Irish Advertising Standards Authority decision on Budweiser’s renewable energy claims: What it means for corporate PPAs

This January, the Advertising Standards Authority for Ireland (ASAI) published its decision that brewing company Budweiser had effectively misrepresented its renewable claims in its advertising. At first glance, the decision makes grim reading for initiatives like RE100 and corporate PPAs generally.

Most concerning in the decision was ASAI stating that claims made that 100% renewable electricity was being used at Budweiser’s brewery were “exaggerated.” This was despite some of the electricity used by the Budweiser having been purchased from a utility provider and even with Budweiser having a corporate PPA and obtaining guarantees of origin (GoOs).

But on closer inspection, the decision is at odds with the Renewable Energy Directive and the recently finalised text of the Green Transition Unfair Practices Directive. The decision is not legally binding, but it highlights the risks for companies when making renewable claims, and more concerningly it may sow doubt in the public’s perception and acceptance of GoOs and renewable procurement more generally.

The Budweiser decision

The complaint stated that Budweiser had made various advertising claims about its renewable procurement in Ireland, including that “since January 2021, every single can, bottle, and keg of Budweiser imported into ROI is now brewed with electricity from solar and wind sources” and that it was “bringing 100% renewable electricity to 100 Irish pubs.” Budweiser backed up these claims with a renewable supply from an electricity supplier and a virtual corporate PPA, underpinned with GoOs.

Senator Lynn Boylan took these claims to the ASAI, refuting in particular that as Budweiser would take electricity at least partially from the electricity grid, it could not claim to use only renewable energy, as the GoOs would only “offset” the grid-consumed electricity with renewable electricity.

Budweiser argued that the bases of its claims included that it had onsite renewable generation capacity, that it had entered into a virtual PPA, and that it was obtaining GoOs from the renewable generator in excess of the amount of power it purchased from the grid. It argued that it had proven, by means of these GoOs, that the grid-supplied electricity it consumed was generated from renewable sources.

The ASAI agreed with the complaints. It concurred with the complainant’s classification of GoOs as offsets. The fact that some of the electricity used by Budweiser was (regardless of the virtual PPA) purchased from an electricity supplier and was in the ASAI’s view only offset by GoOs was sufficient for the ASAI to conclude that Budweiser’s claim that the products were brewed using 100% renewable electricity was exaggerated. As a result, the ASAI deemed this claim in breach of the ASAI’s Advertising Code, a non-binding good practice guidance document. For similar reasons, the ASAI found that the claim of bringing 100% renewable electricity to pubs was misleading.

The ASAI is not a state regulator or body, but a private body funded by its members and overseeing self-governance by its members. Its aim is to promote high standards in advertising. So the Budweiser decision is not a legal determination, there are no penalties attached to ASAI decisions, and it doesn’t formally set a legally binding precedent. Indeed, as explained below, the ASAI’s approach is in sharp contrast with the legislative provisions governing green claims.

But the decision is a clear indicator of how the ASAI specifically views such claims in the context of its own Advertising Code. It remains to be seen whether the ASAI will be invited to reconsider its position either in the context of an internal appeal or in a future complaint. The ASAI has, several times, previously considered claims involving renewable energy and the use of associated GoOs (cases 39053, 39872, 40016, 40107). The European Commission’s previous comments on the ASAI and such decisions must be considered.

GoO-based Claims under RED II

The ASAI’s finding is surprising, because it’s based on a misconception of GoOs. Unlike a voluntary emission reduction certificate, the purpose of a GoO is not to offset emissions from fossil fuel-based electricity generation with zero emissions renewable electricity generation. It’s a fuel mix disclosure certificate and creates a legal status under European and national law that allows consumers and even requires suppliers to treat any electricity from the grid for which GoOs have been cancelled [ME1] as renewable, regardless of its production method and associated emissions.

Specifically, Article 19 of the Renewable Energy Directive (EU) 2018/2001 (RED II) and recent amending Directive (EU) 2023/24/13 (RED III) do not define GoOs as an offset, as claimed by Senator Boylan or the ASAI. Under Art. 19, the purpose of a GoO is to demonstrate to final customers the share or quantity of energy from renewable sources in their energy supplier's energy mix and in the energy supplied under contracts marketed with reference to the consumption of energy from renewable sources – in other words, under PPAs. Under RED II, the latter already covered corporate PPAs generically.

