Competition, Consumer & Regulatory

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Client Update: ACCC to police carbon tax

15 July 2011

In brief: As part of the Federal Government's announcement this week to introduce a carbon pricing scheme (commonly referred to as a 'carbon tax'), a new dedicated 20-person ACCC team will be formed to investigate false and misleading claims by businesses in relation to the impact of the tax on their prices. Partners Fiona Crosbie (view CV) and David Brewster look at the competition risks for businesses.

Background to the ACCC's new role

The Australian Competition and Consumer Commission (the ACCC) will be tasked to ensure that businesses do not use the introduction of the carbon tax as an excuse to increase prices or margins beyond any amount that is legitimately attributable to the tax. This will be similar to the role given to the ACCC at the introduction of the goods and services tax (the GST) more than 10 years ago, when the ACCC was given specific powers to prevent price exploitation. At that time, the ACCC investigated over some 7000 cases, obtained refunds totalling around $21 million, instituted 11 court proceedings and accepted 55 court enforceable undertakings.

Although the Federal Government has not announced any specific price oversight powers in relation to the carbon tax, the recent introduction of the Australian Consumer Law means that the ACCC has significant new investigatory powers, including the ability to issue:

  • substantiation notices, requiring businesses to justify claims they have made in relation to their costs or prices; and
  • infringement notices, sometimes referred to as 'speeding tickets', when the ACCC considers that a business has engaged in misleading conduct in contravention of the Australian Consumer Law.

What are the risks for business?

Under the carbon pricing scheme, the industries that will be directly liable include power generators, gas suppliers, domestic aviation, coal mines, heavy industrials and waste management. These companies will seek to pass on their carbon costs to customers. Where those customers are themselves businesses, they may also seek to pass on the increased costs.

A simple way of avoiding ACCC investigation is not to make any representations in relation to the impact of the carbon tax on the business. Unfortunately, the commercial reality is that a customer facing a price rise may demand or require an explanation for it. Any justification, whether given after careful consideration (through advertising, public announcements or correspondence) or off-the-cuff (in sales pitches or negotiations), will be subject to the ACCC's oversight. Given the heightened political nature of this issue, businesses need to ensure that any communications with customers on price increases are not misleading.

Issues to consider when passing on the carbon tax

Businesses seeking to attribute an increase in their prices to the carbon tax must be careful about the representations they make, and whether they will be able to readily justify these statements if required by the ACCC. The ACCC will be targeting businesses that overstate the impact of the carbon tax on their prices, or blame the carbon tax for the entirety of a price rise, if the tax is only part of the reason. Important issues to consider in justifying price increases by reference to the carbon tax will be:

  • the need to apportion the increased carbon cost across only those products or services that attracted the cost;
  • the need to take into account any free permits or other support offered by the Government, to avoid overstating the financial impact of the carbon tax;
  • whether the business has contracts that preclude carbon costs being passed onto it by its upstream suppliers;
  • whether the business has actually incurred the increased costs or is raising its prices as a pre-emptive step; and
  • when passing on cost increases from an upstream supplier, whether it is safe to make representations based on the information the supplier has given about the carbon tax justifying a price rise.

For further background on the carbon tax, see our Focus: Carbon pricing scheme. For more background on the Australian Consumer Law and the ACCC's recent new powers, see our Focus: The Australian Consumer Law: what you need to know now.

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