The exclusion of fuel from the Federal Government’s planned carbon tax will reduce the blow to Australia’s beef and cattle industry when the scheme is introduced from July 1 next year.

However, the reprieve may not last for long, with the Government flagging its intention to impose a carbon price on fuel used by heavy on-road vehicles within two years of the scheme’s introduction.

The Prime Minister Julia Gillard today unveiled the details of the carbon tax legislation she hopes to pass through parliament later this year.

Ms Gillard said global warming has been caused by human activity and in an effort to mitigate Australia’s emissions her Government intends to make the nation’s 500 largest emitters pay for every tonne of carbon they release from July 1 next year.

The carbon price will be fixed at $23/tonne in the first year, and will increase by 2.5pc above inflation for the next two years.

From 1 July 2015 the fixed price system will be replaced by an emissions trading scheme, in which the carbon price will be set by the open market.

Key points for the cattle industry in today’s announcement include the expected confirmation that agricultural emissions will not be covered from the scheme’s outset. This means there will be no requirement for farmers to pay for emissions from livestock or fertiliser use.

Nor will agricultural industries be subjected to a carbon price on the fuel they use for transport in the first two years of the planned carbon pricing regime.

"Households and businesses already pay fuel excise on fuel for their passenger and light commercial vehicles and will not face a further carbon price," the Government said.

"Business in the agricultural, forestry and fishery industries will be exempt from fuel tax credit reductions and will therefore not face an effective carbon price on their off-road fuel use."

The full exclusion of fuel could change from 1 July 2014 when the Government wants to apply a carbon price to fuel used by heavy (greater than 4.5 tonne) on-road vehicles.

However, the Government says it has not yet secured agreement on that point by all members of the Multi-Party Climate Change Committee, which comprises Ms Gillard, treasurer Wayne Swann, climate change minister Greg Combet, Greens senators Christine Milne and Bob Brown, and independent MPs Tony Windsor and Rob Oakeshott.

While fuel has not been included at the start, agricultural businesses will still face higher costs as a result of the carbon tax.

Input costs such as electricity willbe higher when the scheme takes effect. 

Large meat processors which produce more than 25,000t of carbon dioxide equivalent emissions per year will have to pay $23 for every tonne of emissions they produce from 1 July 2012. These costs are likely to passed back to producers through lower prices for their cattle.

Recent studies by the Australian Farm Institute highlight the difference that the exclusion of fuel will make to agricultural enterprises. 

Executive director Mick Keogh said that when fuel was included in a carbon tax scheme, the total annual fuel cost increase incurred by beef farms at $23/tonne was $6500 on average ($2500 in costs passed back to the farm from the processor, and $4000 increase in extra fuel costs incurred by the farm).

However, when fuel was excluded, the modelling suggested a total increase in average farm costs of $1600 ( $600 from processor/ $1000 for farm).

Fuel costs account for 93 percent of the energy-related costs of the meat processing sector, according to the AFI, with electricity-related costs accounting for 7pc.

Some financial assistance will be available to the meat processing sector via a $150 million grant program available to food processors for investment in systems and technology that help to reduce emissions.

The Carbon Farming Initiative component of the Government’s scheme will also provide financial incentives to producers who take steps to reduce carbon pollution by creating credits for each tonne of carbon pollution which is stored or reduced on the land.

An ongoing Biodiversity Fund ($946 million over the first six years) will be established for projects to protect bio-diverse carbon stores and secure environmental outcomes from carbon farming.

An ongoing Carbon Farming Futures program ($429 million over the first six years) will also be established to help farmers and landholders benefit from carbon farming by supporting research and development, measurement approaches and action on the ground to reduce emissions or store carbon, including support for conservation tillage equipment.

* Stay tuned to Beef Central for further updates on the implications of today's carbon tax announcement on the beef and cattle industry.