With Climate Change Minister Greg Combet's recent announcement that Australia will be scrapping its carbon tax agreement in favour of linking with the European Union's carbon trading schemes, a lot of farmers may be asking how this change will impact them.

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Speculation about the negative effects of the carbon tax was "a beat-up" and was causing a lot of unnecessary fear, according to agricultural consultant Steve Hossen.

He believes the effects of the carbon tax on farming will be no worse than seasonal variations. "Agricultural products go through phases of supply and demand and it ebbs and flows. When there is good demand for your product, the price will rise, and when it is over supplied, prices will be weak and will affect the farming sector. The likely impact on costs and potential inflation have been detailed by the Productivity Commission and are not as high as they're being made out to be."

Mr Hossen told Farming Weekly that Australia's carbon tax was similar to New Zealand's emissions trading scheme (ETS) introduced in 2009 with agriculture exempt until 2015, where it had made little impact."The New Zealand farming magazines are full of the normal stuff, sales, technology and farm-based chit chat. I suspect that if you ask a 100 farmers in New Zealand what they know about the carbon tax and what damage it has done, they would say 'I don't know'."

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Putting a price on carbon allocates resources most efficiently, from polluters to providers of sequestration services and renewable energy. The ‘hidden hand’ of the market guides the resources from the energy sources of the past into the energy sources of the future. Markets work most efficiently to the extent that they are free. A free market is a market in which economic intervention and regulation by the state is limited to tax collection and enforcement of private ownership and contracts. It is the opposite of a controlled market in which the state directly regulates how goods, services and labour may be used, priced or distributed rather than relying on the mechanism of supply and demand. The mechanisms for government intervention in markets inevitably create complexity. Complexity creates costs and acts as a disincentive to involvement. The development of the Positive and Negative Lists in the Carbon Farming Initiative as an attempt to simplify procedures for the approval of methodologies is in itself a testimony to this principle. The Lists are the main mechanism of regulation in a market-based instrument into which, with the best of intentions, the Minister and his Department have written themselves roles that will make proceedings slow and expensive.

Opportunities in the Carbon Farming Initiative will be revealed at the Carbon Farming Conference & Expo, 28-29 September, 2011