Hello and welcome to the BRR Legal Brief, where we bring you the latest legal issues affecting corporate Australia.  I’m Kate Ritchie and today we’re talking about the Carbon Tax, which of course commences this Sunday.  We’ve seen a lot of press about the issue and a lot of political debate, but just what does it mean for you as a business.  And joining me to discuss the scheme and provide some last minute tips is Fiona Melville and Murray Deakin, both Partners at Middletons.  Thank you for joining me in the studio.

FM Thank you

MD Thanks Kate.

Well Fiona I’d like to start with you.  Looking firstly to the heavy emitters who are going to be directly affected by the scheme, how are they generally faring, are they prepared?

FM I’d say the heaviest emitters are very well prepared, particularly the energy industry, because they’ve known that this has been coming for quite a number of years and so they have really got pretty much most of the work done.  There’s been a lot of negotiations with large customers who are heavy emitters, around electricity contracts, around passing through carbon units, passing back free units, so we’ve had a lot of work with those largest emitters.  Probably the mid-size and the smaller ones are perhaps a bit less well prepared and there has been a little bit of scrambling around at the last minute.  And in the gas supply chain it’s quite a bit more complex, so it’s been a bit more difficult to explain to and to understand exactly who’s going to be liable.  And actually on that a lot of suppliers have made some partition to the Clean Energy Regulator to have a bit of a transition provision.  So there is, we hope, to be a transition provision for two months, which means that liability for gas which is via an obligation transfer number, it should have been sorted out by 1 July but I think we’ve got another two months but the Regulations we’re still waiting to actually see them.

Okay well we’re still waiting for the Regulations for the ones that might have a few months, but for the liable entities that are going to be affected from 1 July, in terms of calculating liability and reporting their pollution, what are the processes?

FM Well all of those entities will be well used to the process because they’ve had to report NGHERA which is National Green House Energy Reporting Act, and the first entities started doing that in the 08/09 financial year.  So some of the entities will have had three years’ worth of reports, others might of just had two years.  But interestingly there was an audit by the National Audit Office and that was on the 09/10 data and that found 72% of the data was incorrect.  Now only 17% was significantly incorrect, but clearly there’s quite a bit of work around that.  Now I’m sure that lessons would have been learnt from that audit, but one of the things that liable entities will really need to do now is have their data audited because from now emissions numbers are going to equal dollars, so the higher emission number the higher you’re going to have pay on your carbon.  And when the data is prepared there’s often several different methodologies for determining the emissions number so it might be up to four.  So it might have been that when the data was first prepared people just chose the easy option and went for default methodologies, whereas now because of this fact of it being real dollar cost I think it’s the time for them to look again at those methodologies.  So that’s something that I expect that they’re going to be doing.  Also the emission number for last year is what initially sets liability under the Carbon Scheme and the liability’s set on 15 June next year, so there’s sort of nine months yet or a year, but then 75% then is based on your previous year’s emissions and then there’s a true up onto actual current year emission and that happens in February.  So it’s very important that your 11/12 data is as accurate as you can make it.

Okay some good advice there.  Well last time you were in the studio you talked about which entities will be liable for financial services licences if they’re looking to trade units.  Can you briefly remind us just who will require a licence and also what the process of obtaining one is?

FM Yes.  Well there are some very good exemptions available, so for the smaller emitters they almost certainly should be able to get by without having to have a licence.  But generally speaking if you’re a large emitter and you’re stating prices at which you will buy or sell carbon units, then you’re going to need to have a licence because that’s called making a market.  If you’re advising you’re going to need to have a licence, and if you’re buying units under a derivative like a forward contract with a cash settlement option, then you’re going to need to have a licence if you’re buying for non-compliance purposes.  And it would be very easy to fall into the non-compliance bucket, because you might start off the year buying for your own use but then you might find part way through the year that production changes and you don’t need those units, well suddenly then they’re not compliance units anymore.  So there is a process which is that there is a transitional provision, which allows entities to be licensed for dealing and market making, but they have to register between 1 May and 30 June, so they have to register by this Saturday, and 82 have already registered.  So I mean out of the roughly 250 emitters, 82 have registered, so that shows you really how well prepared quite a lot are.  Now a lot of this list is also banks and brokers, as well as direct liable entities, but clearly a lot of business has been taking advantage of that transitional provision and then what they have to do is follow up because the transitional provision was that they intended to go and obtain licence, so they then have to actually go and obtain the licence between July and 31 October.  So they will then need to put in place an application to have their licence.  If they’ve got one already expanded and if they haven’t got one at all a new licence by 31 October.

