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Abstract
One policy response to climate change in Australia is to create a price for carbon to reduce emissions
through the introduction of a policy of emissions trading. The federal government indicated that
agriculture would not initially be covered by an emissions trading scheme (ETS), however, it is the sector
would be affected indirectly by an ETS even if it was not covered by such a scheme. This report examines
the impacts an ETS and associated climatic changes may have on a mixed farming enterprise’s operating
profit. Using a case study farm in the Western District of Victoria, the impacts of an ETS and climatic
change on the profitability of the enterprise are modelled under twelve scenarios. These scenarios were
constructed using: various emission prices; climatic changes; changes to enterprise mixes; and degrees
to which free emissions permits are allocated. The report illustrates that farm productivity growth is
crucial for the future viability of the farm enterprise. It also demonstrates the complexities around
reducing emissions whilst continuing to meet world food demand.