NOW that the first Rudd-Swan budget is behind us, the real test of the new Labor Government's economic management credentials emerges - climate change. Budgets are annual set-piece events. In contrast, trying to layer an emissions trading scheme on an extraction economy like Australia's, as Woodside's chief executive Don Voelte says, has never been tried before. Not only that. Rudd wants it in operation by 2010, which means a rapid decision path is looming. It's coupled with targets of cutting emissions by an expected 20-25% by 2020 and a scheme to lift renewable energy targets to 20% by 2020. The potential to flatten the economy is high. Voelte says even though he doesn't expect it, the prospect of the North-West Shelf gas fields - 3% of gross domestic product - being wiped out keeps him awake. Industry is beating a path to Rudd and his Climate Change Minister, Penny Wong, to ensure the right policy decisions are made - "right" in the sense of free emissions permits or other compensation. Coal-fired electricity generators not only want free permits as compensation for stranded assets but also funds from auctioned permits to be used to develop carbon capture and sequestration (CCS) technology to help them cut emissions. Special pleading for free permits flies in the face of advice from Rudd's environmental adviser, Professor Ross Garnaut, who wants all permits auctioned and the proceeds partly used to help consumers and regions disadvantaged by the sweeping changes. In contrast to this very Australian mentality of "what can government do for me", a document now circulating around Rudd's office shows at least one industry sector is anxious to adjust to a carbon-constrained economy, and with minimal government assistance. The National Association of Forest Industries has sharply changed its earlier cautious pitch, and is now urging a joint industry-government strategy to use expanded forestry to absorb a significant part of Australia's future emissions reductions. In essence, what NAFI is telling Rudd is that climate change has the potential to largely end Australia's emotional debate over logging and even wood chipping, producing not only good emissions results but a vastly expanded forestry sector, renewable energy, indigenous forestry, new pulp mills and a reduction in our timber current account deficit. How? NAFI wants Rudd to embrace a new national forests policy, upgrading the Hawke-Keating era National Forest Policy Statement, which led to current Regional Forests Agreements guaranteeing access to logging as well as the managed investment schemes that have spurred the plantation industry. This envisages Rudd getting the Council of Australian Governments to reaffirm commitment to a forest strategy, including regional forestry agreements, to provide industry certainty. Australia would then market its plantation potential for northern hemisphere investment to use the carbon sink provisions of the Kyoto Protocol. While there is an element of self-interest behind the NAFI strategy, Rudd would doubtless welcome the fact that one sector is prepared to be innovative in the climate change transition. Coal is stumping up an industry fund to develop "clean" technology, and while individual generators have some small clean coal pilots, there's little sign of innovation from the generators as an industry. If any one generator led with a CCS plant, it would likely go broke. But why couldn't generators create a new company to retrofit emission-belching plants with CCS, spreading the cost - and higher electricity charges - across the sector? Between a June green paper from Wong, Garnaut's final report on emission trading, and Australia's looming commitments to the post-2012 Kyoto regime, Australia's greenhouse future will be pretty much locked away between now and December, just as the economy is softening. Despite the pain, there will be some big winners from climate change. Industry needs to stop waiting for Canberra to do all the heavy lifting and devise some self-help. This envisages Rudd getting the Council of Australian Governments to reaffirm commitment to a forest strategy, including regional forestry agreements, to provide industry certainty. Australia would then market its plantation potential for northern hemisphere investment to use the carbon sink provisions of the Kyoto Protocol. While there is an element of self-interest behind the NAFI strategy, Rudd would doubtless welcome the fact that one sector is prepared to be innovative in the climate change transition. Coal is stumping up an industry fund to develop "clean" technology, and while individual generators have some small clean coal pilots, there's little sign of innovation from the generators as an industry. If any one generator led with a CCS plant, it would likely go broke. But why couldn't generators create a new company to retrofit emission-belching plants with CCS, spreading the cost - and higher electricity charges - across the sector? Between a June green paper from Wong, Garnaut's final report on emission trading, and Australia's looming commitments to the post-2012 Kyoto regime, Australia's greenhouse future will be pretty much locked away between now and December, just as the economy is softening. Despite the pain, there will be some big winners from climate change. Industry needs to stop waiting for Canberra to do all the heavy lifting and devise some self-help.