carbon neutrality claims and consumers

I spoke at the FTC’s workshop on carbon offsets and renewable energy certificates. Useful background: Randal Shaheen, Amy Ralph Mudge, and Matthew Shultz, Carbon Neutral:The New Green—Substantiation Issues for the Next Generation of Environmental Claims. Webcast here. NYT report here. An interesting example of a case in which an industry wants government regulation in order to support the development of a market, including consumer confidence.

Deborah Platt Majoras (FTC Chair): Eight in ten Americans say environmental policies should matter in their purchasing decisions. The FTC wants to help people buy green and not get fooled, and has accelerated review of the Green Guides (1992, rev. 1998). New terms are at issue: carbon-neutral, sustainable, cradle-to-cradle, etc. The claims are credence-based and hard to verify – e.g., does the seller really plant trees? Does planting trees decrease greenhouse effects? There is thus a heightened potential for deception.

Majoras reminded advertisers that both express and implied claims require substantiation, and that good faith isn’t enough; even good faith purchasers could buy offsets that have been sold more than once. The FTC seeks to give guidance to marketers and consumers without developing environmental performance standards. What, if any, additional guidance is warranted?

Lesley Fair, Division of Consumer & Business Education: Reminded advertisers that website materials are ads and thus subject to the FTC Act. General environmental claims may need careful qualification. Specific environmental/scientific claims require competent and reliable scientific evidence, which is methodologically sound research using accepted procedures with statistically significant results – not anecdotal evidence, and not sales materials from the supplier who sold you the underlying materials/ingredients.

The Commission has, to her knowledge, never lost a case where the defense was “we disclosed relevant information in a footnote/superscript!”

Katherine Hamilton, Ecosystem Marketplace: The carbon offset marketplace is mostly chaotic, a sort of Wild West/buyer beware area, but there is significant consumer demand. Customers care about (1) additionality – a project that wouldn’t have happened without the offset; (2) additional environmental benefits – “charismatic carbon”; and (3) certification – which may be related to exposes about products in the marketplace – and perhaps even registries where you can watch transactions happening.

Alan Levy, FDA (notably clear and concise – I would invite him to talk about consumer perceptions anywhere!): He doesn’t know much about carbon offsets, but does know about how consumers understand information disclosures and product labels. The claims we are discussing here are strange – they’re not about individual use attributes like taste (experience claims). Carbon footprints can’t be verified by consumers, or even by a group of consumers – these are extreme forms of credence claims. Biodegradability is verifiable, but carbon neutrality can’t be verified by product testing, nor can other claims about producer behavior outside the production cycle.

Also, most people have only a vague notion of what a carbon footprint is, and even less about what an emissions market is. And consumers know they don’t know. This produces difficult practical challenges: trust and knowledge. Buying a carbon neutral product is an act of symbolism and faith.

From the consumer point of view, labeling is a convenient shortcut for search. Effective marketing has to seem useful to consumers.

Knowledge from the FDA: (1) Labels are usually seen by consumers to be about specific products, not categories or issues. Ads can portray themselves as more generally useful. But consumers generally don’t assume ads or labels are educational. They don’t learn scoring mechanisms from those sources or think of food labels as places to learn about nutrition. (2) Consumers are looking for new and relevant information, especially product-specific information. (3) Consumers don’t necessarily assume ads are reliable. They are wary of being misled. They don’t carefully assess every claim – the whole point is to save time on search – but they’re sensitive to whether claims sync with what they already know. They run a reflexive legitimacy test on new info. This is the value of a positive brand identity: it allows claims to pass that test without triggering too much thinking.

All marketing claims are implied because they depend on what consumers already know (about value, at a minimum).

Identifying current consumer knowledge is the key to an effective approach in this area. In the dietary supplement market, producers specialize in providing information to consumers to raise knowledge and facilitate customer acceptance. They use Prevention and other news sources to do so, because news is more credible. Fortunately (for marketers) the news is often filled with what’s going on in marketing. News promotion is marketers’ best bet.

Consumers’ rules of thumb: (1) Ubiquitous claims generate confidence that the claims have been vetted and are trustworthy. (2) Marketing that uses the same format to convey information shows the existence of a consensus or maybe even a regulatory entity that can rein in excesses. This is why the nutrition panel on food has been a huge success. And it explains why industry would want a Green Guide. Consumers don’t care whether the standard is voluntary or mandatory. (3) Inconsistency signals ulterior motives and heightens skepticism.

A couple of notes from the last panel, a roundtable about what the FTC could do to help consumers as it reviews the Green Guides:

Wiley Barbour, Environmental Resources Trust (an impressive speaker): The public needs something simple: indirect reductions are difficult to explain. Also, there is no consensus in the community about what counts as a reduction when you’re buying offsets instead of reducing emissions directly. The FTC could help define terms, but those will be policy choices and we should confront that head-on. In fact, this is about price: we do have some reductions that everyone could agree on, but the fact is that they’re too expensive, so we’re looking for cheaper alternatives.

Moreover, we simply can’t expect consumers to understand the distinctions we’re talking about in terms of varying certification standards. Additionality – the extent to which a renewable energy credit or other transferable device represents environmental benefit that would not otherwise have occurred – is a key term here, but very hard to define. We need to make some policy decisions about standardizing, which is especially important if we are, as seems likely, moving towards a mandatory emissions control regime.