Carbon tax price reduction obligation guidance

The new carbon tax price reduction obligation requires suppliers of regulated goods to pass through all the cost savings, directly or indirectly attributable to the repeal of the carbon tax.

Suppliers of regulated goods

Suppliers of regulated goods should consider the following matters to help determine whether they are passing through all the cost savings.

Regulated goods are:

  • electricity,
  • natural gas,
  • synthetic greenhouse gas (SGG), typically refrigerant gases
  • synthetic greenhouse gas equipment, which is equipment that contains SGG.

The ACCC's role

The starting point for the ACCC in considering if a supplier has met their carbon tax price reduction obligation is to see if the price of a good which increased by a certain amount due to the carbon tax has reduced by the same amount when the carbon tax was repealed. This includes situations where a supplier’s carbon tax costs have increased since the introduction of the carbon tax and this cost increase has been passed through. Following the repeal of the carbon tax, the carbon tax costs that have been passed through must be removed.

The examples given are simplified to emphasise the point being made. Suppliers of regulated goods and other businesses will be subject to a wide range of factors affecting their input costs and the prices they charge (for example, the GST). The carbon tax price inputs given within are illustrative only and should not be taken as representations of actual carbon tax price increases.

Cost savings directly attributable to the carbon tax repeal

Cost savings that are directly attributable to the carbon tax repeal are those that arise from the removal of a supplier’s own carbon tax liability. If your business was subject to the carbon tax, you must now decrease your price by any amount previously increased to cover this liability.

Cost savings indirectly attributable to the carbon tax repeal

Cost savings indirectly attributable to the carbon tax repeal are those that arise from cost savings attributable to the carbon tax repeal that are passed through to you by your suppliers. Where your suppliers increased their prices to take the carbon tax into account and lower their prices due to the carbon tax repeal, you must pass these cost savings through to your customers as they are passed through to you. Therefore, if you previously increased your prices due to cost increases attributable to the carbon tax passed through to you by your suppliers, you must decrease your prices by the same amount as they increased.

Your suppliers of regulated goods

If you have suppliers of electricity, natural gas, synthetic greenhouse gases or synthetic greenhouse gas equipment, they will be subject to the carbon tax price reduction obligation just as you are. When these suppliers lower their prices to pass through their cost savings attributable to the carbon tax repeal, you must pass those savings through to your customers.

Your suppliers of other goods

You must pass through cost savings indirectly attributable to the carbon tax repeal when they are passed through by a supplier of goods other than regulated goods. Where your suppliers of other goods lower their prices following the carbon tax repeal, you should make enquiries to determine whether the lower price is attributable to the repeal. If it is, you must pass through your cost savings arising from the lower price to your customers.

Example

Before the imposition of the carbon tax, a supplier of regulated goods charged $660 per unit. Upon the introduction of the carbon tax, the supplier raised its prices to $680 to account for a direct cost increase of $20 attributable to the carbon tax. Six months later, the supplier increased its prices to $710 to take into account additional cost increases of $30 indirectly attributable to the carbon tax which had been passed through to the supplier over time. Upon the repeal of the carbon tax, the supplier would need to reduce its prices by $50, so that both the direct and indirect cost savings were being passed through.

If you are concerned that one of your suppliers has failed to lower their prices in response to the carbon tax repeal, you should contact that supplier to obtain information on the effect of the carbon tax repeal on their costs and on the prices they charge you. Similarly, if you are uncertain how much of a supplier’s previous price increases were due to the carbon tax, you should contact that supplier to obtain the information. If you still feel that a business that supplies you with regulated goods is not passing through all their cost savings arising from the carbon tax repeal, you should contact the ACCC.

Methodology

When deciding how to adjust your prices following the repeal of the carbon tax, you may consider using the same methodology as you used to increase your prices when the carbon tax was introduced. Prices must fall by the same amount that they were increased when the carbon tax was introduced.

For example, if you averaged the effect of the carbon tax across your business and then increased the price of each of your products by the same amount, they should all fall by that amount now that the carbon tax has been repealed. Alternatively, if you calculated the impact of the carbon tax on a per-product basis, the price of each product should now be reduced by the specific amount by which it was increased. If you used a particular basis or method to calculate the impact of the carbon tax on your costs, you should consider using the same method to calculate your price reduction.

In all cases, you must be prepared to explain your methodology to the ACCC. You should be able to show the methodology you used to adjust your prices when the carbon tax was introduced, and the methodology you are using to adjust your prices to pass through all cost savings attributable to the carbon tax repeal. If you are using a different methodology following the carbon tax repeal compared to what you used when the carbon tax was introduced and there are differences in outcomes, you will need to be able to explain why the methodology changed.

If you have any compliance costs related to the carbon tax repeal then these may be relevant to how you adjust your prices following the repeal. However you must be able to explain and provide evidence to the ACCC to support any compliance costs you have incurred. Compliance costs might include the costs of accounting for or managing your carbon tax liability and the removal of your carbon tax liability.

Some suppliers of regulated goods, such as those which price their goods on an import parity basis, may have been unable to increase their prices to pass through the full impact of the carbon tax. If you are one of these suppliers, this may be relevant to how or if you adjust your prices now that the carbon tax has been repealed. In all cases where a supplier of regulated goods claims that they were unable to increase their prices to pass through some or all of the cost impacts of the carbon tax, the ACCC will expect them to produce strong evidence to support this claim.

Example

Before the imposition of the carbon tax, a supplier of regulated goods charged a price of $100 per unit. Upon the introduction of the carbon tax, the supplier’s costs increased by $15 per unit. The supplier tried to pass these costs through to its customers, but was only able to increase its price to $110, not $115. Upon the repeal of the carbon tax, the supplier must decrease its price by at least $10 (the amount it passed through) and be in a position to provide evidence to the ACCC to support its calculations.

Margin

One way to check if you have passed through all of the cost savings attributable to the carbon tax repeal is to consider your margin. Your margin should remain the same and not increase as a result of the carbon tax repeal. You should consider your margin, using the same methodology as you used to adjust prices when the carbon tax was introduced and ensure that your margin remains the same, in dollar terms, following the carbon tax repeal as it was while the carbon tax was in place. If you increase your margin, you may have failed to pass through all cost savings arising from the carbon tax repeal and may have contravened the law.

If other factors have affected your margin since the time the carbon tax was introduced, you should be prepared to explain these factors to the ACCC and show how you are passing through all cost savings attributable to the carbon tax repeal.

Example

Before the imposition of the carbon tax, a supplier sold regulated goods for $10 per unit with a $2 margin per unit (calculated using the supplier’s normal method for calculating margin). In response to a cost increase of $2 per unit attributable to the carbon tax, the supplier raised its prices to $12 per unit. Following the carbon tax repeal, the supplier would need to reduce its prices to $10 per unit. If the supplier only reduced its prices to $11, it would be making a margin of $3 per unit, thereby increasing its margin as a result of the carbon tax repeal and failing to comply with the carbon tax price reduction obligation.

More information

Carbon tax repeal
Carbon tax price reduction obligation

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