What are energy and environmental labeling and information disclosure?
Energy and environmental labels communicate the energy or environmental performance of a product, home, building, or facility. Labels enable behavioral change by helping consumers and businesses identify and select more environmentally preferable or energy-efficient products and practices, including those with lower carbon footprints (emissions). Labels can be displayed as a mark, or logo, or simply provide information about the described entity. Labels can be either mandated, where all products sold in the market must display the label at point of sale, or they can be voluntary, where companies elect to apply the label to differentiate their products from competitors.
In the context of climate change, corporate information disclosure refers to companies’ public disclosure of their annual greenhouse gas emissions (GHGs)—and other ways they affect climate change. Companies may include information on how they reduce their GHG emissions and incorporate climate change considerations into their internal governance practices and external stakeholder engagement. Corporate disclosure can also be mandated within a regulatory program, where companies must report their GHG emissions to a government entity, or be voluntary, where companies publicly disclose emissions to diverse interested stakeholders, such as investors and customers.
How do labels and information disclosure work?
Energy or environmental performance labels typically reflect one of two approaches to labeling.
First, information labels provide neutral information and/or data on the energy or environmental performance of a product. Labels providing information, such as the mandatory Energy Guide label administered by U.S. Department of Energy (DOE), help consumers compare performance, such as energy or fuel consumption, across products and arrive at their own purchasing conclusions.
Second, leadership labels denote products with greater environmental or energy benefits when compared to conventional products. For example, the U.S. Environmental Protection Agency’s (EPA) ENERGY STAR label, with nearly 90% household recognition, communicates to consumers improved energy efficiency compared to conventional, less efficient products, buildings, homes and industrial facilities in the United States. Products that earn the voluntary ENERGY STAR label typically represent the top quartile of the most efficient products in market. For environmental leadership labels to influence purchasing decisions successfully, consumers must trust them and understand the environmental benefits delivered.
All energy and environmental performance labeling efforts must first establish a test method or benchmarking methodology for performance to be uniformly measured and validated.
Information labels can also either be mandatory, where products must be labeled to be sold in the U.S. market, or voluntary, where companies can elect to label products. Leadership labels are typically voluntary labels.
Corporate GHG emissions disclosure refers to a company’s reporting of its GHG emissions from its operations and, increasingly, from its supply chains. Disclosure often includes a description of efforts to reduce a company’s carbon footprint. This information enables stakeholders – including customers, regulators, and investors – to better understand how a company manages its climate impacts. GHG emissions disclosure also requires use of a transparent GHG accounting methodology, which also enables GHG emissions comparisons within sectors and across different industries.
Similarities Between Approaches in Overcoming Barriers
Labels and information disclosure help reduce barriers– namely lack of consumer awareness, lack of incentives, or higher upfront costs– that limit market share of environmentally preferable products, practices and companies. Customers and other key stakeholders, such as investors, can use labels and corporate GHG emissions information disclosure to incentivize and reward more environmentally preferable products, practices and companies. For example, customers can use labels in their supplier procurement requirements, and investors can factor corporate GHG information data into their investment decisions. Both examples help transform the market by increasing demand for improved products and practices, leveraging economies of scale to lower costs, and encouraging greater competition between companies to deliver better energy and environmental performance.
Implementing Approaches
Policymakers may select a mix of mandatory and voluntary labeling and/or information disclosure approaches to remove market barriers and improve opportunities to reduce economy-wide GHG emissions.
Design Considerations
Developing effective labeling and information disclosure efforts require several considerations, including:
Where do mandatory, voluntary, or a mix of both approaches overcome market barriers most effectively?
How do mandatory or voluntary labels, or information disclosure efforts, complement, or work with, a broad suite of regulations aimed at reducing GHG emissions?
What information do different market actors need to make decisions that can reward products or companies with improved environmental performance? What mechanism best communicates information to enable more informed consumer choice? Would a mark denoting top-performing products enable faster market transformation than a label that only provides information on a product’s performance, such as energy efficiency or GHG emissions?
How are the criteria, test methods, and reporting framework behind a label or corporate GHG emissions disclosure developed? Are they developed in a consensus-based process with a certified standards-development body, developed by a government body, or via a private entity? How can a process engaging multiple stakeholders engender strong acceptance from various market actors?
How often do labels denoting superior environmental performance need to be managed and updated to reflect advances in technology or practices that reduce GHG emissions?
Do criteria requiring performance-based metrics (e.g., GHG emissions reduced or increased energy efficiency), rather than requirements to use a specific technology, lead to increased benefits and more rapid market transformation? How does this flexibility in achieving environmental outcomes affect industry acceptance and uptake? How significant are the environmental benefits of performance-based metrics?
Labels
Mandated labeling efforts include EPA’s Fuel Economy Label, which has been displayed on the sale of all new light duty cars and trucks for over 40 years and DOE’s ENERGY Guide, which provides consumers with information at point of sale on the estimated annual energy use of appliances.
Hundreds of voluntary ecolabels exist globally, with dozens focused on products and services sold in the United States. Examples of voluntary labels developed and managed by the government include EPA’s ENERGY STAR (to advance energy efficiency), SaferChoice (to advance safer chemicals), WaterSense (to advance water efficiency) and U.S. Department of Agriculture (USDA) Organic (to promote organically grown food). Since 1992, ENERGY STAR and its partners helped U.S. consumers save more than 4 trillion kilowatt-hours of electricity and achieve over 3.5 billion metric tons of GHG reductions, equivalent to the annual emissions of more than 750 million cars.[1]
Information Disclosure
Voluntary: Over the past decade, more U.S. companies are measuring and publicly reporting their GHG emissions in corporate GHG inventories. The GHG Protocol, a widely accepted framework developed via a multi-stakeholder process nearly two decades ago, provides uniform guidance for how companies should measure and disclosure their GHG emissions. Hundreds of U.S. companies, including 80 percent of the U.S.’s S&P and Fortune 500, publicly report their GHG inventories.[2] Corporate inventories provide companies greater insights on the sources of their GHG emissions, helping them to develop GHG reductions targets and track annual progress in reaching their reduction goals.
Mandatory: Starting in 2013, EPA’s Greenhouse Gas Reporting Program–a regulatory initiative—began requiring large GHG emission sources, fuel and industrial gas suppliers, and CO2 injection sites within the U.S. that emit more than 25,000 metric tons of carbon dioxide equivalent (CO2e)[3] annually to publicly report GHG emissions data and other relevant information. This data, housed on the EPA website, is intended to be used by states, cities, communities, businesses and others to track and compare facilities’ GHG emissions, identify opportunities to reduce emissions, minimize wasted energy, save money, and craft climate-friendly policies.
Additional Resources
- Examples of U.S. government-run voluntary labels:
- ENERGY STAR
- Bio-Preferred
- WaterSense
- Additional Resources on sustainable procurement and labels:
- Examples of U.S. government-run mandatory labels:
- Voluntary Information Disclosure:
[1] ENERGY STAR By the Numbers: https://www.energystar.gov/about/origins_mission/energy_star_numbers#:~:text=Since%201992%2C%20ENERGY%20STAR%20and,more%20than%20750%20million%20cars.
[2] U.S. Environmental Protection Agency. Insights from Corporate GHG Inventorying and Target Setting. April 2020. https://www.epa.gov/sites/production/files/2020-04/documents/insights-in-corporate-greenhouse-gas-management.pdf
[3] CO2 equivalent is a metric measure used to compare the emissions from various greenhouse gases on the basis of their global-warming potential, by converting amounts of other gases to the equivalent amount of carbon dioxide with the same global warming potential.