RED III has now expressly introduced the term “renewable energy purchase agreement” and strengthened the relevance of corporate PPAs. The definition of “renewable energy purchase agreement” and corresponding amendments to Article 15 show that they’re not confined to onsite direct wire corporate PPAs, and that final customers can buy 100% renewable source electricity via the common grid.

Both the complainant and the ASAI are, of course, correct that, from a practical perspective, grid supplied electricity can only be 100% renewable if all generation feeding into the grid uses renewable sources. In many existing grids this is impossible, so if claims based only on physical renewable electricity flows were permissible or intended under the Renewable Energy Directive, all major consumer choice focused concepts introduced by RED I, II and III – such as a supplier’s fuel mix disclosure, GoOs and even renewable energy purchase agreements – would be redundant.

The legislative intent was not to limit customers to linking consumption claims to consuming electricity directly produced by renewable generators, but to empower customer choice for renewable source electricity by using a “book and claim” chain of custody system to demonstrate that electricity they consume and which their suppliers supply via the common grid is renewable.

Here, the GoO serves as a necessary legal fiction to enable the sale and purchase of renewable source energy over existing electricity networks, with key concepts such as national registries and the prevention of double counting, and with various administrators ensuring the integrity and transparency of the GoO system.

The draft Green Transition Unfair Practices Directive

When passed, the current draft of the Green Transition Unfair Practices Directive (GTUPD) is expected to take the form of an amending Directive to the Unfair Commercial Practices Directive (2005/29/EC) and the Consumer Rights Directive (2011/83/EU). It also supplements the Energy Labelling Regulation (EU) 2017/1369.

Annex I of the 2005 Unfair Commercial Practices Directive lists types of prohibited generic marketing claims. The GTUPD will expand and detail this for environmental claims. Annex I lists:

“(4a) making a generic environmental claim for which the trader is not able to demonstrate recognised excellent environmental performance relevant to the claim; and

(4ba) claiming, based on greenhouse gas emissions offsetting, that a product has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions.”

“Environmental claims” are defined as “any message or representation which is not mandatory under Union law or national law in the context of a commercial communication and which states or implies that a product has a positive or no impact on the environment or is less damaging to the environment than other products.”

Both the EU Electricity Directives and RED II require fuel mix disclosure reporting based on GoOs. But these disclosure obligations apply only to suppliers and not to end consumers such as Budweiser. As such, it appears unlikely such claims would be considered as being mandatory – indeed, they would very likely constitute “environmental claims.”

As environmental claims, limbs (4a) and (4ba) must be considered. For the purposes of limb (4ba), based on the definition of GoOs under RED II, they do not constitute offsets (rather instruments to demonstrate renewable consumption), so GoO-related environmental claims should not be considered under limb (4ba) of the revised Annex 1.

Linking renewable electricity generation and supply to the use of GoOs and PPAs raises the question whether claims such as those made by Budweiser would be considered as “generic” under limb (4a).

The recently published provisional agreement of the interinstitutional negotiation on the text of the GTUPD also suggests the approach taken by the ASAI to renewable energy claims by focusing on the physical supply of renewable source electricity via the grid is somewhat overreaching.

Recitals (9) and (11) and (11A) of the final text of the GTUPD directly address renewable energy-based claims, and help clarify what a generic and a specific claim is, and so which would be prohibited.

Recital 9 states:

“For example, the claim ‘climate-friendly packaging’ would be a generic claim, whilst claiming that ‘100% of energy used to produce this packaging comes from renewable sources’ would be a specific claim, which would not fall under this prohibition without prejudice to other provisions of Directive 2005/29/EC remaining applicable to those specific claims.”

Recital 10 further clarifies:

“Another misleading commercial practice which should be prohibited in all circumstances and thus added to the list in Annex I to Directive 2005/29/EC is making an environmental claim about the entire product or the entire trader’s business when it actually concerns only a certain aspect of the product or a specific, unrepresentative activity of the trader’s business. This ban would apply, for example, […] when a trader gives the impression that it is only using renewable energy sources when several of the trader’s business facilities still use fossil fuels.”

But the evolution of the wording of recital 10 does not suggest this was added to address a situation where, for example, some of the production facilities use electricity from rooftop solar behind the meter and the other production facilities use grid-consumed electricity under a PPA with GoOs.

