[Federal Register Volume 72, Number 227 (Tuesday, November 27, 2007)]
[Proposed Rules]
[Pages 66094-66097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-23006]
[[Page 66094]]
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FEDERAL TRADE COMMISSION
16 CFR Part 260
Guides for the Use of Environmental Marketing Claims; Carbon
Offsets and Renewable Energy Certificates; Public Workshop
AGENCY: Federal Trade Commission.
ACTION: Announcement of public workshop; request for public comment.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
planning to host a public workshop on January 8, 2008 to examine the
emerging market for carbon offsets (i.e., greenhouse gas emission
reduction products) and renewable energy certificates, and related
advertising claims. The workshop is a component of the Commission's
regulatory review of the Guides for the Use of Environmental Marketing
Claims, which is being announced in a separate Federal Register notice
published concurrently.
DATES: The workshop will be held on Tuesday, January 8, 2008, from 9
a.m. to 5 p.m. at the FTC's Satellite Building Conference Center,
located at 601 New Jersey Avenue, NW., Washington, DC. Any written
comments related to the workshop must be received by January 25, 2008.
ADDRESSES: Registration Information: The workshop is open to the
public, and there is no fee for attendance. The FTC also plans to make
this workshop available via a webcast (see http://www.ftc.gov/bcp/workshops/carbonoffsets/index.shtml). For admittance to the Conference
Center, all attendees will be required to show a valid photo
identification, such as a driver's license. The FTC will accept pre-
registration for this workshop. Pre-registration is not necessary to
attend, but is encouraged so that we may better plan this event. To
pre-register, please e-mail your name and affiliation to
[email protected]. When you pre-register, we will collect your
name, affiliation, and your e-mail address. This information will be
used to estimate how many people will attend. We may use your e-mail
address to contact you with information about the workshop.
Under the Freedom of Information Act (``FOIA'') or other laws, we
may be required to disclose to outside organizations the information
you provide. For additional information, including routine uses
permitted by the Privacy Act, see the Commission's Privacy Policy at
http://www.ftc.gov/ftc/privacy.htm. The FTC Act and other laws the
Commission administers permit the collection of this contact
information to consider and use for the above purposes.
Written and Electronic Comments: The submission of comments is not
required for attendance at the workshop. If you wish to submit written
or electronic comments about the topics to be discussed at the
workshop, such comments must be received by January 25, 2008. Such
comments may be submitted before or after the workshop at the
discretion of the commenter. Comments should refer to ``Carbon Offset
Workshop--Comment, Project No. P074207,'' to facilitate organization of
comments. A comment filed in paper form should include this reference
both in the text and on the envelope, and should be mailed or delivered
to the following address: Federal Trade Commission/Office of the
Secretary, Room H-135 (Annex O), 600 Pennsylvania Avenue, NW.,
Washington, DC 20580. Comments containing confidential material must be
filed in paper form; must be clearly labeled ``Confidential;'' and must
comply with Commission Rule 4.9(c).\1\ The FTC is requesting that any
comment filed in paper form be sent by courier or overnight service, if
possible, because postal mail in the Washington area and at the
Commission is subject to delay due to heightened security precautions.
Comments filed in electronic form should be submitted by following
the instructions on the web-based form at http://secure.commentworks.com/ftc-carbonworkshop. To ensure that the
Commission considers an electronic comment, you must file it on that
web-based form. You may also visit http://www.regulations.gov to read
this notice, and may file an electronic comment through that Web site.
The Commission will consider all comments that http://www.regulations.gov forwards to it.
The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. The Commission will consider all timely and responsive
public comments that it receives, whether filed in paper or electronic
form. Comments received will be available to the public on the FTC Web
site, to the extent practicable, at http://www.ftc.gov. As a matter of
discretion, the FTC makes every effort to remove home contact
information for individuals from the public comments it receives before
placing those comments on the FTC Web site. To read our policy on how
we handle the information you submit--including routine uses permitted
by the Privacy Act--please review the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.shtm.
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\1\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See Commission Rule 4.9(c),
16 CFR 4.9(c).
FOR FURTHER INFORMATION CONTACT: Hampton Newsome, Attorney, 202-326-
2889, Division of Enforcement, Bureau of Consumer Protection, Federal
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Trade Commission.
