Report: Economic Impacts of Emissions Trading

AUSTRALIA - The Rural Industries Research and Development Corporation (RIRDC) today released a report that quantifies the economic impact of a proposed Australian emissions trading scheme (ETS) on average farm businesses.
calendar icon 5 May 2009
clock icon 3 minute read

On Farm Impacts of an Australian ETS was prepared by the Centre for International Economics (CIE) and aims to contribute to policy debate over whether and how agriculture should be included in the proposed Carbon Pollution Reduction Scheme (CPRS). The report does not constitute an argument for or against including agriculture in the CPRS, but sets out, through scenarios, some of the costs that would be faced were agriculture to be included.

The report uses a variety of economy-wide and agricultural commodity models to assess the impact of an ETS, and then applies ABARE’s farm financial survey data (AGSURF) to assess the impacts on the “average” farm. It is the first analysis of an ETS to look at enterprise level impacts, as opposed to industry-wide or sectoral impacts.

Some of the key findings are:

  • The CPRS will affect agriculture both directly (through costs associated with the need to either buy permits or reduce emissions) and indirectly through cost increases elsewhere in the economy. Farm costs will rise even if agriculture is not included in the CPRS.
  • The CPRS will have a significant impact on the livestock sector – farm cash income for the average beef farm would fall by over 60 per cent under a full participation scenario with a carbon price of $25/tCO2, or 125 per cent at a carbon price of $50/tCO2 (turning a positive income into a negative one).
  • This is followed by an average beef-sheep farm (down by 90 per cent if permit price is $50/tCO2), an average sheep farm (down by 78 per cent), an average dairy farm (down by 69 per cent) and an average mixed livestock/crops farm (56 per cent).
  • Profits for all farms would fall, ranging from a fall of $6,524 p.a. for sugar farms under a full participation scenario at $25t/CO2 to $72,111 for beef at $50t/CO2.
  • Most of the scenarios assume limited adjustment by farmers – however there are a number of options for adjustment including moving away from emissions-intensive activities such as livestock, reducing output, planting trees and boosting productivity.

The report highlights that many of these options are in the early stages of development and require further research. They could potentially be a focus of the government work program in the lead-up to a decision on the inclusion of agriculture in 2013.

The report is not intended to be a prediction of what will happen in the future, but offers a range of possible outcomes relating to various scenarios. For example, the base farm data is based on an average of the past three years, which have been severely effected by drought in many regions and farm incomes may improve in coming years.

The report was funded from RIRDC’s Climate Change and Variability program which forms part of the National Rural Issues portfolio. RIRDC has a unique role in addressing cross-sectoral issues that affect all areas of Australia’s rural sector.

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