On 1 July 2012, the Clean Energy Act 2011 (Cth) commenced, implementing the Australia wide carbon pricing mechanism (Carbon Price), sometimes derided as the “carbon tax”. There is much public anticipation that the Carbon Price will increase the cost of living, as businesses input costs (such as electricity) may rise and as a result claim that their prices have likewise risen (Carbon Claims). This anticipation may in turn tempt some businesses to arbitrarily raise their prices and incorrectly claim that all or part of this price rise is a direct or indirect result of the Carbon Price.
However, making a false, misleading or deceptive claim that your business’ prices have increased as a result of the Carbon Price may contravene sections 18 (misleading or deceptive conduct) and 29 (false or misleading representations) of the Australian Consumer Law (ACL).1 The Australian Competition and Consumer Commission (ACCC) has indicated that it will not tolerate people making such claims and has set up special procedures to deal with consumer complaints relating to Carbon Claims. As of 26 July 2012, the ACCC had already received approximately 1,260 such complaints.2 The ACCC has also released new guidelines on how businesses can lawfully make such claims.3
Additionally, the ACCC is already taking action in response to complaints and has recently taken public steps to prevent the Brumby’s bakery franchise, as well as two solar energy companies, from making misleading Carbon Claims. The clear message is that while businesses may state that their prices have increased as a result of the introduction of the Carbon Price, they must first ensure that these claims are true and are made on a reasonable basis.4
What conduct may contravene the ACL?
For the purposes of identifying whether a Carbon Claim contravenes the ACL, it is important to differentiate between three distinct types of price increases. There are increases caused:
wholly by the Carbon Price (Carbon Increase);
partly by the Carbon Price and partly by other market forces (Mixed Increase); and
wholly by other market forces (Market Increase).
Claiming that a Market Increase is actually a Carbon Increase or a Mixed Increase may contravene the ACL, as will claiming that a Mixed Increase is actually a Carbon Increase. These types of representations are not only false, but are likely to mislead consumers into incorrectly believing that the Carbon Price has caused those prices to increase.
The practical danger for businesses will lie in the precise terms that they use to describe Mixed Increases. Firstly, you cannot simply link the Carbon Price to the price increase with bare statements such as “our prices have increased as a result of the Carbon Price”, as this vague and ambiguous language may mislead consumers into believing that the Carbon Price was responsible for the entirety of the price increase. Instead they must clearly state the extent to which the Carbon Price is responsible for the increase, for example by saying that “our prices have increased by 10% and half of this increase was a result of increased expenses directly attributable to the Carbon Price”.
In these circumstances, you should be careful not to exaggerate or inflate the contribution of the Carbon Price to the overall Mixed Increase, as over-egging the pudding in this respect may cause you to contravene the ACL.5 For example, it has recently been alleged that an internal memorandum of the Brumby’s bakery franchise encouraged franchisees to raise prices and “let the carbon tax take the blame, after all, your costs will be going up due to it”.6 The subsequent backlash against the franchise has not only caused it embarrassment, but has also led to the resignation of its managing director.7 While it may be tempting to exaggerate the effect of the Carbon Price, you should never make a Carbon Claim that you are unable to substantiate as being true or else you may contravene the ACL.
Substantiating Carbon Claims
In order to avoid potential liability under the ACL, it is important to do your homework before you make a Carbon Claim. Prior to making a claim that a price increase is a Carbon Increase or a Mixed Increase, you must first determine whether the Carbon Price is responsible for that increase and if so, to what extent.
When determining the impact of the Carbon Price on your business’ prices, it is important for you to rely only on accurate, reliable, and applicable information or else it will be difficult for you to prove that any Carbon Claims have been made on a true and reasonable basis. The sort of information that would be useful in these situations could include:
invoices demonstrating the impact of the Carbon Price on your business’ supply chain, utilities (such as electricity) or other input costs;
information from suppliers detailing the extent to which their prices will increase as a result of the Carbon Price;
information from your business advisors and/or accountants; and
guidance from industry associations (such as the Chamber of Commerce and Industry) or government agencies, such as the Australian Renewable Energy Agency.
Just because you rely on this information when making a Carbon Claim does not mean that you will be immune from contravening the ACL, as this will not be enough to show that your Carbon Claim is true and made on a reasonable basis.
If you make a Carbon Claim on the basis of third party information that later turns out to be false or without proper foundation, then your claim may breach the ACL. In order to avoid this occurring, you should double-check that all information on which you intend to base a Carbon Claim is true and reasonable before you make the claim. The dangers of not doing so were recently highlighted by the ACCC’s investigation of brochures distributed by Polaris Solar Pty Ltd and ACT Renewable Energy Pty Ltd. In these brochures, the companies encouraged consumers to purchase their solar panels as electricity prices would increase by at least 20% after the introduction of the Carbon Price and by more than 400% by 2019.8 They had based these Carbon Claims on a newspaper advertisement and had failed to verify its truth. In response to the ACCC’s statements, these companies have now given undertakings not to engage in such conduct again and to ensure all directors are trained in the ACL.
If a consumer complains to the ACCC that a Carbon Claim is false, misleading or deceptive, then the ACCC may require the business that made the claim to substantiate it. In order to do so, it will need to show how it arrived at the conclusion reflected in its claim and produce the documents on which it relied. Accordingly, not only should you base Carbon Claims on information only when you are satisfied that it is true and made on a reasonable basis, you also need to retain copies of this information.
Lavan Legal comment
The recent events with the Brumby’s franchise illustrate the ACCC’s zero tolerance attitude towards businesses that contravene the ACL by making false, misleading or deceptive Carbon Claims. When such a claim is found to have contravened the ACL, the ACCC has statutory powers to issue infringement notices, effectively an on-the-spot fine of up to $66,000.9 The ACCC is also able to commence proceedings against entities that make Carbon Claims in contravention of the ACL and if successful, the court may impose a penalty of up to $1,100,000 for each contravention.
On this basis, there is nothing to prevent a business from increasing its prices, nor to make representations that this increase is a result of the Carbon Price. However, before doing so, you need to make sure that you have accurately stated the effect of the Carbon Price and that this representation is true and based on reasonable information. If you do not do so and end up over-egging the pudding, then you could be liable for penalties far in excess of any benefit you might gain from the increase itself.
1 Schedule 2 of the Competition and Consumer Act 2010 (Cth).
2 “Sid Maher, ‘Carbon tax price rise complaints to ACCC reach 1,260”, The Australian (Online), 26 July 2012 <http://www.theaustralian.com.au/national-affairs/carbon-tax/carbon-tax-price-rise-complaints-to-accc-reach-1260/story-fndttws1-1226435996717>.
3 Australian Competition and Consumer Commission, Carbon Price Claims: Guide for business, May 2012.
4 Ibid, at 2.
5 Ibid, at 2.
6 Lanai Vasek, ‘Roasting for Brumby’s over price rise claims’, The Australian (Online), 5 July 2012
7 Ben Packham, ‘Carbon tax claims first scalp with the resignation of Brumby’s bakery boss’, The Australian (Online), 9 July 2012
8 Paul Osborne, ‘Solar panel firms ‘mislead’ over carbon’, The Australian (Online), 5 July 2012
9 Competition and Consumer Act 2010 (Cth) sections 134A and 134C.