChamber
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HISTORY
Source : Author
Related Pending Legislation :
AB 376 (Nava) would require a person selling a voluntary
greenhouse gas emission offset to disclose specified information
in advertising materials and ensure the offset has a unique
serial number and is tracked by a registry. This bill, which
would provide civil penalties up to $10,000 for each violation,
is pending hearing in the Assembly Committee on Natural
Resources.
Prior Legislation :
SB 1762 (Perata, 2008) was substantially similar to this bill,
but was subsequently amended to create a California Climate
Change Institute. The bill was vetoed.
AB 1851 (Nava, 2008) was amended to contain substantially
similar carbon offset provisions as SB 1762, but was later moved
to the Inactive File.
AB 3994 (Sher, Ch. 1413, Stats. 1990) enacted consumer
protections relating to environmental representations as
described above in Changes to Existing Law.
Prior Vote : Senate Committee on Environmental Quality (Ayes 6,
Noes 1)
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