Below are the definitions from the US FTC Green Guide (October 2012) for compostable and biodegradable.
Compostable: Some materials break down into usable compost material that enriches the soil and returns nutrients to the earth.
Biodegradable: Something that’s biodegradable, like food or leaves, breaks down and decomposes into elements found in nature when exposed to light, air, moister, certain bacteria, or other organisms.
A product or package that has "compostable" means the material can be composted safely in the customer's home compost pile.
A product or package that has "biodegradable" means the material will completely break down and return to nature within a year.
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