The EU has introduced new anti-greenwashing regulations, and “carbon neutral labels” may become a restricted area
Greenwashing is changing from a marketing tool to an object of legal supervision.
Apple’s “carbon neutral watch” and Evian’s “carbon neutral mineral water”, these products with labels such as “carbon neutral” and “zero carbon” may be excluded from the EU market in the future.
On January 17, the European Parliament approved the new Empower Consumers for the Green Transition Directive (“ECGT”), which applies to companies selling goods and services to EU consumers, with the aim of protecting consumers from misleading marketing, making better purchasing choices.
The new regulations require the use of “environmentally friendly”, “natural”, “biodegradable”, “climate-neutral” or “eco-” and other vague environmental claims are prohibited if they do not provide recognized excellent environmental performance. Sustainable labels will also be regulated, and in the future, the EU will only allow the use of sustainable labels that are certified or developed by public bodies.
Another major focus of the new regulations is that products that claim to be carbon neutral through the purchase of carbon offsets are also included in the category of “greenwashing”.
In the EU’s view, if a company “claims that its products have a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions or greenhouse gas emission offsets”, it is a misleading business practice and is prohibited.
The legislation still needs final approval from the Council and then is published in the Official Journal of the European Union before it can officially enter into force. EU member states will then have 24 months to incorporate it into their national laws.
In recent years, combating greenwashing has become an important direction of the EU’s green legislation. It has taken a multi-pronged approach to protecting consumer rights and interests and regulating the business environment, and financial markets. There are also the “Green Claims Directive” and “Carbon Removal Certificate” that regulate environmental statements. Framework has also entered the final stage and is expected to bring experience to other markets around the world.
When “Carbon Neutral Labeling” Is Linked to “Greenwashing”
Many studies have shown that consumers today are more willing to pay for environmental protection, and producers are constantly turning their attention to this area.
In the clothing industry, H&M has launched “Conscious Choice” and Zara’s “Join Life”, which are all product series with sustainability as their selling point. In the food and beverage industry, Evian claims on its mineral water bottles that it has “achieved carbon neutrality”; in the aviation industry, British EasyJet and American Delta Air Lines have also launched “carbon neutral flights.”
The introduction of the EU’s new anti-greenwashing regulations means that these general green labels will become invalid unless companies can provide recognized proof of excellent environmental performance.
The European Environmental Bureau (EEB) said this was an important step in the fight against corporate greenwashing. They pointed out: “75% of the products currently on the EU market carry implicit or explicit green claims, but more than half of these claims are vague, misleading or unfounded. Of the EU’s 230 eco-labels, almost Half of the verification procedures are very weak or non-existent.”
It should be emphasized that this does not mean that the EU has given up on its carbon neutrality goal. Carbon neutrality itself is not a problem. Casual claims of ‘carbon neutral products’ or ‘carbon neutral activities’ that lack standards, evidence, and authenticity are the problems that EU legislation needs to solve.
Restricting product environmental statements does not mean denying green and low carbon. The purpose is to provide a more level playing field and allow companies that truly practice green and low carbon to be recognized. This new regulation clearly states that in the future the EU will only allow the use of sustainable labels based on certification or those developed by public institutions.
Previously, many companies on the market provided carbon-neutral label certification services, and the EU’s green legislation process also had an impact on the business of such companies.
For example, Carbon Trust is a UK-based carbon consultancy that provides carbon certification and carbon labeling services. The Carbon Trust released the world’s first carbon label based on product carbon footprint certification in 2007 and launched product carbon neutral labels in 2012. The carbon-neutral label on Evian mineral water bottles is certified by the Carbon Trust. At present, the company mainly provides two types of carbon labels, namely “Reduction claims” and “Comparative claims”.
In September 2023, the Carbon Trust announced that it would no longer provide carbon neutral label certification, and stated on its official website: “As the needs of consumers and regulators continue to change; and companies are taking more ambitious climate actions, the Carbon Trust launched An updated version of the carbon label that is more in line with market demand.”
Carbon offsets are questioned, affecting the voluntary carbon market
Another significance of the EU’s new anti-greenwashing regulations is that it negates carbon neutrality claims based on carbon offsets. This means that when products with labels such as “zero carbon” and “carbon neutral” enter the EU market, there will be risks of violations in the future.
Any production activity will produce greenhouse gas emissions, and there is no way to achieve “zero carbon”. In other words, there is no truly zero-carbon plastic bottle, zero-carbon flight, zero-carbon milk, or zero-carbon World Cup.
If companies want to create “carbon-neutral products”, in addition to reducing their emissions, companies must rely on purchasing carbon credits to offset the carbon emissions generated throughout the life cycle, that is, carbon offsets, such as purchasing forestry carbon sinks.
Under this market demand, the voluntary carbon market emerged as the times require, that is, enterprises, organizations, or individuals that are not included in the scope of mandatory emission reductions voluntarily purchase carbon credits to achieve emission reductions.
Verra is the largest standards-setting organization in the global voluntary carbon market, and the VCS standard it manages is currently the largest voluntary carbon trading mechanism in the world. About three-quarters of the world’s carbon offset projects are certified by Verra, and well-known companies including Disney, Shell, and Gucci are Verra’s customers.
Some environmentalists say carbon credits are nothing more than “indulgence coupons” purchased by companies for emissions. Especially as oil and gas companies have become the largest buyers in the carbon offset market, such high-carbon companies often face greenwashing suspicions due to their large purchases of carbon offsets.
For example, Shell has launched a “carbon-neutral driving” project. When individual customers pay for fuel, they can pay an additional fee for Shell to purchase carbon credits to “neutralize” the carbon emissions generated during fuel use. After the project was released, it was opposed by multiple environmental organizations and market regulatory authorities. The Dutch advertising regulator ruled in 2021 that the advertisement was misleading, and Royal Dutch Shell was subsequently ordered to withdraw its advertisement.
The introduction of new EU anti-greenwashing regulations has once again impacted the mechanism of using carbon offsets to achieve carbon emission reductions. The EU has long banned the use of carbon offsets to fulfill contracts in the mandatory carbon market (EU ETS). Now the new anti-greenwashing regulations have blocked the maximum use of carbon offsets in the voluntary emission reduction market, which may become a watershed in the development of the voluntary carbon market.
Even if a company spends a dollar to buy carbon offsets, it is providing additional economic support to these carbon emission reduction projects, which is better than doing nothing. This kind of enthusiasm should be encouraged. But companies should at least purchase carbon offsets to neutralize remaining carbon emissions when they reach the first echelon of carbon emission reduction among their peers.
Due to the different development stages of different markets, the understanding of the “carbon neutrality statement” also varies from place to place. However, regardless of the market’s recognition of labels such as “carbon neutrality”, there is still no doubt about the importance of corporate carbon reduction. Looking around the world, the debate over ESG and greenwashing is currently very heated, which just proves that the market is also going through a period of transformation and is expected to develop in a more standardized direction in the future.
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