BILL ANALYSIS
SB 722
Page 1
Date of Hearing: June 30, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 722 (Steinberg) - As Amended: June 25, 2009
SENATE VOTE : 21-15
SUBJECT : Greenhouse Gas Credits
KEY ISSUE : SHOULD COMPANIES THAT ADVERTISE GREENHOUSE GAS
REDUCTIONS OR OFFSETS BE SUBJECT TO REASONABLE CIVIL PENALTIES
FOR FALSE ADVERTISING IF THE CLAIMED REDUCTIONS OR OFFSETS
CANNOT BE VERIFIED?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
A recent surge in the marketing of greenhouse gas "credits" or
"offsets" seeks to allow consumers to reduce their carbon
footprint, not by changing their own behavior, but by purchasing
emission "credits" and "offsets" from sellers who have
voluntarily reduced greenhouse gas emissions or who promise to
contribute the money to environmental projects that reduce
overall greenhouse gas emissions. For example, an airline may
attach an additional charge to the price of an airline ticket
and promise to use the money for a reforestation project that
will supposedly help to offset harmful emissions produced by the
flight. Because of the unregulated nature of the market,
whether the "credits" truly represent some measurable reduction
in emissions - as they claim - is difficult for consumers to
determine. This bill seeks to prohibit any person from
advertising an emission "credit" or carbon "offset" unless
certain conditions are met. Additionally, this bill provides
that any person who advertises these products must maintain and
make available to the public documents supporting the
representation, as well as information on any significant
adverse environmental impacts associated with the creation and
manufacture of the credit or emission reduction. Finally, this
bill provides that a violation of its provisions is punishable
by civil penalties and creates a civil cause of action that may
SB 722
Page 2
be brought by any person or governmental entity. The author
notes this bill appears necessary because of the growing concern
about the potential for fraud in this market, and because
existing law does not appear sufficient to protect the integrity
of this promising but still evolving industry. The bill is
opposed by a number of business groups and tort reform advocates
who claim that the bill will simply generate litigation, and as
such may potentially discourage businesses from engaging in
emission-reducing projects.
SUMMARY : Establishes reasonable new standards for advertising
greenhouse gas reductions and remedies for violating of these
standards. Specifically, this bill :
1)Prohibits any person from representing in an advertisement or
in any other sales material promoting the sale or use of a
greenhouse gas credit or emission reduction, that the credit
or reduction reduces greenhouse gas emissions unless one or
more of the following conditions are met:
a) The credit or emission reduction meets the methodologies
or standards that have been adopted or approved by the
State Air Resources Board, as provided.
b) The credit or omission reduction complies with one or
more protocols for voluntary emissions reductions of
greenhouse gases adopted by the California Climate Action
Registry, and is registered with the California Climate
Action Registry.
c) 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:
i) It is quantifiable and measurable;
ii) It is surplus, and is in addition to any
greenhouse gas emission reduction that would otherwise
occur;
iii) It is verifiable and enforceable by a state,
regional, or local agency within California;
iv) It does not result in an increase in the
emission of specified pollutants or toxic air
contaminants; and
v) The credit or emission does not result in adverse
environmental impacts, as specified.
2)Provides that any person who represents in an advertisement or
SB 722
Page 3
other promotional material, for the sale of a greenhouse gas
credit or emission reduction, that the credit or reduction
results in a reduction of greenhouse gas emissions, shall
maintain in written form and make available to the public the
following information and documentation supporting the
validity of the representation:
a) The basis for the claim, including documentation on one
or more of the conditions required above.
b) Information on any adverse environmental or public
health impacts associated with the creation and manufacture
of the credit or emission reduction, as specified.
3)Provides that a retailer who does not initiate a
representation by advertising or through other means available
to the public shall not be deemed to be in violation of this
section.
4)Provides that a violation of the above requirements is
punishable by a civil penalty not to exceed $2,500 per
violation, and by the cost of the purchase of the credit,
offset, or reduction, as defined. Provides that a violation
creates a civil cause of action that may be brought by an
individual or a district attorney. Provides that a violation
is not a crime.
5)Defines "greenhouse gas credit," "emission reduction,"
"credit," offset," "reduction," or any similar terms as a
voluntary reduction in the emission of greenhouse gases into
the atmosphere undertaken for the purposes of selling,
trading, or otherwise providing the credit for emission
reduction to another party.
6)Makes findings and declarations regarding global warming and
the protections necessary to ensure consumers are purchasing
emission reduction credits that actually result in emission
reductions.
EXISTING LAW :
1)Requires, through the California Global Warming Solutions Act
of 2006, 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 & Safety Code Section 38500 et seq.)
