Bottled water is under fire. Environmental groups recently have pointed out that a flourishing industry that sells its product with "green" images of snowcapped mountains and pristine spring lakes in fact contributes substantially to global warming. Making, filling, and shipping billions of plastic bottles generates huge amounts of carbon dioxide emissions: 8.4 million tons last year in the U.S. alone, equivalent to 2.2 million cars on the road, according to the Pacific Institute, a research group in Oakland, Calif. Separately, some major brands have come in for criticism because the water they sell is equivalent to what comes out of most taps.
Newcomer Icelandic Water Holdings believes it has an answer to environmental concerns. Based near Reykjavik, the growing company proclaims that it pumps and bottles its Icelandic Glacial water using mostly nonpolluting geothermal power. This natural energy, which derives from Iceland's underground volcanic activity, helps bolster Icelandic's claim of being entirely "carbon neutral," meaning it has eliminated any contribution to global warming. "We see ourselves as a flag bearer for the industry," says Patrick Racz. Icelandic's chief operating officer.
You'll probably be hearing much more along those lines in coming months. In July beer giant Anheuser-Busch (BUD ) bought a 20% stake in the company and became its prime U.S. distributor, with plans for more aggressive promotions.
Icelandic can point to a carbon-neutral certification it obtained from a paid consulting firm, but BusinessWeek's examination of Icelandic's environmental reports reveals that the company has not zeroed out all of its emissions. More broadly, the reports indicate just how difficult it would be for the bottled water industry, which has soared to $11 billion in U.S. sales, to address consumer anxiety about its role in global warming.
Beyond its reliance on geothermal power, Icelandic says it buys "carbon offsets" to abate the environmental effects of its shipping activity. Offsets, typically purchased through a broker and increasingly popular in many industries, represent a promise that some third party is lowering its emissions by a specified amount. As they have proliferated, offsets have often been manipulated to exaggerate emission reductions (BW--Mar. 26).
To counterbalance all of its greenhouse gases for the year ending in March, 2008, Icelandic says it purchased offsets covering 552 tons of emissions. But that's a surprisingly modest figure for a company with global operations. It's equivalent to the emissions from only 23 average Americans during the course of a year. How can that suffice for a company that ships millions of bottles of water, weighing eight pounds per gallon, for distances up to 4,300 miles?
A big part of the answer is that Icelandic doesn't count the distribution of its products after they arrive at the ports of their destination countries. In the U.S., for instance, Icelandic Glacial arrives via sea freight in Richmond, Va. The water then journeys by truck and rail to New York (333 miles away), Los Angeles (2,624 miles), and cities in between. Trucking, in particular, generates lots of carbon for which Icelandic simply isn't accounting.
Icelandic's Racz says it's "not fair" to say the company's marketing stretches the concept of carbon neutrality, but he acknowledges that Icelandic hasn't mitigated all emissions related to distribution. He says Icelandic intends to do that, but first had to resolve its accord in the U.S. with Anheuser. One planned step: moving production of plastic bottles from Europe to geothermal-energy-rich Iceland.
"We're very serious about this," says Racz. "The lengths that we go to are far in excess of others."
By Ben Elgin