Leaving aside water and David Hicks, the two issues dominating the media over the last month have been climate change and the bid for Qantas by private equity group Airline Partners Australia (APA).

The two are inextricably linked, but you would never know from the copious column inches of comment and analysis being served up daily.

APA assures us they have a long term view, referring to continued growth and investment if the bid succeeds. Analysts are agog at the whiz-bang financial engineering. ‘Unlocking value’ is apparently the order of the day (not least those rewards which, for some unfathomable reason, will accrue to a small cadre of top Qantas executives). But not a word on the really big questions – the impact of climate change on the airline business generally, and on Qantas specifically, and of even more immediate concern, the peaking of global oil supply.

Consider this: Climate change is now seriously on the political agenda, as it should be for we have wasted valuable years before addressing it, and have made the solution far harder and more costly. The Federal Government remains sceptical, as Ministers will no doubt continue to demonstrate, but community concern means the Government has no choice but to be seen to be ‘doing something’, hence the current Emissions Trading Taskgroup. All too little, too late. We have no climate change policy. Emissions trading, while essential, is only one component of the comprehensive policy required. The Issues Paper, just released, is very disappointing, confirming that government thinking is still in the 1990s. The degree of change ahead for Australia is far greater than most of us envisage. Our carbon emissions will have to reduce by around 60% by 2025 and 90% by 2050 if dangerous climate change is to be avoided. Similar reductions will be required throughout the developed world. This is not ‘alarmist nonsense’, but a sober assessment of the task once you accept climate change is real. It is an enormous challenge, but also a great opportunity if there is sensible public policy.

In parallel, the peaking of global oil supply is dawning and will bite increasingly over the next few years. This does not mean that oil runs out; rather supply declines and there is insufficient oil to meet increasing demand. So who gets the available oil? Do we send in the marines, establish some fair means of sharing it around, or will the market cut growth to balance demand with supply? Australia is particularly vulnerable – the issue is barely on the radar and it could hit us very soon. Again we have no policy to handle it.

What of the airlines? At present airlines are heavily subsidised by virtue of the fact that they are not included in global emissions trading systems and do not pay fuel taxes. Airlines were excluded from the Kyoto Protocol on the grounds that the industry would develop its own trading scheme for emissions reduction by 2007, a matter currently under fierce debate.

Airlines account for around three percent of global emissions, although this may be an underestimate as some types of emissions may have a particularly damaging impact on the environment. This is still the subject of scientific investigation, but the total impact may be two to four times as great. Airline emissions are growing rapidly, spurred by cheap air travel and increasing wealth; were business-as-usual to continue, they would become a much more significant component of overall emissions. In Europe there is intense pressure for airlines to be brought within the European Emissions Trading Scheme (EU ETS), but this is strongly resisted by US airlines flying into Europe and by the cheap airline operators. The UK Eddington Transport Study, however, released in December 2006, is unequivocal in recommending that air travel must pay the full environmental cost of its emissions.

Cheap air travel has transformed Europe, but one has to question its sustainability in the world we now face. Transport fuels will be at a premium and for the foreseeable future aircraft have no alternative but to use the fossil fuel kerosene. Pressure for emission reductions will be intense. Despite increased fuel efficiency and larger aircraft, it may be that cheap air travel becomes a thing of the past. But this, along with continued business traffic growth, appears to be the cornerstone of APA plans for Qantas and Jetstar, particularly in Asia as wealth increases.

We are all headed into turbulent times, and airlines will be particularly hard hit. Much change will be needed and Geoff Dixon and his management team have shown themselves very adept at it, even if the end product is not all one might wish. Prudence would seem to be the order of the day; in a high risk business entering a high risk environment, debt should be minimised. It is hardly the time to be loading up a company with massive debt as APA proposes. On the other hand, one could argue that it is a good time for existing shareholders to bail out before the going gets rough, and let APA take the risk. Perhaps this is what the Qantas board intended in recommending the deal.

But therein lies the rub – if there is one thing that all agree upon, it is that Qantas is a national icon. If the bid succeeds, if the scenario I have outlined is wrong, if growth continues and cheap air travel captures Asia, the new owners will be hailed as corporate heroes as they sell out some years down the line.

But if the scenario is right, oil peaks and the world gets serious about tackling climate change, as it is starting to show signs of doing, before long airlines will be downsizing and a large debt will be a millstone of massive proportions. Possibly APA are gambling that any global climate change initiatives will take so long that they can be in and out of the Qantas investment before anyone notices. In the meantime, there is a real risk that a debt-loaded Qantas could fail spectacularly. Were that to happen, inevitably the national icon would be bailed out. By who? – the taxpayers. A new slant on privatising the profits and socialising the losses.

At the very least, the bidders and Qantas, should come clean on their strategy for entering a low-carbon world. As bankers-of-last-resort, we can then weigh it in the balance in considering the National Interest before the deal is put to bed.