Obama's budget ditches projected revenue from cap and trade

In a sign of the growing uncertainty on Capitol Hill surrounding proposed US climate change legislation, the White House omitted potential revenue from a federal cap-and-trade scheme from its final budget proposals.

In March 2009, economic advisers from the White House told Senate staff that a proposed cap-and-trade scheme could raise between two and three times the existing $646bn (£404bn) revenue estimate.

However, despite being faced with a $1.267tn federal deficit, the Obama administration has all but abandoned the potential revenue from climate change legislation, which is still stalled in the Senate.

The federal budget, released yesterday, is perhaps one of the most difficult in recent decades for the US government. The country's deficit is approaching one year's GDP – a situation which could put the dollar's AAA credit rating at risk in the future.

Had the original estimate for revenue raised from auctioning emission allowances through a cap-and-trade scheme been included in the budget, revenue from carbon trading could have totalled $1.9tn between 2012 and 2019.

However, the climate change legislation that would enable cap-and-trade has since been diluted after protests from members of congress and is now awaiting the release of compromise proposals from a small bipartisan group of senators.

Originally, the Obama administration had called for a 100 per cent auction of all carbon credits. However, legislation passed in the House of Representatives asked for just 15 per cent of carbon credits to be auctioned, with the rest being allocated for nothing to polluters.

The election of a Republican senator in Massachusetts, which lost the Democrats their filibuster-proof majority, has raised additional concerns over the feasibility of passing cap-and-trade legislation in the Senate, with some Democrat senators urging the administration to ditch the proposals and focus on delivering a less controversial energy bill.