This is an edited version of an article that appeared in the July 2012 edition of The Public Sector Informant liftout in the Canberra Times.
Since the introduction of the carbon price on 1 July 2012, the ACCC has been actively monitoring the way in which businesses attribute price increases to the effects of the carbon price. Similarly, customers and contracting parties have also been paying close attention and asking tough questions about any price rises that they are being asked to meet.
Businesses attempting to justify any significant price increase due to the carbon price will need to be particularly careful how they do so. For those affected by downstream carbon price increases (especially in the context of supply arrangements), knowing your rights and the role of the ACCC will be critical to ensuring that the effect of the carbon price is not overstated.
In our June 2012 insurance update we reported on the increased role taken by regulators and the implications for director and officer exposure.
Investigations by the ACCC
The recent investigations conducted by the ACCC in relation to a wholesale refrigerant gas supplier in Sydney, a cemetery in Melbourne, a national bakery chain and two solar energy companies are a timely reminder to heed the warnings in the ACCC's "Business Snapshot" guidance papers, released earlier this year. Targeted at various industry sectors, each of the papers aims to provide assistance to businesses in substantiating claims made in relation to carbon price increases. Falling foul of the messages outlined in these guidance papers could see businesses in serious trouble.
Several wholesale refrigerant gas suppliers were identified by the Minister for Climate Change and Energy Efficiency, Greg Combet, as participating in "price gouging" by increasing the cost of certain refrigerant gases by amounts significantly above the increase attributable to the carbon price. Similarly a cemetery recently attracted the attention of the ACCC after it received a tip off that an employee of the cemetery was imposing an additional $55 charge on burials, allegedly as a direct result of the carbon tax (a claim that was later denied).
A national bakery chain was also placed in the media spotlight after it was reported that an internal newsletter to franchisees encouraged them to raise their prices and ''let the carbon tax take the blame''. Last week, the ACCC also took action against two solar companies for promoting misleading claims about the effect of the carbon price on electricity prices. In response, the Clean Energy Council stated "This is a timely reminder that all companies need to make sure they are well informed and quote reputable, accurate and credible sources before launching any ad campaign that refers to the carbon price".
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 carbon price pass-through must be both justifiable and capable of being substantiated. As the refrigerant gas supplier situation demonstrates, this is especially so in the case of indirect costs, where much more ambiguity arises and where carbon price rises may be only one component of the price increase.
If businesses are going to claim that the carbon price has led them to increase their prices, they are going to have to be able to substantiate that claim not only to the ACCC but to their customers and contracting parties. This means being prepared to demonstrate a number of things to the ACCC and being able to answer the questions of customers who will want to know how much the carbon price is costing them. This also means, as the cemetery situation demonstrated, that all employees need to be made aware of the requirement to be able to provide carbon price substantiation and the risks of falsely misleading customers.
Due to the complexities and uncertainties involved (particularly in respect of the indirect costs flowing down the supply chain), many businesses are resorting to 'best estimates' to determine the impact of the carbon price. This may cause a number of issues should they ultimately be required to substantiate their price increases to the ACCC.
Substantiating legitimate price rises
As a result of the carbon price, many businesses will face increased costs which they may choose to pass on to consumers. 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 able to be substantiated.
This will involve an examination of the basis on which a carbon claim is made and the impression which the claim creates in the mind of the consumer. Consequently, a business needs to carefully consider their circumstances and be sure that carbon price claims can be justified.
For customers confronted with price rises, especially for downstream contracting parties in supply arrangements, knowing the basis upon which you can challenge or question the reasons given for any such increase will be critical to ensuring that only substantiated and justifiable price increases are passed on.
A further consideration is whether, in the case of existing contracts, the price increase attributed to the carbon price can actually be passed on, especially for contracts entered into before the carbon price appeared on the political landscape or for contracts which do not expressly deal with the pass-on of price increases.
Avoiding 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 continue to 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 break the law. The ACCC is inviting people who are concerned about a carbon pricing claim to lodge complaints either online here or by calling complaint number 1300 303 609.
The recent instances highlighted in the media show that the ACCC will play an active role in asking businesses to justify price increases. Central to this role will be the ACCC's 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 approximately 3,000 formal investigations of businesses and received over 35,000 complaints from consumers. Whether a similar situation arises here remains to be seen.
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.