Competition and consumer law implications of the carbon tax

The Federal Government's carbon pricing scheme, coming into effect from 1 July this year, brings with it a number of implications for competition and consumer law compliance of which all businesses should be aware.

Special caution must be taken to avoid:

• engaging in cartel conduct with competitors; or
• making misleading or false statements to customers and suppliers, with respect to increases in costs and their effect on pricing to customers.

The ACCC has received a specific direction by the Federal Government to monitor compliance and engage in enforcement action in this area and it has been made clear that significant resources will be devoted to undertaking this function.

Communicating with competitors

Risk of cartel conduct occurring arises as businesses (or their relevant managers) seek to determine the increase in costs they will incur as a consequence of the "carbon tax" and the level of any increases in their own prices required in response. In the course of doing so, it may be tempting (or an invitation may be received) to discuss these matters with competitors, as they are in the same commercial environment and face similar input costs. Such discussions may take place directly, through an industry association or through a "middleman" such as a common customer.

While legitimately obtained industry information may be used to assist with calculations and decisions, it is essential that businesses avoid entering into any price fixing or other cartel arrangements with competitors. Such illegal arrangements may, for example, take the form of:

• working together on a common calculation of input cost increases or a common methodology for calculating them;
• agreeing on how much of the increase in costs will be passed on to customers or when the increase will be implemented.

All enterprises should ensure that they determine these matters independently from their rivals. Equally, they should avoid any possible perception that they have done otherwise. In all cases, proper documentation should be kept, setting out how and when cost increases were calculated and what decisions were made as a result of that.

Special care should always be taken when communicating about pricing with customers who are also competitors. In almost all other cases, refraining from any direct or indirect communication with rival businesses about the carbon tax is prudent. Should it be considered necessary to have any such communication, legal advice should always be obtained well in advance.

Engaging in price fixing cartel conduct can constitute a criminal offence and may attract multi-million dollar fines and, in the case of individuals, jail terms of up to 10 years.

False or misleading representations about the carbon price

It is also important for businesses to ensure that they do not make any false or misleading claims about the carbon tax and its impact on their own prices. Such claims can be made in the context of advertising, in the course of negotiations with customers or suppliers, or over the counter to customers.

Any claims that an increase is attributable to the carbon tax must be able to be substantiated, in case this becomes required by the ACCC. If such claims are to be made, the relevant business should carefully calculate its actual carbon tax related costs rather than guess or simply rely on information provided by others sources. All information used must be known to be accurate and proper records must be kept so that the true impact of the carbon tax can be independently verified if necessary.

Special care must be taken where a carbon tax related price increase is being used as an opportunity to also raise prices for other commercial reasons. While businesses may generally determine their own prices and increases, customers should not be misled about the impact of the carbon tax. It is essential not to overstate the impact of the carbon tax on their prices, for example by attributing the whole of a price increase to the carbon tax when in fact only part of that increase can be attributed to it.

Importantly, any claims predicting the effect of the carbon tax made before the actual increase in costs is known must have a reasonable basis. Claims such as "Buy now to avoid the carbon tax" will be misleading if there is no basis for expecting that the tax will have a notable effect on prices. Of course, there is no positive requirement to make any claim about the basis of a price increase. Even where claims are made on the basis of uncertain or estimated calculations, claims may be made so long as the uncertainty is made clear.

Falsely representing the impact of the new carbon price may attract civil penalties or criminal fines of up to $1.1 million for corporations or $220,000 for individuals.