Carbon Tax Repeal Places Spotlight on Price Reductions

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After months of delay, the Australian Government has passed legislation to repeal Australia's carbon tax and introduce new sanctions against energy and gas refrigerant entities that do not pass on cost savings arising from the repeal of the tax.

Among the package of amendments, the Competition and Consumer Act 2010 (CCA) has been amended to:

  • create a carbon tax price reduction obligation
  • impose a penalty on certain entities who fail to pass on carbon tax repeal cost savings 
  • require certain entities to substantiate that their cost savings have been passed on to consumers
  • prohibit false or misleading representations about the effect of the carbon tax repeal 
  • give the Australian Competition and Consumer Commission (ACCC) price monitoring and other powers to oversee the carbon tax repeal.

The new carbon tax price reduction laws principally apply to suppliers of natural gas and electricity, bulk suppliers of synthetic greenhouse gases and suppliers of synthetic greenhouse gas equipment (regulated entities).

The carbon tax repeal bills passed the House of Representatives for the third time and then passed the Senate with the support of the Palmer United Party (PUP) alliance on 17 July 2014.

The legislation will apply retrospectively from 1 July 2014. The law is expected to commence on the date it receives Royal Assent.

Energy Companies in the Frame

The carbon tax repeal will end carbon tax liabilities for approximately 371 entities that were liable under the scheme, as well as end certain levies on liquid fuels and synthetic greenhouse gases.

The Australian Government's recent amendments to the repeal bill, after negotiations with the PUP alliance:

  • require an estimated 100 businesses comprised of natural gas and electricity suppliers and bulk suppliers of synthetic gases used in refrigeration:
    • to comply with a carbon tax removal substantiation notice from the ACCC, explaining and substantiating the effects of the carbon tax removal on costs and prices
    • to produce within 30 days of Royal Assent, a carbon tax removal substantiation statement estimating, on an annual percentage price basis or an average annual dollar price basis, the costs savings in the 2014-2015 financial year that will be passed on to each class of customer
  • require energy and gas suppliers to prepare statements for customers regarding such estimated costs savings
  • impose on particular suppliers of electricity or natural gas, and bulk importers of synthetic greenhouse gases, penalties of 250% of any savings which are not passed through
  • exempt businesses that sell a small amount of refrigerant gases each day such as vendors of fridges, air conditioners and cars.

In the lead up, the sticking point related to negotiations between political parties on the amendments to the bill to guarantee that full savings from the carbon tax repeal, would be passed on to consumers.

The Laws

Carbon Tax Price Reduction Obligation

The new Part V of the CCA prohibits carbon tax related price exploitation in relation to the supply of regulated goods during the carbon tax repeal transition period (ie 1 July 2014 until 30 June 2015).

Under section 60C of the CCA, a regulated entity will engage in price exploitation in relation to the carbon tax repeal if:

  • it makes a regulated supply
  •  the price for the supply does not pass through all of the entity's cost savings relating to the supply that are directly or indirectly attributable to the carbon tax repeal.

In determining whether there has been a full pass through of the regulated entity's carbon tax repeal cost savings, regard is to be had to a number of matters, including the relevant cost savings, how they can reasonably be attributed to the entity's different supplies, the entity's costs and other relevant matters that may reasonably influence price.

A regulated entity is a supplier of "regulated goods" which are defined as natural gas, electricity, synthetic greenhouse gases and synthetic greenhouse gas equipment, and any other goods prescribed by the Minister.

The ACCC will be able to issue written notices to:

  • an entity suspected of engaging in price exploitation in relation to the carbon tax repeal, and the notice will be considered prima facie evidence that the price charged for the supply did not pass through all of the regulated entity's relevant cost savings
    or
  • warn a regulated entity that supplies specified in the notice should not be made above a maximum price (as otherwise, it could amount to price exploitation).

Those engaging in carbon specific price exploitation with respect to certain regulated goods may be liable to pay penalties of up to a maximum of AUD1,100,070 (for corporations) and AUD220,150 (for individuals). Additionally, remedies such as damages, injunctions and orders limiting prices or requiring refunds could apply.

False or Misleading Representations Regarding the Effect of Carbon Tax Repeal

The new Part V of the CCA will also contain a new provision that prevents any corporation from making false or misleading representations about the effect of the carbon tax repeal, in connection with the supply or possible supply of goods or services during the carbon tax repeal transition period. This prohibition will apply to all goods and services supplied, and not just the supply of "regulated goods".

