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Passing The Buck

by fatweb

By Kate Pierson

The phrase ‘price hike’ has a tendency to offend. So, it’s no surprise talk of the financial impact on New Zealand businesses due to the effective Emissions Trading Scheme (ETS) and impending GST hike has many hot under the collar.

And, as if almost reading the minds of concerned business owners, the Commerce Commission is already reminding commercial entities about their obligations under the Fair Trading Act not to mislead customers about any potential price increases and refrain from passing the buck in light of these legislative changes.

Wellington Commerce Commission enforcement manager Greg Allan explains, “Businesses are not required by law to give reasons when they raise prices. “However, when a business does try to justify a price increase to its customers, the reasons they give must be accurate and

not misleading. For example, businesses will run the risk of breaching the Fair Trading Act if they explain price increases as being caused by the increase in GST, where the price exceeds the extra GST.”

Understanding the ETS

Effective as of July 1, 2010 the ETS is a key part of the Government’s response to global climate change and will ensure New Zealand meets its obligations under international agreements like the Kyoto Protocol.

Under the New Zealand ETS, some businesses will have a legal obligation to surrender emission units to cover direct greenhouse gas emissions they are responsible for, or any emissions associated with their products.

On measuring the relationship between commercial price increases and the ETS, Allan says, “The impact of the ETS on each electricity or petrol company will vary and consumers are not best placed to understand the technicalities of this, so must rely on the information provided by these businesses.

“It is important that businesses are accurate and not misleading about the reason for the increase and do not overstate the cost of the ETS, or they might breach the Fair Trading Act.”

Contact Energy has already spoken out in defence of its estimated 3.2 percent residential electricity price increase. The company said its pricing structure was calculated in relation to the ETS and its average price increase would be aligned with the Government’s estimate of ETS adding five percent to the cost of electricity.

“We have been absolutely clear in our communications with customers about price increases. Part of that clarity has been to ensure that we differentiate between a price increase as a result of ETS, and other price moves we may be making as part of normal operations,” Contact Energy managing director David Baldwin says.

Implication rejection

“It is important that people do not confuse general price moves as a result of normal retail operations, with the ETS price increase, even if in some instances both price movements may be occurring at the same time. We reject any implication that we are using the ETS as a cover for inflating prices. We are not.”

While the ETS does not directly involve a high proportion of New Zealand’s small to medium businesses, which means they are not required to report on their emissions or to trade New Zealand Units (NZUs), emissions intensive and trade exposed smaller business will be faced with higher fuel and electrical prices and waste disposal costs.

However, businesses in this category may also be eligible to receive allocation of NZUs if they are carrying out activities that generate

a significant amount of emissions and/or use large amounts of energy relative to revenue from output (this is equivalent to at least 800 tonnes of carbon dioxide equivalent per $1 million revenue).

Businesses can refer to the consultation document on industrial allocation under the New Zealand ETS ( to determine if they are eligible.

Penalties under the fair trading act

The courts can fine a company $200,000 and an individual up to $60,000 for breaches of the Fair Trading Act.

For more information on the ETS scheme visit the Ministry for the Environment

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