For years, Connecticut businesses and residents have had the ability to purchase renewable electricity in various forms and amounts and thereby support their environmental or sustainability goals.

Customer commitment to “greening” electricity use is no longer a foreign or unusual concept, but businesses still struggle with the issue of what marketing claims they can make regarding their renewable energy purchases and when they can make them. There is limited federal and virtually no state law guidance for those looking to advertise their environmental claims.

With its recently revised “Green Guides,” the Federal Trade Commission (FTC) provides clarified and updated guidance regarding energy-related environmental claims and adds a section specific to renewable energy claims. Last revised almost 15 years ago, Green Guides were long overdue for this latest revision issued in October 2012. But questions remain.

Renewable Source?

The definition of “renewable energy” can vary significantly from state to state and program to program. For example, each state that requires an electric supplier to use a certain amount of renewable energy when serving its customers defines “renewable” differently. Understanding this, the FTC declined to prescribe a definition of this term (as well as “sustainable,” “natural” and “organic”) in its revised Green Guides.

What the FTC did state is that renewable energy cannot be derived from fossil fuels. In practice, this means that a company purchasing types of energy considered “renewable” under state renewable portfolio standards but that are from a source or sources involving the use of fossil fuels cannot market itself or its products as using renewable energy.

For example, in Connecticut, fuel cells are considered to be a “Class I” renewable electricity source, but most are fueled by natural gas. Accordingly, under the Green Guides, fuel cells would not be a source of renewable energy, and if a company using electricity generated from a fuel cell marketed itself as using “renewable energy,” that claim would be considered misleading under the Green Guides.

When a company that uses mostly renewable electricity derives a portion of its energy from fossil fuels, it may be able to provide further disclosures about its renewable energy purchases and thereby avoid a claim of deceptive or misleading advertising. Where a company obtains most of its electricity from solar power, but occasionally uses a diesel back-up generator or purchases system mix power from the grid, the company could qualify any environmental claim it makes about its renewable energy use by a disclosure of the extent of that renewable energy derived from fossil fuels.

Though declining to provide a specific definition of renewable energy, the Green Guides encourage (but don’t require) companies to disclose the sources of their renewable energy, such as wind, solar, or biomass, when making environmental marketing claims. If renewable energy purchases consist of a mix of renewable sources, the Green Guides suggest that the mix be disclosed in a clear and conspicuous manner.

The images used in an advertisement may come into play as well. For example, an advertisement using a photograph of windmills to promote a company’s environmental claim of renewable energy use could mislead the consumer if the sources of the renewable energy used by the company were primarily landfill gas or wood-burning facilities, even where the renewable mix is disclosed in the advertisement’s text.

REC-Based Claims

In the United States, renewable energy purchases typically take the form of “renewable energy certificates,” or “RECs,” purchased to match the delivered electricity. A renewable energy source creates one REC for each megawatt-hour of electricity the facility generates.

The REC, which represents the renewable attributes of the electricity, including fuel source (solar, wind, biomass), year generated, age of the generating unit, and other related factors, can be sold separately from the electricity to provide the facility with another source of revenue. A REC can be transferred multiple times, but a single entity can only “use” a REC once for compliance or marketing purposes.

Tracking systems account for the renewable electricity generated in a particular region of the country, and track the transfer, export and retirement of the RECs associated with the generation. Companies purchase RECs to match all or a portion of their electricity use, or they purchase bundled renewable electricity products from energy suppliers, with the bundle being a combination of electricity and RECs.

The Green Guides provide that the combination of electricity and RECs, even if purchased separately, can be advertised as “renewable electricity.” They note, however, that marketing a product as created using renewable electricity, when the energy is generated by a renewable resource, but the RECs associated with that energy are sold to someone else, is misleading.

Also, if only a portion of the electricity used is renewable, or only a portion of the production process uses renewable electricity, a claim regarding renewable energy can be misleading if not sufficiently qualified. In addition, companies must exercise caution when making marketing claims about their use of “renewable power,” as opposed to the more precise term “renewable electricity.” The use of gas power in stoves or water heaters could contravene the renewable energy claim.

Ideally, renewable energy claims will specify the energy provided from renewable sources (i.e., electricity), the type of renewable electricity being used (wind, solar, biomass) and the percentage of the company’s electricity use that is from renewable sources, if that percentage is less than 100 percent.

Location, Location, Location

During the two-year Green Guides revision process, the FTC considered whether there should be a locational requirement for renewable electricity purchases supporting an environmental marketing claim. Does the facility from which a company purchases RECs need to be located within the same state or electricity service territory as the company making the renewable electricity claim? The Green Guides do not impose any locational requirement on REC purchases. Nor do the revised Green Guides require that the location of REC purchases necessarily be disclosed in the company’s advertising claim.

The FTC was careful to note, however, that in some circumstances a failure to disclose the location of the source of renewable electricity purchases would be misleading. For example, if a company’s advertisement includes a picture of a large, local wind farm, but the company actually purchases its energy from a wind source in another part of the country, the company’s advertisement could be misleading.

Similarly, if the text of an advertisement implies that the company’s renewable electricity purchases support local renewable facilities or improve the local environment, the advertisement may be misleading when the source of the company’s RECs is not local.

Rooftop Solar

Companies with on-site renewable generation that sell the RECs generated by the facility, often as an additional revenue source to offset the facility’s cost, cannot claim they are using renewable electricity.

In the past, such companies have marketed themselves as “hosts” for renewable facilities, but the revised Green Guides caution that this description of the company could also be misleading. A company with on-site renewable generation that does not retain the RECs associated with the electricity can advertise that it “generates renewable energy,” but it should also explain that it “sell[s] all of [that energy] to others.”

Looking Ahead

The FTC’s 2012 revised Green Guides provide needed and overdue clarity and add a section addressing renewable energy environmental claims. But the update does not tell the entire story. Voluntary certification programs and state law may have additional requirements for an environmental claim of use of renewable energy.

As companies guided by corporate sustainability goals continue to make, and even expand, environmental claims based upon renewable energy purchases and the FTC steps up attention to and enforcement activity for deceptive or misleading marketing, companies should increase their efforts to avoid making unqualified environmental claims that could be lacking in sufficient justification. •