PAYING farmers for environmental services and carbon storage could increase the average landholders' income by more than 25 per cent.
ABARES executive director Steve Hatfield-Dodds has been working on agricultural policy for three decades and said paying farmers for conservation services "always seem to be just around the corner".
"But the stars might be aligning to make this practical at scale, delivering a new source of income for farmers and a range of public benefits to the wider community," Mr Hatfield-Dodds said.
Analysis by various organisations, including the National Farmers Federation and the CSIRO, indicate the carbon market could be "very significant" and boost landholder incomes by 25 per cent or more.
"To put this into perspective, under that scenario, it would emerge as the fifth-largest food and fibre sector," Mr Hatfield-Dodds said.
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Agriculture Minister David Littleproud has indicated paying farmers for their environmental stewardship is one of his top priorities and a personal pet project.
Mr Hatfield-Dodds said although it would be challenging to design the policy framework, it had "huge opportunities for farmers".
"Landscape, farming systems and ecosystem processes are all complex and complicated," he said.
"In some places, trees, production and land values can be in conflict."
If the program was to be a success, Mr Hatfield said two things were essential.
"First, farmers must find a system and a level of payment attractive," he said.
"The system needs to be easy to navigate, align as well as possible with our farms. The level of payment is coming direct and opportunity costs of providing services.
"But there's a second component - taxpayers or whoever it is its footing the bill, will need to be confident that they're getting value for money.
"If we get this right, and I'm confident Australia can do it, I think all the other things will fall in to place."