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EU Ban On Carbon Neutral Claims Set To Kill The Carbon Market

By Bose K Varghese September 30, 2023

The biggest impact of this ban will be the collateral damage of the voluntary carbon market that thrives on trading emission offsets and caters to businesses wanting to claim carbon neutrality by emission offsetting

EU Ban On Carbon Neutral Claims Set To Kill The Carbon Market
An EU ban on carbon neutral claims immediately puts the focus on net zero claims. Shutterstock
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The EU Parliament and Council have, in September 2023, reached a provisional agreement on new rules to ban misleading advertisements and environmental claims. The agreement focuses on generic environmental claims, emission offsetting claims, sustainability labels, and product durability and guarantee information. The new move aims to protect the EU consumers from misleading practices, including green washing, in marketing and commercial communication, and help them make better choices.

The targets under green washing include i) generic environmental claims such as environmentally friendly, natural, biodegradable, climate neutral or eco: these cannot be used without relevant proof of recognised excellent environmental performance; ii) claims related to emissions such as neutral, reduced or positive by using emission offsetting: these will be banned; and iii) sustainability labels: only those based on approved certification schemes or those established by public authorities can be used. Of these three, the banning of claims of carbon neutral, climate neutral, carbon positive, or reduced emissions on the basis of offsetting emissions will have far-reaching impacts on global climate action and discourse.

With the leading climate actor in the world banning claims related to the use of emission offsetting, a set of terms - carbon/climate neutral and carbon/climate positive - that dominated more than a decade of global climate action is likely to fall out of favour from the climate action lingo. If carbon neutral flights, hotel stays, burgers or concerts cannot be sold, then carbon neutral would not be a worthy climate action goal for businesses to pursue. Therefore, the real impact of this ban will be on the underlying climate action itself. The biggest impact of this will be the collateral damage of the voluntary carbon market that thrives on trading emission offsets and caters to businesses wanting to claim carbon neutrality by emission offsetting. This can directly impact Indian offset generators who have entered into various forms of contracts with overseas offset buyers.

An EU ban on carbon neutral claims immediately puts the focus on net zero claims, although net zero claims are not as common yet. As net zero claims using carbon removal (removing CO2 from the atmosphere) begin to surface, the EU may find itself in a bind to ban the use of net zero claims to market products.

The EU move to ban emission offsetting related claims will also impact emerging regulations and existing global campaigns that are built around carbon neutral concepts and emission offsetting. All emerging anti-green washing regulations will need to take this into account. The EU itself will have to revisit its pending Green Claims Directive and the Carbon Removal Certification Framework (CRCF) to align them with these bans. Other global programs like The Climate Pledge and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) also are likely to be forced to revisit their commitments.

Finally, the big question is whether this EU ban can push businesses to reduce emissions and stake the climate claims of their products and services on real emission reduction. Can it bring the focus back to deep emission cuts from the present trend of continuing unabated emissions while banking on offsetting or removals to achieve climate goals? As we argue for a shift in focus to emission cuts, we cannot ignore climate science that says emission reduction alone cannot achieve the 1.5°C warming limit set under the Paris Agreement. While there is an insurmountable amount of trust deficit around the use of emission offsets and carbon removal technologies are yet to be proven beyond doubt, they still have a role to play in climate action. It is in the best interest of everyone that measures like the proposed ban does not inadvertently nip the innovation and progress in these areas, especially in carbon removal technologies.

As we wait for this provisional agreement to become final later this year and possibly begin implementation in 2026, after the EU member states incorporate it into their law, carbon neutral claims and, therefore, the use of emission offsets are likely to come under increasing pressure from the already mounting litigations and the looming EU ban.

(Bose K. Varghese is Senior Director, ESG, Cyril Amarchand Mangaldas.)

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