The Federal Government this morning released its much-awaited "Carbon Pollution Reduction Scheme" with a green paper - or draft design - of an ETS to start in July 2010.

It will initially cover about 75pc of Australia's emissions, or 1000 companies and businesses, central to its ambition of leading a global reduction in greenhouse gas emissions.

But the Government also wants most of the obligations for agriculture under a scheme to apply off-farm, recognising that significant compliance costs would be involved if the scheme was heavily applied at an on-farm level.

The Government will spend the next few months talking about this option with stakeholders, keen to determine the merits of covering agricultural emissions by applying greater obligations on fertiliser suppliers, abattoirs, dairies and beef exporters.

It will also provide incentives for on-farm abatement, or the reduction in carbon pollution.

The report says the Government does not consider it practical at this stage to include agriculture emissions in the trading scheme from the start in 2010 but believes it will eventually be brought into the fold.

"While the Government is disposed to eventually include agriculture, it recognises that considerable consultation and joint effort with industry are still required to identify practical methods for inclusion and to develop reliable and cost-effective methods for reporting," the green paper says.

But the report does suggest options for how agriculture would be treated in a scheme once 2015 rolls around, suggesting obligations be imposed either directly on businesses or indirectly on upstream inputs such as fertiliser or downstream on food processors, or through a combination of the two.

Large farm businesses could be given the option of managing their emission obligations directly.

Climate Change Minister Senator Penny Wong told journalists and industry leaders that climate change was a threat to Australia's food production, agriculture and water supplies.

* More details in this week's Rural Press agricultural weekly newspapers.