SUPPLEMENTARY INFORMATION:
I. Introduction
The FTC staff is planning to conduct a one-day workshop on January
8, 2008 related to the marketing of greenhouse gas reduction credits
(commonly referred to as ``carbon offsets'') and renewable energy
certificates (``RECs''). The workshop will focus on consumer protection
issues in these markets, such as consumer perception of carbon offset
and REC advertising claims and substantiation for such claims. This
workshop is one component of the Commission's regulatory review of the
Guides for the Use of Environmental Marketing Claims (16 CFR Part 260),
which the FTC is announcing in a separate, concurrent Federal Register
notice.\2\ The FTC is seeking comment on the issues that will be
addressed at this workshop. Comments may be submitted before or after
the workshop provided they are received by January 25, 2008 as
explained in the ``WRITTEN AND ELECTRONIC COMMENTS'' section of this
notice.
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\2\ The Commission reviews all of its rules and guides
periodically. These reviews seek information about the costs and
benefits of the Commission's existing rules and guides and their
regulatory and economic impact. The information obtained during
these reviews assists the Commission in identifying rules and guides
that warrant modification or rescission.
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This notice addresses several issues related to the upcoming
workshop. It provides background on carbon offsets and RECs. It briefly
discusses the existing regulatory framework in this area, including the
FTC's consumer protection authority. In addition, the notice discusses
consumer protection issues raised by the marketing of offsets and RECs,
as well as marketing and advertising claims based on the purchase of
these products. The notice concludes with a short description of
possible issues for discussion at the workshop and questions for
comment.
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II. Background
A. Carbon Offsets and RECs
The market for the sale of carbon offsets in the United States has
experienced significant growth in the last two years.\3\ The FTC's
workshop, therefore, will focus primarily on consumer protection issues
involving the newly-emerging carbon offset market. Because the REC
market is closely associated with the sale of carbon offsets, the
workshop also will address REC marketing.\4\ This notice briefly
describes these products, as well as the current regulatory framework
in which these activities take place.
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\3\ See, e.g., Hamilton, Katherine, et al., ``State of the
Voluntary Carbon Market 2007: Picking Up Steam,'' New Carbon Finance
and The Ecosystem Marketplace (July 17, 2007) (http://ecosystemmarketplace.com/documents/acrobat/StateoftheVoluntaryCarbonMarket-18July_Final.pdf).
\4\ RECs are known also as green certificates, green tags, or
tradable renewable certificates.
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Carbon Offsets: In general, carbon offsets are credits or
certificates that represent the right to claim responsibility for
greenhouse gas emission reductions. For example, a carbon offset
provider might use offset proceeds to pay for landfill methane
collection activities or tree planting in an effort to reduce
greenhouse gasses. In some cases, carbon offset sellers use the
proceeds to purchase RECs (discussed below). By acquiring these
greenhouse gas reduction credits, purchasers, including individuals and
businesses, seek to reduce their ``carbon footprints'' or to make
themselves ``carbon neutral.'' For example, a consumer who flies across
the country is ``responsible'' for a percentage of the carbon emitted
from the fossil fuel burned by the plane. That consumer can purchase a
certificate that funds activities that purport to reduce carbon
emissions elsewhere, in quantities equal to all, or a portion, of the
carbon for which that consumer is ``responsible.'' Additionally, some
businesses purchase offsets to provide a basis for their advertising
claims (e.g., ``our coffee is carbon neutral'').
Renewable Energy Certificates (``RECs''): Generally, retail
electricity customers can support renewable energy \5\ through one of
two methods: by purchasing renewable electricity or by purchasing
renewable energy certificates.\6\ Under the first approach, consumers
purchase renewable energy through traditional electricity contracts
with their local utility or power provider, in areas in which such
energy is sold.\7\ This energy is often more expensive to produce than
conventional energy; consequently, consumers usually pay a premium.\8\
Some generators who cannot sell all of their renewable energy at a
sufficient premium in their ``home'' market, therefore, may find it
advantageous to split their output into two products: The electricity
itself and certificates (RECs) representing the renewable attributes of
that electricity. Under this second approach, generators sell their
electricity at market prices applicable to conventionally-produced
power. Generators then charge for the electricity's renewable attribute
separately by selling certificates to individuals and business
purchasers across the country who use them to characterize the
conventional electricity they buy as renewable.\9\ The REC market,
therefore, helps renewable energy generators by significantly expanding
the number of potential renewable energy purchasers, possibly avoiding
transmission costs associated with traditional contracts, and helping
to ameliorate supply and demand problems associated with the
intermittent operation of some renewable energy facilities (e.g., solar
power facilities).\10\
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\5\ Renewable energy, such as wind and solar power, is energy
derived from sources that are constantly replenished. See, e.g.,
http://www.nrel.gov/learning/re_basics.html and http://www.epa.gov/greenpower/whatis/renewableenergy.htm.
\6\ Some consumers may also have the option of producing their
own electricity.
