When Australian agriculture meets the Carbon Pollution Reduction Scheme (CPRS) next year, it faces an extraordinary scenario in which stands to lose up to 8pc of farm cash margins to a scheme it plays no part in.
Agriculture has been written out of the CPRS as being in the "too hard basket", but in fact the scheme as it is currently designed will still overwhelm farm profits, according to a new report from the Australian Farm Institute (AFI).
Not only will agriculture wear additional costs passed on from players within the CPRS, like the transport and fertiliser industries, but it faces lower returns from large processors obligated to pay out under the scheme.
To cap off what AFI executive director Mick Keogh calls the "all stick and no carrot" nature of the CPRS, nowhere in the design of the scheme is there any incentive for farmers to innovate with offsets like forestry or soil carbon sequestration.
Nor are there imbedded incentives for research organisations to plunge money into emissions-reduction R&D, with no apparent means of making a return on the investment.
The result, says the AFI report, headlined Emission Impossible, is that by 2016, the farm sector could be bleeding between 2.4pc and 7.8pc of its cash margins to the CPRS, with no ability to trade on its assumed ability to sequester carbon, other than through voluntary markets yet to be devised.
Should agriculture be included under the CPRS in 2015, as is currently being discussed, outcomes could be even worse.
Even if government recognises agriculture as "trade exposed" and provides 90pc of emissions permits at no cost, AFI's modelling suggests that farm cash margins across the sector would drop between 3-24pc.
If agriculture is brought under the CPRS umbrella with no upfront assistance, cash margins could in some sectors—notably medium-sized beef-sheep enterprises—shrink by more than 100pc.
Looked at from all angles, the CPRS is currently a "dead end" for agriculture, Mr Keogh concluded.
"It's hard to see where to go from here," he said.
"One of the proposals put to government in the run-up to this was that it develop an offsets scheme for agriculture that's not part of the emissions trading scheme, but enables farmers to act to reduce their emissions and gain some benefit.
"That was rejected in the Green Paper and the White Paper (on CPRS design)."
If introduced, agriculture may have developed technologies, like soil carbon sequestration or methane reduction, that allowed it to offset emissions trading costs and ultimately transition smoothly into the CPRS, Mr Keogh said.
Without it, agriculture faces a raft of new costs outside its control.
"The bit of the White Paper that I found particularly jarring was the statement that if agriculture didn’t become a covered sector, then a 'cost-efficient emissions reduction requirement' would be placed on the sector," Mr Keogh added.
"It seems to mean that whatever happens, agriculture will pay the equivalent of the CPRS price for carbon. The way things stand, that will just be a dead hand on the sector."
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