Maximum civil pecuniary penalties of up to AUD1,100,070 (for corporations) and AUD220,150 (for individuals) may apply.

Increased ACCC Monitoring Powers

The ACCC has now been formally provided with powers to monitor the prices from electricity, gas and refrigerant gas industries and those with indirect carbon liabilities. This is on top of the directive the Australian Government gave to the ACCC on monitoring activities in February 2014.

The amendments provide new powers for the ACCC to monitor the prices of certain "relevant goods" (including "regulated goods" and any goods specified by regulation) and any goods supplied by a corporation that is on the Liable Entities Public Information Database. Additionally, the ACCC will have information gathering powers to:

  • assess the general effect before and during the carbon tax repeal transition period
  • assess compliance
  • assess the effect of the carbon tax repeal on prices.

In doing so, the ACCC has been given powers to monitor prices advertised, displayed and offered. These powers are in addition to the ACCC's information gathering powers under s 155 of the CCA.

Additionally, the ACCC has also been given information gathering powers to request a person to produce specified information or produce documents containing information relating to prices or the setting of prices, if it is reasonably believed to be information that will be useful for the ACCC to monitor prices. It will be an offence to refuse or fail to comply with such a request (a maximum penalty of AUD3,400).

Infringement Notices

The ACCC will be provided with powers to issue infringement notices for price exploitation relating to the carbon tax repeal. The Explanatory Memorandum states that the infringement notice is intended to provide an efficient and effective way for the ACCC to tackle minor breaches by a person whom the ACCC considers has breached the new prohibitions, without needing to apply to the courts for a civil pecuniary penalty. The infringement notice amounts range from AUD102,000 for listed corporations, to AUD10,200 for non-listed corporations to AUD2,040 for individuals.

Impact on Businesses

The amendments are likely to create practical challenges for affected businesses and energy suppliers, especially in calculating the net direct and indirect cost savings derived from the carbon tax repeal. Such difficulties may be further complicated by other regulatory requirements, such as under certain energy legislation which prescribes how and when price changes may occur. In this regard, the Australian Energy Regulator has already issued a compliance statement in relation to its approach to standing offer prices under the National Energy Customer Framework, stating its expectation for retailers to publish prices immediately upon repeal.

The Explanatory Memorandum foreshadows logistical difficulties in ensuring consumers reap the benefits of the repeal. It recognises the complexities of quantifying the specific price changes as a result of the introduction of carbon tax in 2012, and that commercial and contractual arrangements and other factors (eg supply chain absorption, inflation, changes in the production cost base) may impact on the proportion of carbon tax that may have been passed through or absorbed.

The ACCC has therefore been given new monitoring powers to enable it to monitor pricing concerns and request information relating to regulated goods such as natural gas, electricity, synthetic greenhouse gas, synthetic greenhouse gas equipment, goods supplied by entities that have an entry in the Liable Entities Public Information Database, and other goods listed by regulation. Regulated entities should therefore undertake a carbon tax repeal cost savings analysis which would identify:

  • prices before the carbon tax
  • price increases (if any) since the introduction of the carbon tax
  • cost savings directly or indirectly attributable to the carbon tax repeal
  • net compliance cost savings.

Compliance Measures

The Explanatory Memorandum has envisaged that the ACCC will take a targeted approach and will monitor around 500 businesses affected, including liable entities, energy retailers and synthetic greenhouse gas importers and wholesalers.

The ACCC has indicated that it will engage with stakeholders to ensure that regulatory obligations are understood. It has already issued a media release putting businesses on notice about the carbon tax price reduction obligation, and has encouraged consumers or businesses concerned that their suppliers are engaging in price exploitation to contact the supplier to obtain information on the effect of the carbon tax repeal on the supplier's prices. If consumers or businesses remain concerned, they have been advised to contact the ACCC. It also proposes to issue guidance material.

Given the investigation and enforcement powers of the ACCC, it is important that businesses undertake an appropriate carbon tax repeal cost savings analysis and develop a compliance plan, so that they are in a position to justify their prices in response to any price exploitation claims or notices.

Topics:  Australia, Carbon Taxes, Energy, New Legislation, Oil & Gas, Sanctions

Published In: General Business Updates, Energy & Utilities Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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