\7\ Electricity generated from renewable sources is physically
indistinguishable from conventional electricity once it is
introduced into the power grid. Therefore, it is impossible for
consumers to determine that the electricity that flows into their
homes is generated by renewable energy. By purchasing a certain
amount of renewable electricity through their utility, consumers
simply buy the right to call the electricity they use ``renewable''
and ensure that an equivalent amount of renewable electricity is
supplied to the power grid.
\8\ While some generators may be able to sell renewable energy
at the same price as, or even lower prices than, conventional
electricity, they nonetheless may be able to charge premium prices--
either through direct sales or the marketing of certificates.
\9\ The certificate represents a property right in the
technological and environmental attributes of renewable energy. The
precise nature of the attributes represented by a REC, however,
continues to be a matter of discussion. Generally, one REC
represents the right to describe one megawatt of electricity as
``renewable.'' Currently, there is no uniform or mandatory
definition of a REC.
\10\ See Holt, Ed and Bird, Lori, ``Emerging Markets for
Renewable Energy Certificates: Opportunities and Challenges,''
National Renewable Energy Laboratory (Jan. 2005) at 8-9.
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B. Regulatory Framework
Offset and REC sales can generally occur in two types of markets:
(1) Markets that facilitate compliance with regulatory targets (so
called ``mandatory'' or ``compliance'' markets), and (2) markets
unrelated to existing regulatory programs (so called ``voluntary''
markets).
RECs currently play a role in mandatory markets. For example, some
states require certain electricity providers to purchase a minimum
percentage of their electricity from renewable sources. Purchasing
renewable energy directly, however, is not always practical. Thus, some
states allow providers to meet their quotas, usually called ``renewable
portfolio standards,'' through the purchase of RECs. Although there are
no current mandatory markets for carbon offsets in the United States,
there are ongoing efforts at the state level to develop greenhouse gas
reduction programs that may impact carbon offset sales in the
future.\11\ Because the sale of RECs to meet regulatory targets already
involves ongoing state oversight, and there are no current, mandatory
markets for carbon offsets, the workshop will concentrate on marketing
in the voluntary market.
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\11\ See, e.g., Regional Greenhouse Gas Initiative, http://www.rggi.org/.
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Where offsets and RECs are not generated to meet regulatory
targets, they are bought and sold in a voluntary market to meet demand.
In this voluntary market, no federal agency currently has a
comprehensive environmental regulatory program.\12\ In the absence of
national regulation, voluntary third-party certification programs have
arisen, and more are under development, to help reduce inappropriate
practices and to provide guidance to marketers through the development
of industry standards.
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\12\ The Environmental Protection Agency has established the
Green Power Partnership, a voluntary program to encourage
organizations in the United States to purchase renewable power
through RECs and other renewable energy products (http://www.epa.gov/grnpower/).
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The FTC, however, has an important role to play in combating unfair
and deceptive practices in this market. In carrying out this mission,
the Commission enforces the FTC Act, which states that unfair or
deceptive trade practices are unlawful.\13\ In interpreting the FTC
Act, the Commission has determined that a representation, omission, or
practice is deceptive if it is likely to mislead
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consumers acting reasonably in the circumstances and is material.\14\
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\13\ 15 U.S.C. 45. An act or practice is unfair if the injury it
causes, or is likely to cause, is substantial, not outweighed by
other benefits, and not reasonably avoidable. See Section 5(n) of
the FTC Act, 15 U.S.C. 5(n); see also FTC Policy Statement on
Unfairness, appended to International Harvester Co., 104 F.T.C. 949,
1070 (1984) (http://www.ftc.gov/bcp/policystmt/ad-unfair.htm).
\14\ See FTC Policy Statement on Deception, appended to
Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984) (http://www.ftc.gov/bcp/policystmt/ ad-decept.htm).
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Under the FTC Act, all marketers making express or implied claims
about the attributes of their product or service must have a reasonable
basis for their claims at the time they make them. In the realm of
environmental advertising, a reasonable basis often requires competent
and reliable scientific evidence. Such evidence includes tests,
research, studies, or other evidence, based on the expertise of
professionals in the relevant area, that have been conducted and
evaluated in an objective manner by persons qualified to do so, using
procedures generally accepted in the profession to yield accurate and
reliable results.
In exercising its authority under the FTC Act or other statutes,
the FTC has developed a variety of rules and guides related to energy
and environmental marketing practices.\15\ One of these, the Guides for
the Use of Environmental Marketing Claims (``Green Guides''), addresses
the application of Section 5 of the FTC Act to environmental
advertising and marketing practices.\16\ The Green Guides provide
information on consumer interpretation of certain environmental
marketing claims so that marketers can avoid making false or misleading
claims. The Guides focus on the way in which consumers understand
environmental claims and not necessarily the technical or scientific
definition of various terms.