In contrast, with regard to offsetting, recital 11 states that:

“it is particularly important to prohibit claims, based on greenhouse gas emissions offsetting, that a product, either a good or service, has a neutral, reduced, or positive impact on the environment in terms of greenhouse gas emissions. … Such claims can only be allowed when they are based on the actual lifecycle impacts of the product in question, and not based on greenhouse gas emissions offsetting outside the product’s value chain, as the former and the latter are not equivalent.”

Based on these clarifications and the nature of GoOs under RED II, claims made with regard to the consumption of electricity from renewable sources on the basis of PPAs and GoOs and consumption from the grid would not be prohibited by the GTUPD.

The draft Green Claims Directive

The GTUPD and the draft Green Claims Directive started the legislative process as complementary instruments. The former appears to be in final form, but the latter is still subject to further negotiation between the EU Parliament, Council and Commission.

While the GTUPD focusses on claims that are prohibited, the Green Claims Directive focusses on how explicit environmental claims that are not prohibited may be substantiated (Article 3), communicated (Article 5), enhanced by environmental labels (Articles 7 and 8) and verified (Articles 10 and 11).

Environmental claims under the Green Claims Directive have the same meaning as under the GTUPD. If this remains the case, the renewable energy consumption and associated production claims would likely also be in scope of the Green Claims Directive.

The Green Claims Directive expressly addresses offsets, but not energy consumption claims. Though it’s probably too early, given the ongoing legislative process, to draw conclusions for requirements for substantiating and communicating renewable energy consumption claims, the current text of Article 3 and Article 5 suggest that additional information beyond GoOs may need to be provided.

Position of the European Commission under RED II

In April 2023, the European Commission considered a similar question brought in respect of a separate ASAI decision, which was made in respect of an energy supplier’s claim of supplying 100% renewable energy.

In this decision, the ASAI equally ultimately required the claim to be removed from the supplier’s marketing materials. The Commission found that the supplier’s claim was made in compliance with the fuel mix disclosure requirement, and that:

“Member States cannot restrict claims of 100% renewable energy in suppliers’ promotional materials when such claims are based on the use of Guarantee of Origin certificates. The provision in Article 19(12) allows Member States to introduce additional criteria for use of Guarantees of Origin, but does not allow to establish criteria that are contrary to what is established in Article 19.”

The ASAI does not formally represent the Republic of Ireland as a Member State in its decisions. But in view of the above, the decision should be considered as being inconsistent with RED II and therefore Irish law.

In its response, the Commission also commented on the applicability of the draft Green Claims Directive:

“The proposal on green claims covers voluntary environmental claims made in business-to-consumer communication for which there are no other specific EU rules mandating substantiation and communication of such claims.”

Because renewable claims based on GoOs are very unlikely to fall under the new prohibitions of the draft GTUPD, the 2023 response of the Commission appears to confirm that these are indeed “environmental claims” regarding renewable consumption, and so covered by the draft Green Claims Directive. We’re not aware that any of the European authorities have yet opined on the Budweiser decision, but it’s reasonable to assume that, in view of the facts, the Commission’s position of April 2023 will equally apply.

Key takeaways for corporate PPAs and 100% renewable energy claims

Though the ASAI decision in Budweiser is not binding nor capable of setting a precedent on European energy consumers, it highlights the risks in making renewable claims as a corporate renewable consumer, and the importance of carefully marketing and evidencing these claims. Here are our key takeaways for European corporates and market participants:

• In a similar case, the Commission confirmed that under RED II, marketing claims using 100% renewable source electricity can be made on the basis of GoOs.

• In marketing for renewable source electricity procurement, corporates should make claims clear and specific.

• The Commission confirmed that GoOs are not offsets, but GTUPD and the Green Claims Directive show the risk of corporates making claims which suggest GoOs are offsets.

• GoOs have 18-month lifespans under RED II, but where there is a significant dissociation between the generation and consumption months, GoOs may increasingly share common features with offsets, and may be misinterpreted as such. This will likely be a driver for closer temporal correlation of generation and consumption, and the granularity of claims. Alignment in the same quarter or month may mitigate this risk, with 24/7 PPAs being the closest to reflect reality within technical and market limitations.

We believe the Commission’s position may well reinforce PPAs underpinned with GoOs as being a good basis for claiming renewable source electricity consumption, together with procuring electricity from suppliers under the fuel mix disclosure obligation.