Rudd Counts on Ex-Boss Garnaut for Australia Climate

By Gemma Daley and Angela Macdonald-Smith

July 3 (Bloomberg) -- Ross Garnaut, the architect of a floating currency that launched Australia's 17-year economic expansion, will tomorrow outline his plan to clean up the environment without stunting that growth.

The 15-month study, commissioned by Prime Minister Kevin Rudd, will address the economic impact of cutting pollution in a nation that produces five times as much carbon dioxide per person as China. The report has led to concern that higher energy costs will cut earnings at the resource companies driving Australia's growth and a backlash from consumers battling record fuel costs.

``This thing is a real tax that we're putting on this country and our products,'' said Don Voelte, chief executive officer of Woodside Petroleum Ltd., manager of Australia's biggest liquefied natural gas producer. Voelte said in April he ``loses sleep'' over how companies competing with overseas rivals will be compensated for the introduction of a cost on carbon.

Rudd, whose first act as prime minister was to ratify the Kyoto Protocol on climate change, is bidding to show that Australia can provide leadership on the environment and establish a national emissions trading system in 2010. Garnaut, Rudd's boss in the 1980s, says tackling climate change is as critical to Australia's economy as deregulation was 20 years ago.

``We have to ensure the economy can continue to grow,'' Garnaut, 61, said in an interview in Canberra June 5. ``That means creating a trading system that works without market intervention.''

First Target

Garnaut, who served as ambassador to China from 1985 to 1988 when Rudd was a newly arrived diplomat, in March said the first target for emissions would be set for 2013, the year after the Kyoto commitment expires. Coal and crude oil prices have reached records this year amid rising demand and constrained supply.

The cost of climate change is already being felt by Australians through higher water, energy and food prices. Gasoline prices rose to a record A$1.62 ($1.56) per liter last week, according to industry data, and food prices rose 2.1 percent in the first quarter, the fastest pace in two years, government figures show.

Treasurer Wayne Swan said June 29 that starting an emissions-trading program is a ``very, very tough reform'' that will increase the cost of living.

Business would have to raise costs to adapt to the trading, which sets a price on carbon gases and allows businesses and individuals to trade permits to maintain their emissions limit, said Business Council of Australia President Greig Gailey.

Pass on Costs

``Businesses will pass higher energy costs on to consumers,'' Gailey told the Committee of Economic Development Association in Sydney today, according to an e-mailed copy of his speech.

The trading plan, which will cover more than 70 percent of the country's emissions, will use the so-called cap-and-trade design utilized in the European Union. Companies are set an emissions cap and must hold sufficient permits to meet that limit. If they exceed the target, they buy permits from businesses that have undershot their respective caps.

``There's no one better than Ross at understanding the economic implications of climate change,'' said former Australian Prime Minister Bob Hawke. ``He's not a mad, way out Greenie.''

Garnaut, who says he had little interest in the environment before his appointment to head the study by then opposition leader Rudd in April 2007, served as Hawke's chief economic adviser when the nation floated its currency and cut tariffs in the 1980s. The economy has expanded each year since 1991, doubling in size to almost $1 trillion.

Worst Drought

Australia is experiencing its worst drought on record, with water-use restrictions having been in place in Sydney for six years. The Murray-Darling Basin river system, home to almost half of the nation's farms, is under long-term environmental and ecological degradation as a result of land clearing and water shortages, a government report said last month.

The experience of Rudd and Garnaut in working together in China may also help in global discussions on climate change. China, the world's fastest growing major economy, is the biggest emitter of carbon dioxide, according to the Netherlands Environmental Assessment Agency. India, the second-fastest growing economy, ranked fourth, it said.

``There's no solution to the world problem without China playing a major part in it, full stop,'' Garnaut said. ``Rudd's background in China will be helpful.''

Garnaut's diplomatic experience can help bring China on board, given that ``developed countries have polluted their way to prosperity,'' Hawke said.

To contact the reporters on this story: Gemma Daley in Canberra at gdaley@bloomberg.netAngela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net;