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\15\ See Guide Concerning Fuel Economy Advertising for New
Automobiles (16 CFR part 259), Guides for the Use of Environmental
Marketing Claims (16 CFR part 260), Appliance Labeling Rule (16 CFR
part 305), Fuel Rating Rule (16 CFR part 306), Alternative Fuel
Vehicles Rule (16 CFR part 309), Recycled Oil Rule (16 CFR part
311), and Labeling and Advertising of Home Insulation Rule (the ``R-
Value'' Rule) (16 CFR part 460).
\16\ FTC guides ``are administrative interpretations of laws
administered by the Commission for the guidance of the public in
conducting its affairs in conformity with legal requirements.'' 16
CFR part 17. Conduct that is inconsistent with the guides may result
in corrective action by the Commission, if after investigation, the
Commission has reason to believe that the conduct is unfair or
deceptive to consumers.
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While the FTC has often addressed consumer protection issues
related to energy and environmental issues, the FTC does not have the
authority or expertise to establish environmental performance
standards. Accordingly, we do not plan to develop environmental
standards for carbon offsets and RECs. Instead, the FTC's efforts in
this area will focus on our traditional consumer protection role,
addressing deceptive and unfair practices under the FTC Act.
C. Consumer Protection Issues
Carbon offset and REC marketing activities raise several consumer
protection issues. These issues stem both from claims for offset and
REC products themselves and from claims for other products based on
offset and REC purchases (e.g., ``our snacks are made with green
electricity''). As discussed in more detail below, the nature of these
products, consumer understanding of claims, and substantiation of
claims all raise consumer protection challenges for offset and REC
marketers.
The nature of offset and REC claims raises particular challenges
because consumers cannot easily verify that they are receiving that for
which they paid. For example, most consumers would have great
difficulty confirming that their payments actually fund projects that
may take place in a distant location. Moreover, even if a consumer
could verify a project's existence, it likely would be impossible for
the average consumer to determine whether the scientifically complex
project actually reduces atmospheric carbon in the amount claimed, or
how much the consumer's offset purchase actually contributes to the
project.\17\ As a result, the potential for deception is greater than
with more tangible products for which consumers more easily can confirm
most advertising claims.
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\17\ Similarly, it is difficult for consumers to determine for
themselves whether the RECs they purchase actually represent the
environmental attributes of renewable energy generation.
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In addition, consumer interpretation of offset and REC-related
claims is an essential factor in addressing consumer protection
questions in these markets. We are not aware of any research that
addresses consumer understanding of advertising claims related to
carbon offsets and RECs. As a result, there appear to be many open
questions. For example, when consumers buy these products, do they know
what they are buying? How do consumers interpret express or implied
claims about environmental benefits from offsets and RECs? Do consumers
assume that their offset purchases are creating reductions in
greenhouse gas emissions beyond what would have otherwise occurred
without offset sales? How quickly do they believe reductions occur?
Should marketers consider consumer understanding about the incidental
benefits of renewable energy, such as air pollutant reductions or
regional environmental improvements? Do consumers interpret REC and
offset claims to include implied claims of broader (or narrower)
environmental benefit? Questions of consumer interpretation are
important because marketers must ensure that all reasonable
interpretations of their claims are truthful, not misleading, and
substantiated.
Substantiation in particular can pose challenges in the REC and
offset markets. For example, bringing RECs and offsets to market may
involve multiple transactions and a large number of entities;
consequently, the methods used to track RECs and offsets through the
market are often complicated. In addition, efforts to verify the
validity of these products can be difficult because the underlying
activities may take place in remote locations or over an extended time
period. Inadequate tracking and verification systems could lead to
substantiation problems, even for marketers acting in good faith, and
create opportunities for bad actors to deceive consumers. For example,
marketers could inadvertently, or intentionally, sell multiple
certificates based on the same carbon reduction or renewable energy
activities (i.e., ``double counting'').
One carbon offset issue, commonly referred to as ``additionality,''
has generated significant discussion.\18\ ``Additionality'' addresses
whether carbon offset consumers are paying for a project that would
have occurred without the offset market. In the view of many involved
with this market,\19\ offset sellers have a duty to demonstrate that
their underlying greenhouse gas reduction projects would not have
occurred but for the sale of the offset; otherwise, they argue, sellers
are not really reducing greenhouse gas
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emissions. Under this view, for example, it would not be appropriate to
sell offsets based on a project (e.g., capturing methane from a
landfill) implemented to comply with existing environmental regulations
because any greenhouse gas reductions would have occurred without the
sale of the offsets. The practical application of the ``additionality''
concept to specific fact scenarios has raised a large number of
questions and produced a variety of opinions among industry members and
other stakeholders.
