Kevin Rudd and Tony Abbott sweat on the verdict from business
BUSINESS Council president Graham Bradley will be dancing around some tricky questions on big-business attitudes to climate change policy when he gives his first major speech next Thursday.
It reflects the increasing division and confusion in the broader business community about how to respond to the opposition assault on the government's emissions trading scheme with a "direct action plan".
In the terminology of political warfare, it's the government's great big tax v the opposition's great big con on climate change measures.
Most of a confused public don't comprehend the details of either scheme - an understandable response considering they both contain large helpings of magic-pudding economics.
The political impact will largely depend on general impressions and prejudices about what might achieve more and at what cost to whom.
But the reaction in the business community is just as mixed. And the changing nature of the politics also presents particular difficulties for influential lobby groups such as the Business Council of Australia and the Australian Industry Group. Both of them backed passage of the government's emissions trading scheme last year, albeit with caveats, in the interests of providing "business certainty".
Now any sense of certainty has imploded spectacularly, given the failure in Copenhagen, the decision by Barack Obama to step back from even trying to pass such an ETS in the US - and the complete about-turn by a new Opposition Leader.
The difficulty is that business doesn't really want to become publicly involved in a nakedly partisan political brawl in an election year. That is especially so when their own membership is split, with strong and increasing scepticism by a substantial minority of their members about the wisdom of an Australian ETS in the absence of any binding international agreements.
Adding to the confusion is the knowledge that this will be a phony war right through to the election, with no chance of the government's scheme being passed until well after that.
Both the BCA and AI Group, for example, still prefer the principle of a market-based carbon trading scheme as the most efficient option in a world trying to head, albeit slowly, for lower emissions. They are highly sceptical about the effectiveness, regulatory controls and cost efficiency of the opposition's alternative.
But managing all these contradictions will now require greater political dexterity from business, especially when both sides of politics are keen to co-opt business support to provide some credibility.
Tony Abbott was deliberately talking nonsense at the launch of the coalition's policy when he declared that groups such as the BCA had been consulted and were "very happy" with it. But he was right to say, with a political edge to his voice, that the BCA position was "evolving".
In contrast, Mitch Hooke from the Minerals Council and Peter Henderson from the Australian Chamber of Commerce and Industry can hardly contain their "I told you so's".
To a large extent, however, their praise for the opposition alternative is based less on the scanty details of Abbott's plan and more on the fact it provides a politically viable alternative to the government's determination to forge ahead with its scheme.
"Our position all along has been that the unilateral adoption of an ETS is a mistake," Henderson says. "It is better to take a series of steps that abate emissions rather than try to restructure the Australian economy."
Hooke has fought a long, fierce battle against the ETS and what he sees as the wanton destruction of Australia's competitive advantages in the mining industry.
"At long last we can talk about the actual measures that we can take in terms of incentives to reduce emissions, rather than punishments," he says. "The fundamental flaw of the government's scheme was its preoccupation with raising revenue which it could then redistribute."
The broader problem is that while there is general recognition in the business community that the move towards cleaner, greener energy is inevitable both internationally and domestically, there's no agreement on how to get there in the short term. And now there is now even less faith that Canberra can provide any real direction for the forseeable future.
Cameron O'Reilly of the Electricity Retailers Association says bluntly that "2010 is all politics, not policy".
"I think the only certainty the industry has on carbon policy is that there is an election this year - which is not guaranteed to clarify anything," he says.
"As it now stands the election choice will be between an extremely detailed government scheme few people like and a simplistic opposition scheme few people believe."
In essence, Labor and the Coalition are promising to cut emissions by a minimum of 5 per cent by 2020. But the opposition scheme does not involve a carbon trading scheme that sets a price on emissions or involve big costs and compensation packages for certain industries and consumers.
Instead, it is relying heavily on a scheme that would reduce millions of tonnes of carbon dioxide a year by increased carbon storage in soil, as well as paying businesses that reduce their emissions beyond a business-as-usual approach and punishing those that increase it. It includes the establishment of a taxpayer-supported $3.2 billion fund to pay for this.
