On Wednesday, in a media release issued by the Department of Climate Change and Energy Efficiency, the Hon Mark Dreyfus, Parliamentary Secretary, reminded commercial landfill operators not to mislead councils and other customers about the impact of the carbon price on their operations. He described reports that operators are suggesting a carbon price of $40 per tonne of waste as "deeply concerning" and reinforced the role that the ACCC would play in preventing "price gouging" and ensuring that consumers are not misled.
Late last month, the ACCC released a series of five "Business Snapshot" guidance papers aimed at various industry sectors – each of which aim to provide assistance to businesses in substantiating claims made in relation to carbon price increases.
Like all representations made by businesses, claims regarding the impact of carbon pricing must not mislead or deceive or be capable of doing so. To avoid falling foul of the Australian Consumer Law, all claims relating to any cost pass-through once the carbon price comes into effect on 1 July 2012 must be both justifiable and capable of being substantiated. This is especially so in the case of indirect costs, where much more ambiguity arises.
When the carbon price is introduced on 1 July 2012, many businesses will face increased costs. As a result, businesses may choose to pass that increase onto consumers. However, under Australian Consumer Law businesses will need to be very careful how they go about doing so. While businesses are generally under no legal obligation to explain price increases to consumers, they must ensure that when they attribute price increases to the carbon price, their claims are both reasonable and substantiated. In this regard, the ACCC will play a significant role in ensuring that businesses do not mislead consumers about the effects of the carbon price.
Essentially, this will involve the examination of the basis for which a carbon claim is made and the impression which the claim creates to the consumer. Consequently, a business needs to consider carefully their circumstances and be sure that carbon price claims can be justified. A situation late last year that fell foul of the ACCC saw a bottle shop attempt to increase the price of a case of beer by $10.00, citing carbon price rises as the justification. The ACCC has also found instances of taxi drivers attempting to pass on similarly justified increases to their fares.
Misleading and deceptive claims
The main provisions in the Australian Consumer Law are sections 18 and 29(1)(i). Both sections prohibit a person from engaging in conduct that is misleading or deceptive or likely to mislead or deceive, with the latter section specifically dealing with representations concerning the price of goods or services. Under the legislation, the main issue is to determine what exactly is a false or a misleading representation. Ultimately the questions are whether a statement or action of a business is contrary to fact (that is, false) or something that has or could have affected the belief of a consumer.
The ACCC will play a significant role in ensuring that businesses do not make false or misleading claims about the carbon price increasing costs. The ACCC has powers under the Australian Consumer Law and has been given specific funding to carry out these powers, which includes an enforcement role against businesses who contravene the law. Central to this role will be the power to issue "substantiation notices". Though a direct comparison is not possible, by way of analogy, during the 18 months after the introduction of the GST in 2000, the ACCC carried out about 3,000 formal investigations of businesses and received over 35,000 complaints from consumers. Whether a similar situation arises here remains to be seen.
To avoid receiving such a notice, businesses can take a number of precautions when attributing a price increase to the carbon price. These include ensuring that the goods or services actually attract the extra carbon cost being passed on and to make plain that if the carbon price is only part of the reason for a price increase, this is made clear. It is also critically important that businesses avoid making representations in relation to price increases before the cost is actually borne.
What can businesses do?
Step one for businesses will be to ensure that you have a compliance program in place, especially for sales and marketing staff. A system to capture all sources capable of substantiating any price increases to be attributed to carbon price increases (whether direct or indirect) will also be vital. This will include retaining all relevant invoices and statements by energy and gas suppliers, invoices and statements by input suppliers, invoices and statements by transport companies, information from industry associations, information from Government and projections from business advisors as to the likely price impact. The use of credible (and justifiable) business calculators can also be included in any such system. In some cases, businesses may decide to have their carbon cost pricing model audited by appropriate external advisors.
Businesses must also be mindful to ensure that they distinguish between cost increases that are a result of a pass-through of direct costs (for example, where the cost associated with the carbon price increase is clearly identified and itemised on supplier invoices and passed on to a consumer) and those which are a result of an indirect cost increase (such as those arising from increased electricity prices, higher working capital costs or bad debt amounts as a percentage of turnover). Obviously in the case of indirect costs, businesses will need to ensure that they are able to properly substantiate the amount of those costs that are passed on and attributed to the carbon price increase, which may be a difficult undertaking in some instances.
It is likely that the ACCC will take a very active role in investigating and enforcing the provisions of the Australian Consumer Law. On 14 November 2011, the ACCC released A Guide to Business about lawful and unlawful claims on the effect of the carbon price and this has been supplemented by the 5 "Business Snapshots" released late last month. The implementation of compliance systems to deal with or to incorporate carbon claims into existing compliance systems will be of critical importance. This should involve training programs which help educate executives and managers to understand carbon pricing and how it may be justified if price increases are implemented. Norton Rose Australia would be delighted to assist you in developing your carbon price compliance systems, or advising you more generally on carbon pricing issues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.