It's crunch time for PM

FOR all of Professor Ross Garnaut's massive and compelling draft report on what Australia must do to combat climate change, there is one elephant that he has not yet led into the room. This is the medium-term target Australia should adopt in reducing its greenhouse gas emissions.

It's still a work in progress. Garnaut will produce his view on what the target should be when he releases another instalment of his work, containing extensive modelling by the Treasury, in late August.

Prime Minister Kevin Rudd has already signed up to a long-term target - cutting emissions by 60percent (on 2000 levels) by 2050. At the Bali Climate Change Conference in December the new Government came under strong pressure to declare what its medium-term target might be. This followed international scientific work which said that to keep climate damage at its lowest, collective emissions from developed countries needed to be cut by 25 to 40percent by 2020.

The Government refused to commit to any medium-term number, saying that must wait for the Garnaut report, which Rudd had commissioned last year. Australia did, however, sign up to the Bali road map for combating climate change which mentioned this target without prescribing it.

Meeting the challenge of climate change will have many sharp edges for the Rudd Government. The proposed emissions trading system is a more difficult change than, for example, the GST. There will be winners and losers, whatever compensation is adopted. Power bills will go up.

How to deal with the price hike flowing from including petrol in the scheme - which Garnaut recommends and the Government is expected to do - is a nightmare, because petrol has become so sensitive politically, given the huge recent price rises. This is why the Government is considering an offsetting reduction in excise and the Opposition is committed to that policy. Garnaut said on Friday that such an offset would defeat the purpose of sending the desirable price signal about behaviour, but the Government has other imperatives.

Some industries will lose money and jobs. There will of course be a few goldmines in this new world. Those in renewable energy are sitting pretty. But when seismic changes are occurring, the downsides are what compel attention.

The timing of the scheme's introduction makes things worse. It is due to begin in 2010 - an election year. The Government has rejected the Opposition's line that the start should be delayed. Garnaut is all for starting ASAP. This makes sense. But it could also mean some decisions are less tough than they might otherwise be, as the Government fears an electoral backlash.

From the politicians' point of view, Garnaut has two chilling sentences in his draft report. "Climate change is a diabolical policy problem. It is harder than any other issue of high importance that has come before our polity in living memory."

The all-round degree of difficulty will depend on the medium-term target the Government adopts. The 2050 long-term target, while important, is only just on the horizon. 2020 is around the corner.

Whatever target the Government signs up to presents special problems for Australia, a large energy producer and therefore a big (on a per capita basis) emitter. We got a good deal at Kyoto which is why we're on track to comfortably meet our commitment. Are we going to try to get special treatment again in post-Kyoto international arrangements?

A target at even the lower end of the 25 to 40percent range would be very problematic for Australia, given its circumstances. The European Union, for example, has set a target of only 20percent by 2020, with a promise of 30percent if other countries come to the party. Garnaut's draft report suggests it is in Australia's interests that the world takes population growth into account in setting targets - which would be favourable to Australia compared with most developed countries.

Nevertheless, the independent Climate Institute's John Connor says, "We believe Australia can do at least 25percent by 2020." He says it is critical Australia reverses its still- rising pollution by 2012 - the end of the Kyoto Protocol period - and "Australia should also aim to do more than a reduction of 25percent by 2020 depending on what other countries are doing."

Indicative targets will play a role at a conference in Poznan, Poland, in December which is another step on the world climate change road map. The conference will not sign off on any targets, but for Australia to have a positive role in Poland an interim position would help. The final targets for developed countries, collectively and individually, would be part of the deal at the conference in Copenhagen a year later, where the road map is supposed to terminate.

Rudd will have conflicting pressures as he grapples with what should be the medium-term target, or targets. Garnaut favours Europe's approach of having a double target: what we will do anyway and what we will do if other countries forge an effective global agreement.

The more ambitious the target, the tougher things will be for Australian industry and consumers, aka voters. On the other hand, if Rudd really wants Australia to play a leading international role, the Government can't wimp out, with Australia not pulling its weight.

In the dilemma of the medium-term target, the Government won't, for much longer, be able to say "we're waiting for advice from Garnaut". If the target Garnaut advocates is ambitious, the Government will have a fresh problem. Does it follow Garnaut or its political nose? If it wants to take a softer option, other countries would be able to hold up Garnaut to show that Australia wasn't as good as its now-strong rhetoric on climate change.

KEY POINTS FROM THE GARNAUT REPORT

■ Australia must introduce an emissions trading scheme in 2010 to discourage the use of energy that pollutes.

■ Australians must accept that the price of petrol, food, power and gas will increase or face economic loss and environmental destruction.

■ If we do nothing, there will be up to 9500 heatwave deaths a year.

■ There will also be the destruction of the Great Barrier Reef, an end to agriculture in the Murray-Darling Basin by 2100 and 5.5 million people will be exposed to dengue virus.

■ As well, there will be a GDP collapse of 4.8 per cent, with a 7.8 per cent fall in real wages.

■ There will also be political instability in neighbouring countries.