Greenwashing Claims and Building Trust in Carbon Removals with EU and US Policies
This is a cross-listed post between the Carbon Business Council and the Negative Emissions Platform. You can find the cross-listing on their website here.
Introduction
The Voluntary Carbon Market (VCM) is one of the few funding tools currently available to support the carbon removal sector. When designed correctly, policies can help to build trust in the market and pre-empt any claims of greenwashing. Greenwashing has witnessed a surge in recent years with misleading claims affecting trust between companies and consumers, which has raised questions over the credibility of claims made by companies, products, and services. Governments around the world are working to create enabling policies for carbon removal to scale, and part of these policies focus on ensuring that carbon removal has efficacy and is working properly. Below, the Negative Emissions Platform and the Carbon Business Council summarize the latest developments in the European Union (EU) and the United States (US) on creating a robust removals market built upon trust.
European Union
What’s happening?
Under mounting pressure from NGOs and consumers, the European Commission put forward two proposals to tackle greenwashing: the Empowering Consumers Directive and the Green Claims Directive. These two pieces of legislation are closely intertwined and together regulate what claims can be made and how these claims can be substantiated.
The Empowering Consumers Directive, which the European Union institutions agreed on last autumn, banned generic and unsubstantiated environmental claims. Moreover, it banned claims based on GHG emissions offsetting for goods and services. This left the door open for organization and company-level claims, which will be policed by the Green Claims Directive.
The European Commission’s Green Claims Directive proposal is currently being negotiated by the two other main EU institutions: the Council (made up of the EU Member States) and the European Parliament (the EU’s directly elected body). In the Parliament, there were concerns that allowing companies to use these carbon credits to make net-zero claims could lead to mitigation deterrence, and there were uncertainties over the quality of carbon credits.
This is where the EU’s Carbon Removal Certification Framework (CRCF) comes in. The CRCF is a voluntary EU-wide framework which will certify carbon removals within the EU. The intention is to have high-quality carbon removal credits that are verifiable. Currently, the Green Claims Directive makes no reference to the CRCF so it is unclear how the CRCF certificates can be used to make climate claims. The lack of clarity in how the certificates can be used in the Voluntary Carbon Market and the current absence of a compliance market raises doubts about the fundamental purpose of the CRCF if the certificates cannot be used for anything.
International dimension
Linking CRCF and the Green Claims Directive would significantly enhance transparency and credibility in climate claims. However, current negotiations on the CRCF appear to be going in the direction of limiting the scope of the CRCF to carbon removals taking place within the EU. This raises questions about the treatment of carbon removal credits from outside the EU on the EU market.
Given the global dimension of the Green Claims Directive and other related files, such as the Corporate Sustainability Reporting Directive, the EU could, for example, set up a mechanism to screen carbon removal certificates from outside the EU to ensure that they are also up to the same standard set under the CRCF.
Next Steps
An agreement on the CRCF is anticipated in the coming weeks, with questions remaining over how the certificates can be used. The Green Claims Directive is moving considerably slower with the positions of the other EU institutions (Council and European Parliament) expected in the spring. Within the European Parliament, political groups seem to have reached a consensus to allow climate claims at the company level, provided carbon credits are employed for residual emissions and backed by a CRCF or equivalent certificate. While this represents progress from initial positions, significant questions, particularly concerning the definition of residual emissions, remain unresolved.
The absence of a clear definition poses a potential obstacle for investment. While addressing greenwashing is crucial, policymakers should strike a delicate balance to ensure that policy frameworks do not inadvertently hinder investment and innovation in the carbon removal sector. Balancing stringent standards with a supportive environment for growth and development is essential for the long-term success and impact of the carbon removal sector.
Policymakers will need to address this issue as they enter the next stage of the legislative process. Given the European Parliament elections in June, negotiations between the EU institutions (Parliament, Council and European Commission) on the final text of the Green Claims Directive are unlikely to start before the end of the year, with a final agreement expected at the beginning of 2025.
United States
What’s happening?
On the US side, greenwashing claims have been targeted within varying agencies of the federal government, including the Securities and Exchange Commission (SEC). In March 2022, the SEC announced a Climate and ESG Enforcement Task Force, geared towards tackling misconduct with reference to greenwashing for disclosures of climate risks and compliance for investment approaches and publicly-traded companies. During this time, a rule was developed requiring companies to include climate-related disclosure information, including for greenhouse gas emissions. A subsequent rule determined that terminology in claims must also be consistent with its regarded focus area. By September 2023, the rule was adopted to ensure that 80% of a fund’s portfolio (the “name”) matches what is being advertised. This specifically can target misleading claims by companies that are claiming that their products are green.
The US Commodity Futures Trading Commission (CFTC) has proposed guidance regarding the listing of voluntary carbon credit derivative contracts, oriented toward futures contracts, derivatives markets, and spot markets (i.e. voluntary carbon credits). In mid-2023, they also established a task force against environmental fraud in spot markets, including benefits of carbon credits purchased and potential misrepresentations. At the state level, California’s Assembly Bill 1305 (“Voluntary Carbon Market Disclosures Business Regulation Act”), now into law as of 2024, is designed to mandate that businesses selling or marketing voluntary carbon credits within California must disclose specific information about associated carbon offset projects. This is in regard to accountability measures and projected emissions reductions towards ‘net zero’ emissions. The sector will continue to monitor how this may impact carbon removal credits down the line and it continues to pose the importance of federal (or state) regulation in this space.
The carbon removal ecosystem is actively working to advance monitoring, reporting and verification (MRV), which has been described as “the receipts” for carbon removal, and which can help grow transparency in the market.
International Dimension
While a more critical moment is being met at the EU level with regards to corporate climate claims and potential implications for carbon removal, monitoring is still needed in other parts of the world, like the United States, on carbon credits and the voluntary carbon market as a whole.
Next Steps
On the US side, these federal rulings will continue to have implications for both corporates addressing their net-zero claims and filings as well as trading of carbon credits along the voluntary carbon market. As removals continue to enter the space, it affirms the critical importance of robust MRV. The carbon removal ecosystem is actively working to advance MRV, and for integrity this also bears the critical need for a continued divergence between removals credits and offsets.
Conclusion & Next Steps
As claims against greenwashing strengthen, there are many opportunities for removals to be validated as legitimate from both regulatory and market structures. The EU CRCF, US SEC rulings, and more will help to facilitate high integrity and trust in the carbon removal ecosystem.
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Isabella Corpora is an Associate Director with the Carbon Business Council, a member-driven and tech-neutral trade association of companies unified to restore the climate. Together, the nonprofit coalition represents more than 100 companies across six continents with more than $16.5 billion in combined assets. CO2BC serves as a resource for members, lawmakers, the energy industry, and the environmental community to advocate for the responsible growth of the carbon management industry.
Elisabeth Harding is the Policy Officer of the Negative Emissions Platform, a Brussels-based association representing European and international organizations focused on carbon removals. NEP’s members are primarily technology companies, but also include project developers, investors, carbon marketplaces, and buyers of carbon removals. NEP provides a forum in which diverse like-minded organizations actively collaborate to improve political and public recognition of carbon removals.
Useful follow up links:
Negative Emissions Platform, Position Paper on the Green Claims Directive, September 2023
Carbon Business Council, Issue Brief on Monitoring, Reporting, and Verification, May 2023
Carbon Gap, ‘Climate claims: what’s the latest in EU policy?’, December 2023
