Australia will have to sign up to a global carbon trading scheme to tackle climate change, Treasurer Peter Costello says.
Mr Costello appears to have broken ranks with the government, which is opposed to carbon trading - particularly without the involvement of developing countries like China and India.
But the treasurer today spoke out about climate change, saying the world was moving towards emissions trading and Australia could not afford to stay outside such a system.
"I think the ground is changing," he told ABC television.
"... and I think from Australia's point of view if the world starts moving towards a carbon trading system, we can't be left out of that.
"I think the weakness up until now has been that key consumers such as China and India have not been in this.
"But as the world moves towards a carbon trading system, Australia obviously can't stand out against the rest of the world."
Mr Costello's comments follow former world bank economist Sir Nicholas Stern's report a fortnight ago which warned of economic and climatic disaster if urgent action was not taken to tackle global warming.
The Howard government has argued carbon trading is not a "silver bullet" solution to climate change as it imposes high costs on industry, does not promote the rollout of new technology and shifts greenhouse pollution elsewhere.
But Mr Costello said if a broad emissions trading scheme was established, Australia be involved to protect its own interests and ensure the system was effective.
"I think that's actually the next chapter," he said.
"The next chapter is bringing the key consumers in, China and India, the kind of countries that we're trying to bring in to the world financial system ... and then looking at the shape of a carbon trading system."
Carbon trading sets a cap on the amount of a pollutant that can be emitted, giving industry credits if they come in under the benchmark and allowing them to trade the credits with those who exceed the limit.
Mr Costello said there was no immediate pressure to set up a trading scheme, with the Kyoto protocol on greenhouse emissions - which Australia and the United States have refused to sign - running out in 2012.
"I think we've got to be very realistic about this, it's a long term thing," he said.
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