Former Prime Minister Kevin Rudd speaks during the United Nations Climate Change Conference 2009 in Copenhagen.

Former prime minister Kevin Rudd speaks during the United Nations Climate Change Conference 2009 in Copenhagen. Photo: Reuters

It was the moment when the Rudd government lost its way. In this extract from his new book Power Failure, Philip Chubb tells the inside story of how Labor imploded over climate change policy. After the disaster of the UN climate summit in Copenhagen in December 2009, Kevin Rudd suddenly shifted his focus to hospital reform - but his failure to deal with the fall-out for his signature climate policy was to prove fatal to his leadership. 

In the week after Australia Day 2010, Rudd flew around the states. His hospitals team, including Nicola Roxon, was dragged along with him from Melbourne to Adelaide, Perth, Darwin, Brisbane and back to Darwin. This was the only way they could get the hours they needed to talk about the major reforms he was pushing.

While the prime minister was focused on hospitals, he knew he could not just give up on climate policy. But what was to be done? The senior figures in the government, it seemed, were talking about it non-stop. But they could not get through to Rudd, and his paralysis seemed to be worsening. "Whenever he didn't know what he wanted to do, he just didn't do anything. And, you know, it's just a feature of how he operated," said Wayne Swan. The stress of early 2010 exacerbated the trait. "A lot of the stuff that's said and written about Kevin being a detail-minded guy is actually about him being presented with information to make a decision on and delaying a decision by asking more questions," said a senior public servant.

Abbott was running hard on what carbon pricing would do to the cost of living. While apparently acknowledging that the electorate would not accept out-and-out climate change denial, he developed a policy of reducing emissions through what he called direct action. Abbott was in the early stages of a three-year post-GFC scare campaign, arguing that, "the Coalition's direct action plan is careful, costed and capped" while the government's approach was a "great big tax on everything". He said it again and again. He was attempting to spook both Rudd and voters, and he was spectacularly good at it.

Observers mostly characterise Rudd's demeanour in this period as agitated and angry. His work patterns were chaotic. Several times Gillard, Swan, Roxon and senior staff would be told on Friday or Saturday to be at a meeting in Canberra the next day to work through roadblocks. Roxon was once summoned to the Lodge on a Sunday night; Karl Bitar was also present. The boss told her he wanted hospitals on the Cabinet agenda the following morning.

Sometimes Rudd's behaviour in meetings was genuinely worrying. Several sources describe independently how he sometimes physically froze and was unable to continue. He took trips around the garden to help regain his composure. Valentine's Day in 2010 saw a particularly serious instance of this behaviour. Abbott had already sparked fear in Rudd. Then, with an acute political judgment that Australians would see much more of in coming years, he drove Rudd to a "meltdown", as observers have described it. In a relatively insignificant stunt designed to irritate the prime minister, Abbott glided into the hospitals issue. He visited Sydney's St Vincent’s to pledge that a Coalition government would install local boards to fix public hospitals within six months of winning power. Since the election, he said, "all we’ve had [from the Rudd government] is waffle and committees".

The result of this small intervention was chaos. A hospitals meeting was scheduled to be held at the Lodge that day, involving senior ministers and relevant staff. Rudd was in a spin, so the meeting started late. He then wanted to keep the group small, so he could be free to be himself. Some staff were forced outside and spent the day on the lawn playing handball. They were not allowed in but not allowed to go home. As if that was not weird enough, things soon became totally bizarre.

"Rudd had this absolute meltdown. He was completely spooked that Abbott would beat him to taking over the hospital system," said a witness. "We were brainstorming different ways of fulfilling his ambitious commitment of 2007 about taking over the hospital system one way or another. People were very nervous about doing that, which is a whole other issue, and he just couldn't face it. We were in his dining room in the Lodge working on health stuff and he just couldn't keep it together."