SB 722
Page 4
2)Generally prohibits the use of false or misleading statements
in advertising. Provides specified remedies and penalties for
violations, including civil penalties and injunctive relief.
(Business & Professions (B&P) Code Section 17500 et seq.)
3)Establishes, under the Consumers Legal Remedies Act, consumer
protections against unfair and deceptive business practices
and provides efficient and economical procedures to secure
such protections. (Civil Code Section 1750 et seq.)
COMMENTS : A greenhouse gas credit or a carbon offset, like any
other commodity, can be traded. In theory, the "credit"
represents emission- reducing activity by one party, who then
sells the credit to a second party, in order to "offset" the
second party's emission- producing activity. There are at least
two distinct markets in which these credits are traded. The
first, usually referred to as the "regulatory" or "compliance"
market, involves businesses, governments, and other entities
that are legally or contractually bound to comply with emission
"caps." In this market, for example, a business that generates
emission levels lower than the cap earns "credits" that can be
sold to a business that produces more in order to comply with
the caps. These so-called "cap and trade" formulas use market
incentives to reduce overall emissions. In the second,
so-called "voluntary" market -the market with which this bill is
concerned - individual consumers purchase carbon credits to
mitigate greenhouse gas emissions from their own transportation,
electricity use, and other activities. Credits are typically
generated from various emissions-reducing projects, such as
reforestation or alternative energy projects, like wind or
solar. Supporters of such markets contend that, even if the
practice partially serves to assuage a consumer's guilt, it
nonetheless has the potential of generating money for worthy
emission-reducing projects. Yet, without regulation, the market
is also potentially ripe for abuse. (See e.g. "FTC Asks if
Carbon Offset Money is well spent," New York Times, January 9,
2009.) As the San Jose Mercury News put it in an editorial
calling for more regulation of this market:
Curbing your global warming will mean global changes
in behavior, not hoping the next guy does it. But if
selling offsets really helps good projects get done,
so much the better. Just make sure they do what they
say they do. (San Jose Mercury News, May 4, 2008.)
SB 722
Page 5
This bill seeks to assist in that goal: "Make sure they do what
they say the do." Specifically, this bill would do three
things:
First, it prohibits any person or entity from advertising
emission credits or offsets unless it can support the claim in
one of the three following ways: (1) the credit or offset
meets methodologies adopted by the State Air Resources Board;
(2) the credit or offset complies with one or more of the
protocols for voluntary emission reductions adopted by the
California Climate Action Registry, a non-profit organization
created by the state that tracks and monitors
emission-reducing project; or (3) the person or entity
demonstrates in the advertising or promotional material that
the reduction is quantifiable and measurable; that the
reduction is not one that would otherwise occur in the absence
of selling the credits (e.g. it is already funded by some
other source or the person or entity is already required to do
it); the credit is verifiable by a state, regional, or local
agency; and the credit does not contribute to the violation of
other state or federal air quality standards, as specified.
Second, it would require any person or entity that advertises
credits to maintain, in written form and available to any
member of the public, specified documentation that supports
the claim of emission reduction.
Third, it provides that a violation of the bill's provision is
punishable by a civil penalty not to exceed $2,500 per
violation, and is also subject to a civil cause of action that
may be brought by any person or governmental entity.
Civil Remedies : This bill creates a civil action for false
advertising in the sale of carbon offsets. California's Unfair
Competition Law (UCL) protects consumers and businesses from
"unlawful, unfair or fraudulent business acts or practices and
unfair, deceptive, untrue or misleading advertising." (B&P Code
Section 17200 et seq.) Section 17500, the Fair Advertising Act
(FAA), 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 the UCL and FAA provisions include injunctive
relief, restitution, and civil penalties of up to $2,500 for
each violation. In addition, the Consumers Legal Remedies Act
SB 722
Page 6
(CLRA) protects consumers against unfair and deceptive business
practices. Remedies include actual damages, injunctive relief,
restitution, punitive damages and attorney's fees. Under
Proposition 64 of 2004, a person may not bring an action unless
he or she has suffered an "injury in fact," or actual monetary
damages.
This bill creates a private right of action modeled, in part, on
the UCL and the CLRA. The creation of additional consumer
remedies in the context of a rapidly developing market for
carbon offsets, the author contends, is appropriate considering
the potential for deceptive practices in the marketing of a
complex product. Although the remedy provisions of this bill
are similar to those in Section 17500, this bill would expressly
state that a violation does not constitute a crime.