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\18\ ``Additionality'' is a term generally associated with
mandatory carbon reduction programs implemented pursuant to the
Kyoto Protocol, an international agreement under the United Nations
Framework Convention on Climate Change (http://unfccc.int/resource/docs/convkp/kpeng.pdf). While no such mandatory program exists in
the United States, many offset marketers and other interested
parties here have looked to the Kyoto framework in developing
practices in the voluntary offset market in the United States.
\19\ See, e.g., ``A Consumers' '' Guide to Retail Carbon Offset
Providers,'' Clean Air-Cool Planet (2006) (http://www.cleanair-coolplanet.org/ConsumersGuidetoCarbonOffsets.pdf); Kollmus, A.,
``Voluntary Offsets For Air-Travel Carbon Emissions: Evaluations and
Recommendations of Thirteen Offset Companies,'' Tufts Climate
Initiative (Dec. 2006) (http://www.tufts.edu/tie/tci/pdf/TCI_Carbon_Offsets_Paper_April-2-07.pdf); and ``The Green-e
Greenhouse Gas Emission Reduction Product Certification Program
Standard,'' Center for Resource Solutions (June 2007) (http://resource-solutions.org/mv/docs/Ge_GHG_Product_Standard_V1.pdf).
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III. Issues and Questions for Discussion at the Workshop
As discussed above, the Commission's public workshop will explore
advertising claims for carbon offsets and RECs, as well as advertising
claims based on the purchase of those products. We have identified
several possible issues for discussion at the workshop: (1) Trends in
marketing carbon offsets and RECs, (2) the nature of the commodities in
question (i.e., the property rights transferred from seller to buyer
through the sale of offsets and RECs), (3) product marketing based on
offset or REC purchases, (4) consumer perception of carbon offset and
REC claims, (5) potential market problems such as double-counting and
other forms of fraud, (6) third-party certification and other standard-
setting programs, (7) the issue of ``additionality'' for carbon offsets
and its relationship to potential consumer deception, (8) the use of
RECs as a basis for carbon offset claims, (9) the state of
substantiation for offsets and REC claims, and (10) the need for
additional FTC guidance in these areas.
In addition to considering these possible topics, the Commission
invites written comments on any or all of the following questions
regarding the consumer protection aspects of the carbon offset and REC
market. The Commission requests that responses to these questions be as
specific as possible, including a reference to the question being
answered, and reference to empirical data or other evidence wherever
available and appropriate.
(1) What express claims are sellers making for carbon offsets
and RECs? What claims, if any, are implied by that advertising? How
do consumers interpret these claims? Please provide any supporting
evidence. What evidence constitutes a reasonable basis to support
these claims? What challenges do offset and REC sellers face in
substantiating their claims? Is there evidence that any claims in
the current marketplace are unsubstantiated or otherwise deceptive?
(2) What express claims are companies making for their products
and services based on their purchase of carbon offsets or RECs
(e.g., ``our product is made with renewable energy'')? What claims,
if any, are implied by that advertising? How do consumers interpret
these claims? Please provide any supporting evidence. What evidence
constitutes a reasonable basis to support these claims? Is there
evidence that any claims in the current marketplace are
unsubstantiated or otherwise deceptive?
(3) When consumers purchase carbon offsets or RECs, what
property rights do they acquire?
(4) When consumers purchase carbon offsets or RECs, what do they
think they are buying? Please provide any supporting evidence.
(5) What impact do consumers believe their carbon offset
purchases will have on the future quantities of greenhouse gasses in
the atmosphere? Please provide any supporting evidence.
(6) Do consumers understand that some activities supported by
carbon offset programs do not result in immediate carbon emission
reductions? If so, when do consumers expect such offset programs
will have an impact? Please provide any supporting evidence.
(7) What is the relationship between the concept of
``additionality'' in carbon offset markets and the FTC's standard
for deception under the FTC Act?
(8) Please identify state laws that specifically address
consumer protection issues in the carbon offset and REC markets.
Please explain how the laws address these issues and whether they
are effective.
(9) Please identify third-party and self-regulatory programs
that address consumer protection issues in the carbon offset and REC
markets. Please explain how the programs address these issues and
whether they are effective.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E7-23006 Filed 11-26-07; 8:45 am]
BILLING CODE 6750-01-P