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Judging from [last night’s address](http://www.huffingtonpost.com/2010/06/15/obamas-gulf-spill-speech_n_613554.html “”) from the Oval Office it seems Barack Obama is moving away from a policy of introducing a price on carbon via comprehensive cap and trade legislation in favour of more specific energy policy regulations.

In the 18 minute long speech last night he set out a plan of action for addressing the Mexican Gulf oil crisis which included clean up plans, sorting out corruption in the Minerals Management Service and requiring that an independent third party administer the handing out of compensation payments provided by BP.

Many people had expected the plan also to contain a reference to the need to pass legislation to deliver on the US’s climate reduction targets. There was speculation that he would use the opportunity to reaffirm his backing for the need to introduce carbon pricing to help wean the nation of fossil fuels in favour of cleaner alternatives. They were disappointed. Instead the President said he was ‘open to ideas’ and that inaction was the only idea he would not consider. He name checked a few: applying similar regulatory standards to buildings as have been passed for vehicles, requiring higher percentages of energy to come from wind and solar and as yet unspecified ways of encouraging industry to invest more in energy R+D.

This appeared to be an open invitation for legislators to bring forward ‘energy only’ bills without cap and trade elements. On Monday Senator Jeff Merkley unveiled [his proposals](http://merkley.senate.gov/imo/media/doc/Senator%20Merkley%20-%20America%20Over%20a%20Barrel%200614101.pdf “”) for how the US can end its addiction to oil taking a regulatory approach to improve energy efficiency, boosting use of alternative fuels, including biofuels, and encouraging modal shift. There was no mention of carbon pricing or cap and trade. He it seems may now have the ear of the President who may see this as a less politically contentious way to move forward on an agenda to reduce dependence on oil and emissions.

This new turn of events was perhaps inevitable given the vehemence of opposition towards cap and trade in some quarters and the apparent difficulty in securing the required number of votes for legislation, but is still nevertheless disappointing. To achieve absolute emissions reductions in a cost effective and efficient way there is no better policy that a cap and trade system using auctioning of permits. Other countries who have tried to use less comprehensive energy regulations to reduce emissions, such as the UK, have found that such measures are not able to keep pace with the rising demand for cheap energy and consequently emissions keep rising. Energy efficiency may reduce emissions per vehicle or appliance but the total use of energy can continue to rise as more units are used more often. Increased use of renewables and alternate fuels can reduce emissions but only on a relatively small scale initially and they do nothing to stimulate the important switch from high carbon fuels such as coal and oil to the low carbon fuels such as gas and nuclear. Modal shift in transport is also a difficult and expensive thing to achieve if it goes against market realities and consumer and business preferences.

Obama says he is open to ideas but sadly I suspect the one idea that is no longer on the table is the application of cap and trade on emissions from power and transport. Both sectors are not exposed to international competition and both have the potential to deliver large volumes of emissions reductions quickly. It is still possible that the EPA will press ahead with plans to introduce caps on large stationary sources of emissions using existing powers under the Clean Air Act but their confidence may also now be dented thanks to the lack of mention of carbon pricing in yesterday’s speech.

And although making oil companies pay for the pollution arising from the use of their product would clearly be the best way to steer investment into alternatives it now seems this has little to no chance of being passed in the near future. This is a great shame and one which both the US and world may live to regret.