Rudd hyperventilated and froze so seriously that his chief of staff, Alister Jordan, helped him to his feet and took him for a walk. It seemed he had suffered a debilitating panic attack. Everyone was shocked and embarrassed for him. The only thing that broke the mood was the dog scratching at the door.

Gillard stood up and attended to the work on the whiteboard. That was her way. She reacted with no fuss, methodically worked through a plan and became the person Roxon and Swan would go to during the remainder of the health reform process, whenever Rudd was unable to bring order or sense to it.

In March, Rudd commissioned a briefing paper from senior staffer David Fredericks, who consulted with others in the Prime Minister's Office and went off quietly to speak to people he knew in the Department of Climate Change about how you could get to the 5 per cent target by some other mechanism than an ETS. The end result directly and completely unexpectedly stole from Abbott's direct action policy.

Under the heading of boosting immediate action on climate change, the briefing paper contained four measures to supplement what Rudd by then regarded as the "long-term" introduction of his Carbon Pollution Reduction Scheme (CPRS). The four measures were what Abbott would call direct action: greater investment in clean and renewable energy, greater incentives to improve energy efficiency, engaging the Australian community to take individual action on climate change, and reducing emissions in the forestry and agriculture sectors.

These four measures were explored in a great deal of detail. Gillard and Swan rejected them. "It was just lunatic. Some of the things that he put as direct action were just nonsense," Gillard said. The criticisms made of Abbott's scheme were equally applicable to Rudd's: through direct action you could not get a 5 per cent reduction in emissions at a cost the budget could afford. "You either put a price on carbon or you don't do anything. There is no point in trying to use the budget to pay polluters," said Swan.

Rudd's paper also makes it clear that he had a statement of capitulation ready to go as early as March. The document rehearsed reasons that could be given for ''delaying'' the CPRS. The first was that bipartisan support no longer existed.

Rudd's paper, seen by the inner circle of ministers and staff, did not immediately end the drift, because Gillard and Swan opposed its direct action options.

Intense meetings of the Gang of Four continued on a rolling basis. By now this committee had supplanted Cabinet as the government’s chief decision-making forum. Those involved were Rudd, Gillard, Swan, finance minister Lindsay Tanner and their offices. Wong often attended. The procrastination was endless. An example involved a meeting in the Cabinet room at Parliament House in April. Rudd often kept people waiting, but at this one, ministers, heads of departments and staff shuffled their papers for three hours. As the time ticked by, it was assumed by those drumming their fingers on the table that the prime minister was making a desperate attempt to uncover an alternative climate change policy. Rudd, meanwhile, was in full view in the Parliament House courtyard, outside Aussies Cafe, surrounded by paper, apparently working with his economic adviser, Andrew Charlton, on some answers. But then again, perhaps he was not working on carbon pricing at all. In any case, no new ideas were forthcoming.

Final judgments for the May budget were required urgently. For Swan, the decision to abandon the scheme had already been made months earlier "by the fact we hadn’t taken a decision". It was now just a matter of getting it out of the budget. "If we’re not going to go full steam ahead, we have to take it out," he said. While the CPRS was being squeezed by the budget on one side, it was clear on the other that it was now too late to implement it, for practical reasons, even if it could be negotiated through parliament. It was also obvious that it was too late for a climate change election. A decision on the prime minister’s signature climate change policy was about to be made by default.

People who had given up two years of their lives to work on Rudd's scheme were nervous. This was the day of reckoning when the backbreaking effort would probably be shown to be futile. The Gang of Four gathered with Wong in the Cabinet room in the high-rise Commonwealth building at Waterfront Place, Brisbane. The future of the CPRS was the only significant item on the agenda. In the months since Copenhagen there had been many occasions when Gillard and others had tried to get Rudd to sit in a room with different combinations of ministers and advisers. But getting a full and direct discussion had been virtually impossible. The time had now come when a decision could be made, but it was too late for the CPRS.