This sort of scheme hardly stands up as an economically rigorous, detailed business plan or - given the absence of a real price on carbon - one that will encourage investment in new technology. Its inherent selling point is that it avoids locking Australia into any dramatic and potentially costly measures before the international response to climate change becomes clearer.
But it also sounds much simpler and cheaper, particularly to small and medium-sized businesses that were never going to get any compensation for increased costs under the Labor government's plan. The government's politically correct terminology of a "carbon pollution reduction scheme" is no longer persuasive to them.
Many of these businesses will be clearly attracted by the alternative idea of being paid rather than punished into reducing their emissions.
This is an extremely sensitive issue for someone like Heather Ridout of AI Group who is regularly accused of being too close to the Rudd government. It's a position she has used to advantage in terms of influencing Canberra in some areas, but a large proportion of her membership base has only become more agitated about the ETS the more they consider the potential costs.
It's why the AI Group's initial statement carefully acknowledged the the opposition's climate change policy had some superficial appeal - if little substance.
"At first blush, it appears attractive for business with the suggestion that it would impose nominal cost on industry while providing incentives for investment in abatement measures," Ridout says.
"However, the coalition strategy raises a number of questions, some of which will undoubtedly be answered by further study and analysis."
These questions pointedly included fundamental matters such as the process and cumbersome nature of setting baselines and demonstrating additional emissions reductions; the penalties that would apply; the regulatory burden imposed; and how the scheme would fit with international efforts when soil carbon isn't recognised as an acceptable measure.
Such questions by business are only going to be sharper over the next few weeks.
Tony Beck of the Asia-Pacific Emissions Trading Forum says that regardless of what happened in Copenhagen, there will be increasing pressure to make cuts in emissions. "The CPRS may not be a perfect scheme but it lays the foundations for a long-term efficient approach to emissions abatement," he says. "To achieve emissions cuts without a trading scheme means you are talking subsidies or regulation and neither will be as efficient as a market mechanism."
Many of Australia's largest businesses would agree, particularly those in the financial and legal and services industry, given the many business opportunities that a trading system would open up. But others who agree there should be a carbon cost also argue that a tax rather than a trading opportunity would be more effective.
And while new taxes are never politically popular - particularly in the wake of the financial crisis - neither is unleashing a whole new derivatives trading industry, further enriching investment bankers and adding to volatility.
Retiring BHP Billiton chairman Don Argus pointed out late last year that such volatility might be good for market traders but would only add to the complexity of investment decisions for businesses generally. That concern only becomes more urgent given the apparent dead end for emissions trading in the US.
It's another reason the BCA preliminary official response to the opposition plan was a study in saying nothing much at all, declaring the BCA welcomed the idea of consultation.
It clearly wants to avoid a bitter split on the issue similar to the division that existed a few years ago. That lasted until then BCA president Michael Chaney broke the impasse in November 2006 by declaring in a major speech that the planet should be given the benefit of the doubt and that there should be "insurance" taken out.
The knowledge that big business was well ahead of it led directly to the Howard government setting up the Shergold review and coming up with a trading scheme similar in concept to Labor's plan. It was championed by none other than then environment minister Malcolm Turnbull, another reason he is so keen on the concept of an emissions trading scheme now. It was all too little too late for the Howard government, of course. They couldn't even manage to get the symbolism right by ratifying the Kyoto protocol.
But the Rudd government is now learning that it is more difficult to implement effective climate change policies than to promise them.
Just ask Rob Grant of Pacific Hydro, the developer of large hydro-electric and wind energy generation projects in Australia, Chile and Brazil. Grant was deeply encouraged by the Rudd government's commitment to a 20 per cent renewable energy target by 2020. But he is talking to Focus from a trip to Brazil, and Pacific Hydro has no plans to do any further projects in Australia. The problem is that the price of the renewable energy certificates that make such projects viable has collapsed. This is because of the flood of certificates into the market as a result of government subsidies to increase the residential use of solar power.
"The CPRS debate has sucked all the oxygen away from the renewable energy target," he says. "The failure to pass a bill means that there is even more responsibility on the renewable energy sector to meet its targets, but there is no way that can be done when there is no market for the development of large scale energy renewable projects like wind and hydro." What now?