So still a few things to do for those that don’t have a licence yet.  Well it’s not just the heavy emitters that are going to be affected, there’s likely to be broader implications for the business community at large with price increases and for businesses looking to increase their prices, Murray I’d like to bring you in here.  Just what are the key considerations for those businesses looking to pass on price increases?

MD I mean Kate all businesses are entitled to increase their prices at any time, subject to the constraints imposed by a competitive market place.  But if a business wishes to increase a price which is attributable to the Carbon Tax, then they need to do their homework, they need to ensure that the quantum of that price increase can be substantiated by reference to the cost impact of the Carbon Tax.  So it’s important that businesses that do wish to identify a specific price increase by reference to the Carbon Tax that they don’t mislead consumers into believing that all or part of that price increase may be attributable to a margin increase or a cost increase unrelated to the Carbon Tax, if they’re wanting to convey to the consumers that it’s solely attributable to the Carbon Tax.  So care is required by those businesses who wish to identify as the Carbon Tax as the basis for a price increase.

Well this week we’ve seen the Coalition going out to small businesses handing out flyers, talking about price increases.  Now if say a business was to post a flyer, and I believe you have one in your hands.

MD I do.

If they were to post a flyer in their window, could they fall foul of the ACCC’s regulations?

No I think the brochure here and I might just put that up so that viewers can see it.  If a retailer, such as a butcher or a baker, does intend to increase their prices by reference or as a result of the Carbon Tax they are entitled to affix this poster to their shop window and the mere publication of this notice or the display of this notice on the shop window doesn’t cause any difficulties under the Australian Consumer Law, but having done so, and when it comes to actually calculating the price increase they do have a task ahead of them because they will need to be careful to ensure that the quantum, the amount of their price increase is truly attributable to the cost impact of the Carbon Tax, so there are some obligations that attach to the display of such notices.

Well that certainly I think brings me to my next question.  There’s been a lot said in the press about the impact of the Carbon Tax, but just what is the true impact going to be?  Do we know at this stage how businesses are going to be affected in dollar amounts or is it a little bit too early to tell?

FM Well we know obviously what Treasury have told us, which is that electricity prices for example should increase by 10%.  And in NSW we do have regulated prices for small customers, and IPART has also confirmed that for the Carbon portion there will be a 10% increase.  The bills will go up by about 20% because the other 10% is network charges, so those figures are pretty well known.  Treasury also indicate 9% increase on gas I haven’t seen any gas published price increases yet but we could assume that’s around about the case.  And Treasury said that the rest of the increase is likely to be modest 0.7% of CPI.  The clients that we’ve been dealing with who’ve done sort of for audits have found that the increases are fairly modest, but we don’t know.

MD And I think the ACCC has recommended, particularly the small businesses adopt a position of wait and see, they don’t need to necessarily change prices on 1 July they can await the receipt of bills coming in from their energy retailer and gas supplier, and take stock of any increases that they see evident on those new invoices and work that into their cost structure and adjust their prices accordingly.  So they can avoid the guess work if they wish to by just adopting a wait and see policy and I think that’s probably good advice for small businesses that don’t access to the types of sophisticated models that Fiona and some of Fiona’s large clients have been working with.

Yeah certainly.  Well I guess that brings us to a wrap up and from both of you obviously you have a lot of clients that are likely to be affected.  Looking to some tips we’re starting on Sunday, I guess Fiona maybe you can tell us what are the key tips before we kick off on Sunday and Murray then I might get you to address maybe some more medium term tips for business.

MD Certainly.

FM Well the two things that really need to happen by Sunday, so by Saturday really, is if you intend to register under the transitional financial service licence provisions you need to do that.  Secondly if you’re a large gas user and you haven’t as yet been allocated an obligation transfer number by the Clean Energy Regulator, you really need to phone them up and talk to them because although the word is that there’s going to be this two month transition that there’s no draft regulations that we’ve seen yet on that.  So those are the two like totally time critical, and just the third fairly time critical you’ve got really four months to go through and audit your NGHERA data, your greenhouse gases data and test those methodologies because you might find you can actually significantly reduce your emissions number by doing that.

MD And moving forward Kate, I think particularly small businesses that are intending to push up their prices, they’d be well advised either not to attribute that price increase solely to the Carbon Tax or if they do wish to provide their customers with an explanation as to the price increase, they would be well advised to identify as the drivers of that increase the Carbon Tax other business input costs and general trading conditions, so that they will move away from the position where they’ve identified a price increase by reference to the Carbon Tax itself.  That is a risky enterprise to embark on for a business that hasn’t done a detailed cost analysis.

Well there’s definitely some good tips for business there.  Fiona and Murray thank you so much for joining me in the studio.

FM Thank you.

MD Thanks Kate.
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And listeners thank you as well for joining us, we hope that you can join us next week for our Legal Brief.