The Carbon Tax came into effect on 1 July 2012. The tax is part of a package of legislation which establishes a framework to reduce carbon emissions by increasing the costs of high emissions trading. The effects of the legislation on Australian business and households have generated widespread debate. It is timely to consider the nature of the tax and to suggest good practice for businesses in advertising price increases.

The Clean Energy Act 2011

From 1 July 2012, the first phase of the tax will apply. This is a fixed price scheme where $23 per tonne of greenhouse gas emissions will be charged, which will increase 2.5% annually in line with inflation. From 1 July 2015, the fixed price will transition to an emissions trading scheme. It is estimated that 500 businesses will be directly affected by the tax. Small businesses turning over less than $2 million per year will be exempt, and businesses may increase prices or choose to absorb the costs. The government anticipates that increased prices will change consumer behaviour and reduce carbon pollution.

Who is liable?

A person is responsible for covered emissions of greenhouse gas, that is, where the emission is released as a direct result of operations, the annual operations are above the threshold for liable entities and the person does not surrender the unit of emissions for each tonne of carbon dioxide. The government estimates that around 500 entities will be directly liable under the carbon price.

Carbon Price Claims

Changes in behaviour associated with the increase cost of the carbon tax will depend in each business on a range of factors including potential to pass costs to consumers, changes in consumption patterns and the availability of less carbon intensive production inputs.

If a business increases its prices due to the carbon price and says this is the reason for the increase, the business has a legal obligation to ensure that any statement is not false, misleading or deceptive and should seek to ensure its claim is right. The ACCC is tasked to take enforcement action to ensure businesses comply with the law.

The ACCC has recently expressed its intention to question the bakery chain Brumbys over an internal memorandum issued by that chain. In the memo, the then managing director, Deane Priest, suggested that franchisees ‘take an opportunity to make some moves in June and July, let the carbon tax take the blame, after all your costs are going up due to it.’ The ACCC has warned businesses against making untruthful statements about the effect of the carbon tax on pricing.

Under section 18 of the Australian Consumer Law, a person in trade or commerce is prohibited from engaging in misleading or deceptive conduct. To comply, any claim that a business makes about the impact of the carbon tax on prices must be truthful and have a reasonable basis. The ACCC can act against misleading claims that are falsely linked to the carbon tax and as a result, businesses should note the ACCC’s media release which outlines problematic claims including where a business makes a representation that the price increase in whole is attributable to the carbon tax, when in fact only a portion is.

Information you should consider before making a claim that increased costs are directly attributable to the carbon tax should include invoices showing the impact of the carbon price on your supply chain or business input costs, the impact of the carbon price on the cost of services, the impact on other products or services, calculations from an appropriate business calculator and information from professional advisors and industry association and the government.

Making statements or advertisements surrounding price increases should be done with caution. Evidence supporting the claim must be available to be provided. The ACCC may issue warning letters, infringement notices of up to $6,600 or initiate court proceedings where penalties of up to $1.1 million for each act can be ordered against offending corporations.

What assistance is the Government providing for businesses?

The Government proposes to provide a range of assistance measures to industries that are expected to be heavily affected by the carbon tax. The majority of this assistance will be provided as free permits and the Government expects around 40 to 50 activities to be eligible for assistance. The main industry assistance measure is the Job and Competiveness Plan and the Clean Technology Innovation Program as well as a Clean Energy Skills program which the Government will create to help educate industries on clean energy skills.  

For most small businesses the government says, a carbon price will only result in a small increase in their overheads. The carbon price may also influence investment decisions. The Government is providing a $40 million program over four years to deliver information to businesses on the implications of a carbon price and steps to manage the impacts.