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Demystifying the proposed carbon tax

Under the proposed carbon pricing mechanism, around 500 of Australia’s biggest polluting businesses will be required to buy and surrender a permit (initially priced at $23) for every tonne of carbon dioxide equivalent they emit. With the top 500 companies likely to pass on this additional “carbon tax” related cost in the form of increased prices for electricity, gas and other emission intensive products (such as steel and aluminium), it is inevitable that the proposed carbon price will impact on all businesses, regardless of their size.

Preparing your business for a carbon tax

While your business may not be one of the top 500 biggest polluters, there are a number of things you can start doing now to prepare your business for the impact of the proposed carbon price. This requires looking at your business from two different perspectives: upstream (the way you procure goods and services as inputs to your business) and downstream (the way you price and sell your own products/services).

Upstream, there are a number of things you can start to think about, including:

  • identify the contracts governing your acquisition of electricity, gas and emission intensive products
  • ascertain whether the supplier has any ability to change prices for supply after 1 July 2012
  • seek to estimate the most likely change in your input prices
  • if your contracts expire before 1 July 2012, seek to negotiate favourable input prices past 1 July 2012
  • understand the basis for any price increase passed onto your business and challenge it if it seems unreasonable.

Downstream, it is important that all businesses understand their contractual ability to pass on carbon tax-related costs to their customers in the form of increased prices for the downstream supply of goods and services. If you plan to pass on any increase in such costs to your business, it is critical that you quantify and record those additional carbon tax-related costs with reasonable precision, in order to substantiate any claims that price increases are the result of such costs.

Watchful eye of the ACCC

The Clean Energy Regulator will have powers to disclose protected information and receive information from other regulators, including the Australian Competition and Consumer Commission (ACCC) and ASIC, and will work with these regulators to ensure businesses comply with the competition and consumer laws and financial services laws.

The ACCC will be provided with additional funding of $12.8 million over four years to investigate, monitor and control how businesses work the carbon tax into their pricing structures and make carbon tax representations to consumers.

This level of funding (when combined with the anticipated exchange of information between the Clean Energy Regulator and the ACCC) will mean that businesses will need to exercise caution in making carbon tax-related pricing claims and representations. As part of this, the Government has directed the ACCC to give priority to education, awareness and prosecution action to ensure businesses do not make false or misleading statements or representations about the impact of the carbon tax on the price they pass onto and charge consumers.

The ACCC has recently informed the market that it proposes to issue substantiation notices to companies in respect of any carbon tax-related pricing claims which it suspects may be misleading. In addition, the ACCC is also empowered to issue infringement notices or public warning notices and may also investigate and prosecute businesses for making misleading carbon tax-related pricing claims. If a breach of the law is established, this may attract penalties of up to $1.1 million for a company and $220,000 for an individual.

As the Government has maintained that the price impact of the carbon tax on households will be minimal, the Government will be keen to ensure the ACCC uses its powers to stop businesses:

  • from inflating prices above the level necessary to absorb carbon tax-related costs
  • falsely claiming that price increases are due to the carbon tax.

Accordingly, any carbon tax-related pricing claims made by businesses are expected to be scrutinised by the ACCC.


Businesses of all sizes, not just the top 500 polluters, should start to plan for the introduction of a carbon tax. Businesses will need to:

  • accurately capture and record all carbon tax-related costs in order substantiate any carbon tax related price increases
  • review all pricing representations to ensure no false, misleading or exaggerated claims are made about the impact of carbon tax related costs on pricing.

–Murray Deakin is a Partner in Middletons’ Competition and Regulatory Group.

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