WEEKEND READ: Rudd's tipping point

The Rudd government's consideration of an emissions trading scheme may have reached a tipping point in the past few days – and not just because of the economic implications of the financial crisis.
An even greater impact on senior ministers' thinking, once they have the time to focus on anything other than the meltdown, may be the careful warning from the government's favourite business lobby, the Australian Industry Group, that a million jobs could be at stake if the carbon scheme drives industrialists overseas.

This is not a new thought -- I first raised this in a commentary piece in mid-2007 and have subsequently written about it in other outlets. However, the major business associations have tiptoed around it until now.

While being careful to say the risk to a million jobs is a "worst case scenario" and emphasising that it doesn't want to be "alarmist," the Ai Group has sent the Rudd government a clear message that it is "gravely concerned that Australia will move too far and too fast ahead of the rest of the world."

While being seen in the media as much less influential than the Ai Group, the Australian Retailers Association, which represents a $292 billion business sector employing 1.2 million people, has also sent the Rudd government a tough message about its emissions trading plans. It is "irresponsible" for the government to fail to provide accurate analysis of carbon charge impacts on grocery prices before enacting legislation, says the ARA, arguing that "sacrificing the economy without the support of major emitting countries does not make sense."

The retailers' concerns should resonate with one member of Rudd's cabinet – Senator John Faulkner, who was Keating's environment minister. His 1995 plan to introduce a carbon tax was derailed when other senior ministers became alarmed by the retailers' warnings of the impact of the tax on grocery bills in the run-up to a federal election.

The large number of jobs at risk in trade-exposed industries was one of the key factors that influenced John Howard against emissions trading through most of this decade – until he panicked in the run-up to the election last November. He had at hand the numbers produced in 2002 by a long-running consultation involving the government, industry and the environmental NGOs in which I participated. They broke down the key jobs risk industries as follows:

• Food and beverages: 165,000
• Textile, clothing and footwear: 64,000
• Pulp and paper making and printing: 162,000
• Non-metallic minerals production: 35,000
• LNG processing: 2,000
• Petroleum, plastics and chemicals: 100,000
• Metals production: 141,000
• Equipment manufacturing: 195,000
• Other factories: 60,000

This added up to 924,000 workers in 2002 and the energy-intensive manufacturers have since claimed that it has risen over the decade to 1.1 million. They are exposed, the Ai Group says, to the government's preferred position, as set out in the emissions trading green paper, with their employers being put in an uncompetitive position, facing "substantial risk."

As currently proposed, it warns, the plan could "damage domestic industry and employment without delivering commensurate environmental benefits."

The situation presents Kevin Rudd with an acute political dilemma: if he fails to follow through with his promised carbon abatement program, the Greens and the frustrated environmental groups will ravage him from the left at the next election, but if he does introduce emissions trading with adverse impact on jobs, even only hundreds of jobs initially, the government loses its "get out of jail" card, its ability to claim to mainstream voters that economic problems are all the fault of the feral global financiers.

His political situation will not be helped by what is now the near-certainty that the UN summit in Copenhagen in December next year will not come up with an ambitious replacement for the Kyoto treaty and the strong likelihood that even a Democrat-controlled US Congress under an Obama presidency will not burden American industry with extra costs in a recession.

After all, it was Bill Clinton and Al Gore that the US Senate slapped down over Kyoto with a 95-0 vote in 1997, warning against the treaty. The myth that bad George W. Bush has prevented the US signing the treaty conveniently overlooks the fact that Clinton declined to take it to Congress in the last quarter of his presidency because he knew what response he would get.

Another famous Queensland politician, Joh Bjelke-Petersen, used to enjoy taunting his ALP adversaries with the dangers of trying to walk on both sides of a barbed-wire fence. On climate change policy, that is exactly where Kevin Rudd finds himself today. The big unknown is to what extent energy-intensive industry workers and an energy industry, confronted with the need to make major capital investments even under a business-as-usual situation, will be asked to share his pain.

Keith Orchison, director of consultancy Coolibah Pty Ltd and editor of Powering Australia yearbook, was chief executive of two national energy associations from 1980 to 2003. He was made a Member of the Order of Australia for services to the energy industry in 2004.