Rudd tonight told a gathering of the Australian Industry (Ai) Group that trying to avoid financial pain under the coming trading scheme was "not do-able".
He was responding to a call by Ai Group president Trevor Carroll for the government to impose a "gentle" system which did not penalise Australian companies to the benefit of foreign competitors.
"I say to all in this room that moving to a lower carbon economy will involve adjustment costs," Rudd told the group's annual national dinner in Canberra.
"I've said this to Australian households as well. It would be misleading that we can achieve this transformation free of cost.
"It is not do-able."
The prime minister said the federal government would seek to ensure the best adjustment strategies possible were put in place
"The economic cost of inaction is far greater than the economic cost of action," he said.
Rudd said Tuesday's business leaders in 10 to 20 years time could face hard questions from their successors, as well as their spouses and families.
"It will be, 'why did not you act when you had the opportunity to act'.
"That's the challenge that you must answer."
The remarks were not part of Rudd's prepared speech about nation-building infrastructure.
The government has been under increasing pressure from business not to damage industries with the design of its emissions trading scheme, due to begin in 2010.
Carroll said imposing carbon costs in Australia not imposed in other countries would place significant segments of industry under extreme pressure.
"There is a clear risk that the growth prospects in Australia of many of these industries will simply disappear," he told the dinner.
He said the damage would be done without achieving any environmental gain.
"Paradoxically, we could be rewarding other countries for not acting."
Carroll said the viability of some companies could be threatened by emissions trading as proposed by the government.
"Absolutely critically there must be a gentle start to the Australian emissions trading scheme.
"We need to get the balance right between taking effective early action and giving our competitors a free kick."
