The biggest game on Earth

Mike Hawker from IAG, Gerry Hueston from BP, David Morgan from Westpac, Grant King from Origin and Harry Debney from Visy stood up and faced their political fears. They said, "We want dramatic cuts in CO2, we want a long, loud and clear legal framework to achieve those cuts and we want a tradeable price on carbon. And we want it soon." The politics of climate change started to tremble. Here was big business asking for regulation on an environmental issue. Things were getting interesting.

And they weren't alone. In August 2006, another recent convert to the cause of conservative green, John Schubert, chairman of the Commonwealth Bank, board member of Qantas and former head of the BCA, stood up at the Davos Connection's annual Hayman Island Leadership Retreat for business, political and media leaders and asked everyone to watch Al Gore's film, An Inconvenient Truth. To make it easier he'd arranged a pre-release screening that evening.

Schubert is deeply concerned that the Great Barrier Reef is threatened by climate change. (The irony of Schubert doing this was delicious, having built his career at Exxon, the company environmentalists unaffectionately refer to as the "death star" for its singular focus on preventing the world acting on climate change.)

The next day on Hayman Island, ANZ chief John McFarlane electrified the meeting with a speech in which he invoked the moral imperative, saying he stood there not as a business leader, but as a person. He called for urgent and significant unilateral action in Australia. The future is in our hands he said, so what will we do?

One by one, all these people went off to Canberra. Directly and indirectly the message got through to the PM's office. The people at resource giant Rio Tinto, who had picked up former WMC boss Hugh Morgan's mantle, as the strongest advocate to government for delay and prevarication, had been out manoeuvred. It was game on. The power of the market had spoken.

The rest is history. Gore's movie and his Australian tours sparked media attention. Nicholas Stern's report in Britain argued this was an issue with economic impact comparable to a depression and a couple of world wars simultaneously. The worst drought on record drove that point home, pointing out the cost of climate change and therefore the cost of not acting. The public engaged deeply and even the tabloid press and breakfast television picked it up.

And then the arrival of that most fascinating of political competitions between the two rising stars of Australian politics, Malcolm Turnbull and Peter Garrett.

So my belief is we will have a price on carbon in Australia, with a national trading scheme agreed to within a few years. The argument is only who pays it, who gets it for free to start with (known as "grandfathering" to protect existing industries and assets), and when do we start trading. Grandfathering is actually a good term, because it's about protecting the old fellas we're quite fond of, who worked hard in years gone by, but are now past their prime and need a bit of looking after.

So what will carbon trading look like, why do so many companies want it and what will it mean for consumers?

First, let's put to bed any doubt that this is a global business issue and not an Australian, drought-induced political phenomenon. In the US in January, an extraordinary coalition of companies with a combined market capitalisation of more than $US750 billion ($963 billion), called for strong climate action. If you think it was hard for our business leaders to confront Howard, imagine how US CEOs felt approaching George W. Bush. But they did: Alcoa, BP, Caterpillar, Duke Energy, GE, DuPont, PG&E, Lehman Brothers and others spoke loud and clear. They called for fast, strong national legislation mandating significant CO2 cuts and a cap and trade system to deliver it.

In Australia, there is also a powerful argument to have a national system now rather than waiting for the world. No one wants their nation to be the Argentina of the 21st century, falling from wealth and privilege to economic basket case through lack of foresight.

Resource-dependent, export-focused countries are risky long-term propositions. Australia's natural resource wealth is a good foundation that we should leverage, but unless we adapt to a changing market we could soon go into decline. To avoid this, we need to build a smart, adaptable, low-carbon economy. Carbon trading can facilitate this: for the country, for companies and for consumers. It prepares us for the inevitable transition.