There was a discussion of various positions. Do we push on? Do we delay and attach conditions, such as international action or restoration of the political consensus? How do we put pressure on the Opposition? How do we counter the "big new tax" scare? Observers were clear that Rudd put very little of his own views or analysis forward. He did not commit himself to any position. This was not unusual. He would not say what he was trying to achieve, nor what his instincts were. The meeting was finely balanced, but the conclusion was that there was not a critical base of support for pursuing the CPRS as it was. The scheme would not be in the budget – meaning it would be delayed – but an alternative would be sought with conditions attached. But what did that mean? This really was a farce.

The confusion of the day bled into another set of complications. How would Australians be told Rudd had abandoned his cherished climate policy? His prime ministership had been founded on his moral commitment to action. He had persuaded many people. Their support was passionate. Could they just turn off the tap? This was another question for which no answer was forthcoming. As Gillard noted, "Unfortunately I don’t think the meeting was ever very clear about how this was going to be communicated."

After about two weeks of silence following the Brisbane meeting, an unknown person decided his or her interests would be served by leaking the decision. The result was so bad for Rudd that the national political guessing game of trying to identify the leaker has come up with only one consensus answer: it can’t have been Rudd. The Sydney Morning Herald"s Lenore Taylor ran the exclusive on 27 April 2010. She said the government had agreed to put the scheme "on ice". In an accompanying opinion piece, she said, "the Rudd government could have said it would try to negotiate it through after the election, or included it as a trigger in a double dissolution poll. Problem is, either stand would have required it to actually argue the case."

It was as though a bomb had gone off. The rest of the media tracked Rudd down. He was on the campaign trail at Penrith’s Nepean Hospital, which had not long before been featured in the local newspaper when angry mum Raquel Martin blamed "filthy conditions" for making her toddler’s illness worse. Ms Martin said that what should have been a short stay to treat Tarliah's cold sore ended up with a rotting tooth and throat ulcers. The hospital, which denied the claims, was soon witness to another calamity.

Cornered, Rudd casually confirmed the story, trying to give off the sense that nothing much had happened. The government had decided "to extend the implementation time for the introduction of a carbon pollution reduction scheme until the end of … 2012". It would then "make its assessment on the implementation … based on the commitments which are then entered into by the rest of the international community". He insisted the government's attachment to the scheme "remained unchanged". But of course this was untrue. The fact was that if international achievement lagged, as it did, the scheme would die, as it did.

The shock inside and outside the government was profound. A ministerial adviser put it this way: "I don't think there was anyone who’d been involved in it who wasn't deeply, deeply affected. People were shattered. Still scarred to this day, to the extent that … I mean, people gave absolutely everything to developing that policy over those two years. People put on hold family lives, weathered awfully bruising conversations and battles with either external stakeholders or internal colleagues. They burnt career bridges. And then in the end they still didn’t get the policy that they’d worked so hard for and that they really gave everything to."

The parliamentary secretary for climate change in the Gillard government, Mark Dreyfus, spoke for many members of the ALP when he said, "I thought, where the hell is this government going? We’re a Labor government, we're meant to be here doing progressive things. I'm impatient. It's a short time in power and there's a lot to get done. So when you've nearly got there, not to press on with things is, to me, unforgivable, and we didn't press on."

While the public did not see the behind-the-scenes dismay, the reaction among voters who had trusted Rudd to deliver on his promise to act on climate change was similar. The overwhelming response was profound shock. It seemed as though an entire country had fallen silent in disbelief.

The polls told part of the story. A Newspoll on 4 May concluded the government had lost a million supporters in a fortnight. The Coalition led for the first time since Rudd had become leader. Labor's primary vote fell to 35 per cent. A week later a Nielsen poll published in Fairfax newspapers showed Rudd's approval rating had fallen  14 points in a month, from 59 to 45 per cent, one of the sharpest declines in 40 years. Labor never truly recovered from that catastrophic moment.

This is an edited extract from Power Failure by Philip Chubb, published this Monday, May 12, by Black Inc.