“Talk about an ETS is dream world,” declared Heather Ridout yesterday. And among business leaders she is not alone.

Ridout, Chief Executive of the Australian Industry Group, is seen as particularly close to the Government. Losing her support will hurt the Government’s determination to introduce an emissions trading scheme alone, but she is part of an increasingly loud chorus of business groups backing away from an ETS.

With Tony Abbott arguing for a tax-free direct action plan, Rudd needs business to back his economic model. But Crikey has found the initial support for an ETS — largely built around providing a more certain business environment in tackling emissions — is falling away.

“Given the fracturing of the domestic consensus on climate change policy and the failure of international negotiations, there is great uncertainty around how to progress this issue and no clear way forward,” Ridout told The Age. It’s a long way from her 2009 statement that the legislation was “critical” to firm up long-term business investment decisions.

Some groups are hedging their bets. The Australian Trucking Association — the peak body representing an industry that will be hit hard by carbon taxes — threw its support behind an ETS. Yet Abbott’s announcements won favour because, according to Chairman Trevor Martyn, they “could help trucking operators buy new, fuel-efficient vehicles”.

The Business Council of Australia says the ETS legislation isn’t likely to pass. And spokesperson Scott Thompson isn’t explicitly backing the Government’s scheme, saying the group is “focusing on the principles we have developed around climate change”.

“An ETS is a market mechanism that if it is properly designed, would meet those principles,” he told Crikey. In November last year, BCA President Grahame Bradley called the Government’s carbon pollution reduction scheme “of such fundamental importance and long-term consequences that it requires bipartisan support”.

The group is also firm in saying Australia’s emissions reduction target should not be higher than 5% given the lack of a strong outcome in Copenhagen.

The failure of world leaders to commit to mandatory cuts has inspired many groups to water down its environmental pledges, while strengthening the hands of groups fundamentally opposed to a market-based scheme.

“The Copenhagen fiasco amply demonstrated that the major economies and Australia’s export competitors have no appetite for radical CPRS-style economic re-engineering in response to climate change,” Minerals Council CEO Mitchell Hooke said earlier this month.

“The proposed CPRS remains the most costly emissions trading scheme in the world — while failing to deliver material reductions in global greenhouse gas emissions.”

Australian Chamber of Commerce and Industry Chief Executive Peter Anderson, meanwhile, has called “unilateral adoption of an ETS a mistake”.

Rudd has boasted about the support for introducing an ETS by business. As he prepares to reintroduce the legislation to parliament, certain to fail without significant amendments, his case is now being weakened by people supposed to be his allies.