The enemy within

GIVEN the growing gloom surrounding the Rudd Government's climate change bills it is easy to forget the reality: that Australia will have an emissions trading scheme passed into law by the national parliament. Both Kevin Rudd and Malcolm Turnbull are pledged to this idea.

Turnbull was unequivocal when he told the ABC's Insiders program on Sunday: "I've got no doubt we will have an emissions trading scheme in Australia. That's my view. The question is: What is its design?"

The political questions now are what concessions Rudd makes to carry his scheme, whether it is passed in the present or next parliament and who is ruined in this convulsive phase of politics. Deniers who think the so-called evil day can be forever postponed are deluding themselves. This includes the Liberal Party backbenchers resisting Turnbull's pull. The key to this issue is to separate tactics from strategy.

Turnbull's strategy is to deliver Liberal Party support for an ETS, negate the climate change sceptic branding of the Liberals and pave the way for a full-term election on the economy. His tactic is to reach this position in stages because the partyroom will not countenance voting for Rudd's scheme at this point. Turnbull's future as Liberal leader stands or falls on this strategy. There is, however, one fact not to be forgotten: John Howard went to the 2007 election pledged to implement an ETS not too distant from Rudd's. Any idea the Liberal Party should retreat to a pre-Howard stance would be an act of high folly.

Rudd, relying on minister Penny Wong and parliamentary secretary Greg Combet, has his own strategy and tactics. His strategy is to secure the ETS scheme, thereby redeeming his 2007 election pledge and Labor's credentials on climate change. The tactics deployed by Rudd, Wong and Combet shift across a fluid set of political factors. Wong knows the best chance of carrying the ETS this year comes from a negotiation with the Liberals when the bills face their second consideration in October. The existing scheme, modified by the Rudd Government and re-launched on May4, requires even more changes to meet the needs of the coal, electricity and trade-exposed industries.

The Government will make more concessions but wants, naturally, to use them to to carry the scheme. This is its tactical carrot. Its stick is the double-dissolution election threat. Rudd will be entitled to call a double dissolution on a measure that is more far-reaching than Howard's GST package or Work Choices reforms.

Turnbull's tactic, until he can move his own party, is to forestall Rudd from any late 2009 double dissolution and buy more time. This is the reason the Coalition, in its compromise position, endorsed Rudd's 2020 targets of 5 per cent (unconditional) and 25 per cent (with a global deal). By making Australia's targets bipartisan for the Copenhagen negotiation in December, Turnbull seeks to deny Rudd any credible argument for an urgent 2009 pre-Copenhagen double dissolution.

This option looks too rushed to be feasible and there is no compelling reason the bills must be passed this year anyway. This means the ETS showdown is likely early next year.

The new element in Australia's debate is US President Barack Obama's commitment to action. Obama and congressional Democrats have sponsored a cap-and-trade scheme with a bill likely to pass the US House of Representatives this year. The Obama administration is holding bilateral talks with China over climate change action. This has shifted the expectations of Copenhagen towards a deal of some sort.

Turnbull has hitched his star to Obama. The smart Liberals are cheering Obama's progress. In his frank interview with Barrie Cassidy last Sunday, Turnbull declared: "I have no doubt that if the US establishes an emissions trading scheme then Australians will expect us to follow suit as part of an effective global agreement." That is, Obama's success should kill off Liberal Party resistance.

Beaming with optimism, Turnbull said his US friends were confident Obama would see the legislation passed this year.

"Now that is a huge change," he said. He's right, of course, if it happens. Turnbull said the Opposition position was to defer a vote on Rudd's scheme only "for about six months until after Copenhagen" and that "by February (2010) when the parliament comes back we will know exactly what the Americans have legislated".

Here is Turnbull's game plan: to deliver Liberal support for the bill by early 2010, forcing Rudd to confront a grim year of rising unemployment before any poll.

But the internal resistance should not be misjudged. Approving the bill almost certainly will require a split between the Liberals and Nationals. As the economy deteriorates, public support for the ETS will wane and regional hostility will grow. There is no guarantee the Liberal Party can unite on this issue and any such failure delivers Rudd the next election.

The message from shadow infrastructure minister Andrew Robb is that the Liberals cannot vote for the present model, any time. Robb argues it is too radical, hurts Australian companies too much, punishes balance sheets, profits and jobs, and is a "very major leap" beyond the rest of the world. If serious negotiations occur with the Liberals, they will want concessions. It is a reminder that the gap between Rudd's model and what the Liberals may buy remains wide though not unbridgeable.

Ultimately, Rudd needs to decide the extent of further concessions he makes in this parliament to secure a bill as opposed to staring down the Liberals and forcing the issue to an election and the next parliament.

For Rudd, a legitimate early poll will be extremely tempting.

Surveys show the public still wants action on climate change. But as the economic downturn deepens sentiment will fracture along regional and demographic lines driving Coalition MPs towards a hardline stance. If Obama cannot deliver a bill or if the US-China talks run aground, then Turnbull's position may become untenable.

After Copenhagen, the Rudd Government will finalise Australia's targets depending on what the rest of the world is doing. That will become a pivotal decision. The caps, like the permit arrangements, are implemented by regulation. In this sense the bill, the double-dissolution trigger, is akin to a vehicle and the regulations are akin to the speed mechanism that drives it.