ARGUMENTS IN SUPPORT : In support of the bill, the author
states:
The carbon offset market is fairly new and growing
substantially. According to a New York Times article,
"FTC [Federal Trade Commission] Asks if Carbon-Offset
Money Is Well Spent" (January [], 2008), more than $54
million last year was spent on carbon offset credits
in the United States. Individuals and corporations
purchase carbon offsets to compensate for the
greenhouse gas emissions they create or contribute to.
However, there are no guidelines, regulations, or
oversight to ensure that advertising claims for
offsets are valid. The FTC has not updated its
environmental advertising guidelines for 10 years.
Because of Proposition 64, present law limits those
who may raise [an Unfair Competition Law] claim to
individuals who have suffered injury in fact and have
lost money or property. When Proposition 64 passed in
2004, the carbon offset industry was minimal in
existence. It is just over the last couple of years
that carbon offsets have gone mainstream. Greenhouse
gas reductions are not as tangible or easily defined
in terms of 'injury in fact' and 'loss of money or
property'. As more people purchase these reductions
to compensate for their carbon footprint, questions
arise as to what is being done to ensure that they are
purchasing genuine carbon offsets. There is growing
SB 722
Page 7
concern about the measure of emissions reductions from
projects sold and the potential for fraud. However,
current law does not provide the necessary tools to
address this evolving industry.
ARGUMENTS IN OPPOSITION : The Civil Justice Association of
California (CJAC) summarizes the opponents' position by arguing
that this bill "is unnecessary and . . . will invite unjustified
litigation in the effort to reduce greenhouse gas (GHC)
emissions." CJAC contends that if the main purpose of the bill
is to promote fair advertising - which CJAC also supports - then
it is unnecessary because the UCL and FAA "already allow
individuals who have suffered injury in fact or lost money or
property to sue if sold a fraudulent greenhouse gas offset."
CJAC also believes that this bill will "subject legitimate GHG
offset providers who provide real, permanent, verifiable, and
additional emission reductions to meritless litigation by
parties who have not suffered any injury." CJAC claims that a
business that fully complies with standards of the Air Resources
Board and the protocols of California Climate Action Registry
might still be subject to lawsuits under the document
maintenance provisions of the bill if the documents do not
sufficiently demonstrate such expansive and vaguely worded
requirements as documenting "any adverse environmental or public
health impacts associated with the creation of the credit or
emission reduction, including impacts on species, habitat,
ecosystems, land use biodiversity, air quality, water supply and
quality, access to food, and production of food." The need to
retain documents relating to all of these subjects, CJAC claims,
will require retention of information that has little relevance
to the accuracy of advertising. Such provisions, CJAC claims,
will only create "fertile ground for creative pleading of
imagined injuries."
The many business and trade associations listed below make
substantially the same claims as CJAC.
Pending Related Legislation : AB 376 (Nava) would have, similar
to the bill under consideration and last year's AB 1851 by the
same author, regulated advertising in the voluntary carbon
offset market. (Held in Assembly Appropriations Committee).
Prior Legislation: AB 1851 (Nava, 2008), as amended in the
Senate, would have enacted the Greenhouse Gas Reduction
SB 722
Page 8
Representations Law to prohibit any person from representing
that the sale of a greenhouse gas credit or emission reduction
reduces greenhouse gas emissions unless certain conditions are
met. (Placed bill on the Assembly Inactive File by the author
prior to an Assembly vote on concurrence in Senate amendments.)
AB 32 (Nunez), Chap. 488, Stats. 2006, enacted the California
Global Warming Solutions Act of 2006, which required that
California reduce overall greenhouse gas emissions to 1990
levels by 2020. Required, in order to better achieve this goal,
that the State Air Resources Board adopt regulations on the
reporting and verification of statewide greenhouse gas emissions
and to monitor and enforce compliance with the program.
AB 3994 (Sher), Chapter 1413, Stats. 1990, made it unlawful for
any person to represent that any consumer good, which it
manufactures or distributes is "ozone friendly,"
"biodegradable," "photodegradable," "recyclable," or "recycled"
unless the item meets specified definitions or meets definitions
established in trade rules adopted by the federal trade
commission. The bill also required any person who represents
that any consumer good which it manufactures or distributes is
not harmful to, or is beneficial to, the environment through the
use of specified terms, to maintain in written form in its
records information and documentation supporting the validity of
the representation.
Support
American Lung Association
Consumer Attorneys of California
League of Conservation Voters
Natural Resources Defense Council
Opposition
California Business Properties Association
California Construction and Industrial Materials Association
California Chamber of Commerce
California Grocers Association
California Independent Petroleum Association
California League o Food Processors
California Manufacturers & Technology Association
California Retailers Association
Civil Justice Association of California
SB 722
Page 9
Ecosecurities
Santa Barbara Technology and Industry Association
Western States Petroleum Association
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334