Obama budget indicates cap-and-trade confidence

President Obama has announced a £150bn investment in clean technology

President Barack Obama yesterday unveiled the greenest budget in US history, announcing $150bn in clean tech investment, increased spending on environmental protection, an end to tax breaks for carbon intensive industries, and, in a clear indication of his confidence that cap-and-trade legislation will get through congress, revenue projections from the auctioning of carbon allowances.

In a controversial move given Republican opposition to proposals for a cap-and-trade scheme, the budget includes estimates that between 2012 and 2019 the proposed scheme will raise $646bn for the US treasury through the auctioning of carbon allowances.

The ten year budget also set out plans to invest $150bn of the revenue from the cap-and-trade scheme in clean tech R&D, while a further $60bn a year will be used to fund tax breaks for the middle and low earners to help them cope with the increased energy bills that will result from the introduction of a carbon market.

Speaking ahead of the launch of the budget, which starts with an expected deficit of $1.75 trillion for the current fiscal year, Obama said that a cap-and-trade scheme was needed to help curb carbon emissions and reduce US reliance on "oil that's controlled by foreign dictators".

Analysts estimated that the budget projections mean that the price of carbon under the proposed scheme should stand at between $12 and $15 during 2012, the first year of the market's operation.

Speaking to Reuters, Brian Murray, director for economic analysis at the Nicholas Institute for Environmental Policy Solutions at Duke University, said that the administration's projection that the auctioning of credits will raise $646bn over eight years was not overly optimistic.

However, Washington insiders were quick to point out that the assumption that cap-and-trade legislation will be passed by Congress may yet prove optimistic, given large numbers of Republican Senators are staunchly opposed to proposals they believe will damage the economy.

While the cap-and-trade proposals form the green centrepiece of the budget, it also features a raft of additional environmental measures.

Most notably, the budget projects that the elimination of a number of tax breaks for oil companies will generate an extra $2bn in revenue by 2011, while a further $1bn will be raised by reinstating the Environmental Protection Agency's Superfund scheme, which forces businesses to pick up the tab for the clean up of toxic industrial sites.

The revival of the Superfund program is just part of a major overhaul of the EPA's funding that will see the agency's budget increase by $3bn to $10.5bn.