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Disclosure and accounting for carbon pricing: 2012-13 financial statements of local governments in Queensland


This bulletin is to advise local governments in Queensland about the approach to be followed in accounting for, and disclosing the effect of, carbon pricing on "heavy emitter" councils for 2012-13.

An example disclosure note is included in this bulletin.


Local governments are required to prepare audited annual financial statements that comply with local government legislation and the Australian Accounting Standards.

To assist with this, the department prepares a set of example annual financial statements each year. These statements are commonly referred to as 'Tropical', and are updated each year to reflect new and amended Australian Accounting Standards and other relevant legislative requirements.

Tropical 2012-13 included draft note disclosure for "heavy emitters". A heavy emitter is a council with landfills, or other relevant facilities, that have annual emissions of carbon dioxide equivalent in excess of relevant emission thresholds.

Emissions from landfills are unusual in that the emission does not commence until 13 months after the "dumping" of the waste. This has led to a great deal of debate within Australia concerning when to recognise a liability under the carbon pricing scheme in local government financial accounting systems. For this reason the Tropical 2012-13 note about this issue was in draft format. In addition the following statement was included: "at the time of release of these model statements the "past event" trigger for recognising a liability for carbon permits is still under consideration. There is some debate as to whether the liability exists at the point of emission, rather than the point of dumping. Further information will be released shortly."

Approach in Queensland

It was hoped that a consistent position across all Australian local governments could be reached, however this has not been possible at this time. Therefore, in other states and territories, the effect of the carbon pricing scheme, relating to landfills, may be recognised, presented and disclosed differently from the approach suggested in this bulletin.

After taking materiality into consideration, the recommended approach for Queensland councils for 2012-13 is outlined below. Given the level of political uncertainty regarding the future operation of the scheme, this position will be revisited in 2013-14.

Timing of recognition of the liability

It is our view that the obligating event is the emission of carbon. Therefore no liability should be reported in the 2012-13 financial statements of Queensland local governments with respect to landfill emissions.

Disclosure in the 2012-13 financial statements

Queensland local governments will need to disclose the following information in 2012-13 financial statements:

  • The nature of the Clean Energy Act, Carbon Pricing Mechanism and the direct and indirect impacts on the council.
  • The nature of landfill emissions i.e. emissions do not commence until some time after dumping and continue for years thereafter.
  • Identification that the carbon liability will arise in 2013-14 and estimates of the expected liability as well as disclosure of the key estimates, judgements and assumptions used in calculating the emission levels and associated carbon liability. This includes recognition of the assumption that "emission" is the trigger for the obliging event for recognition of a liability.
  • Any other significant carbon pricing issues that are considered relevant to users of the financial statements. For example, indirect impacts on electricity and fuel costs.

Example disclosure note

The draft example note that was included in Tropical 2012-13 will be replaced with the following example:

Carbon pricing

(Note: where Commonwealth modelling has not been used, councils should disclose the specific assumptions made)

In 2011, the Australian Government introduced a Clean Energy Legislation package. One aspect of this package which has, and will continue to, impact council directly and indirectly is the introduction of a pricing mechanism for greenhouse gas emissions in the Australian economy.

The pricing mechanism commenced on 1 July 2012 and set a fixed price path for the first three years ($23 per tonne of CO2-equivalent emissions adjusted in real terms by 2.5% per annum) before moving to a flexible price mechanism from 1 July 2015. It provides a framework for setting a cap on greenhouse gas emissions by capping the number of carbon units available once the flexible price period commences, which can be adjusted over time to ensure that the government's reduction targets are met.

It is likely that the way this mechanism is priced and/or applies will change, depending upon the outcome of the Australian Federal election on 7 September 2013.

Council has two landfills that produce emissions that exceed the current relevant liability threshold. In addition a third landfill is expected to exceed the emissions threshold by 2016. Council projections indicate that each of these facilities will continue to exceed the relevant emissions thresholds into the foreseeable future.

Council recognises a liability under the carbon pricing mechanism as the emissions from these facilities occur. Organic material within waste deposited at landfills takes time to begin decomposing. Waste deposited in 2012/13 will only begin to break down and generate emissions at the start of 2013/14; therefore Council has not recognised a liability for the purchase of carbon permits for these facilities at 30 June 2013. Although the waste deposited in landfills takes over twelve months to begin emitting carbon dioxide, it also continues to generate emissions for the following 40 years.

Council estimates that the liability under the carbon pricing scheme for emissions during the 2013/14 financial year will be $XXX. This estimate is based on the quantity and types of refuse received, estimated future CO2e type gas emissions (using the latest national Greenhouse Accounts Factors), estimates of likely timing of such emissions and the potential offsets by collection of emitted gases and other methods. The calculation has been based on the fixed price per tonne CO2e currently set for the 2013/14 financial year.

The liability that has been estimated is unlikely to be the same as council's actual liability for 2013/14 due to the nature of estimates and, in particular, the likelihood that the pricing mechanism will change following the federal election.

Council has been, and will continue to be indirectly impacted through increased costs arising from the carbon pricing mechanism. The most significant of these will be electricity and fuel. Commonwealth Treasury modelling published in July 2011 in the document "Strong growth, low pollution modelling a carbon price" indicates that the carbon pricing is expected to increase electricity prices by 10% within 5 years from 1 July 2012 and increase other costs by 0.7% on inflation. In addition fuel tax credits will be progressively reduced over the initial fixed price period.

Council's latest modelling indicates that electricity and fuel is likely to increase as follows:

Year Electricity ($) Fuel ($)
2014 (insert your figures here) (insert your figures here)
2015 (insert your figures here) (insert your figures here)

Further information

Any further enquiries on this matter should be addressed to:

Ms Samantha Cieslar
Principal Project Officer
Department of Infrastructure, Local Government and Planning
PO Box 15009
City East
Brisbane QLD 4002