If agriculture sits outside the ETS as it probably will for some years, while accounting methodologies are developed that can handle the complexities the sector throws up energy and inputs suppliers will still pass along the costs that they incur under the ETS, but farmers will have no capacity to cut these costs by trading in their own emissions permits. Nor is the farming sector likely to escape direct liabilities by sitting outside an ETS. "Agriculture represents somewhere between 18-20 per cent of the greenhouse gas inventory an enormous proportion of the greenhouse gases we produce," said Dr Brian Fisher, the former ABARE director turned private economist. To think that agriculture can remain untouched seems to me to be a little naive. If you choose to stay outside the ETS, then if government decides that agriculture isn't pulling its weight, it will arrange some form of sectoral regulatory arrangements.

We don't know what those things might be, but generally, regulation is more costly than market-based instruments. Dominic Devine of Queensland-based Devine Agribusiness, a veteran of the infant carbon trading business, says ag is currently 'in a twilight zone' on tackling emissions trading. "There's a lot of guesswork going on at the moment," Mr Devine said. "What is agriculture's position, what obligations are we going to have to meet, what opportunities are there for agriculture". It's very important that our industry doesn't stick its head in the sand on this one. We'll just get ourselves in a position where regulation will be imposed from above." Mr. Devine's company was involved in Rio Tinto's landmark 2006 purchase of 12,000 hectares of Queensland grazing land, which will be protected from clearing for 121 years to supply the mining giant with emissions credits.

But now, Mr Devine said, he is advising clients against taking up new voluntary emissions trading schemes because of uncertainty about the price of carbon under an ETS. If agriculture becomes engaged in the national ETS which appeared to be the preference of most summit delegates ? farmers will have the freedom to trade in emission permits, and innovate on ways to sequester carbon to earn permits that offset the ETS costs of other farm activities. "It gives you a bit more flexibility than waking up one morning to find some bureaucrat on your doorstep attempting to regulate the number of sheep you grow," Dr Fisher observed. However, being part of an ETS will also deliver a whole new suite of farming challenges. For instance, a farmer who has earned emission permits through a carbon-sequestering pasture paddock no longer owns the carbon in their soil.

If the farmer chooses to capitalise on a booming grain market by tearing up the pasture paddock for crop a process which releases carbon they will incur a liability on their emissions balance sheet that must be made up. Either way, all indications are that emissions trading will be costly. As Dr Fisher commented: "You can't move an energy intensive, export orientated economy out of that space without some cost". The first clues on what lies ahead will be contained in the final report from Professor Ross Garnaut, due by September 30, 2008; further details on the ETS are likely to follow in the months afterward.