The Business Council of Australia has dropped its previous opposition to the Kyoto Protocol, moving to a neutral position.. The other main business body, the Australian Industries Group is reconsidering its position. This reflects the fact, which I’ve pointed out quite a few times, that the economic costs of implementing Kyoto are quite small. A few industries, like the heavily-subsidised aluminium industry, lose substantially but the effect on the rest of the economy is neutral or beneficial.

In fact, most modelling (even that commissioned by the government) shows that if the Kyoto protocol comes into effect, Australia is better off joining than staying out. We will lose some coal exports, but that will happen whether we ratify or not. I discussed this at length here, noting:

Some time ago, the government commissioned Warwick McKibbin, who’s a leading critic of Kyoto, to model the effects. The results he found are pretty striking. Whether Australia ratifies or not, there’ll be a negative impact on the coal industry because other countries will import less. But given that other countries have ratified, McKibbin finds that, at least until 2010, Australia is better off ratifying Kyoto and implementing emission-reduction measures than staying out. The gain is reversed by 2020, but the current agreement calls for new targets to be agreed and implemented by 2012, encompassing more countries. The other striking feature is how small the numbers are -the benefit of staying out in 2020 is 0.2 per cent of GDP or about $1 billion per year. Although I disagree with Warwick’s policy position on Kyoto, I compliment him for keeping his independence as a modeller. The government clearly didn’t like his results one bit.

To clarify, Warwick has an alternative version of Kyoto which he has pushed pretty vigorously but so far without gaining the support of the main ‘rejectionist’ governments, those of Australia and the US.

Update Ken Parish has an interesting take on developments in hydrogen fuel cell technology. Also Jon Stanford has a piece in today’s AFR (subscription required).