John Kemp, "US Cap-And-Trade Choice Inferior To Carbon Tax," Planet Ark/Reuters, March 2, 2009.

LONDON - President Barack Obama's first budget puts climate change at the heart of the administration's long-term economic plan. But despite the clear theoretical advantages of a simple carbon tax, he seems set to follow the EU and California in opting for a cap-and-trade system.

The budget plan commits the administration to work with Congress on an economy-wide emissions reductions programme, based around cap-and-trade.

It also anticipates almost $650 billion in revenues over 10 years from selling these yet-to-be-agreed pollution permits, and proceeds to spend it on investment in clean technologies (US$120 billion) and rebates for vulnerable families, businesses and communities ($525.7 billion).

In a sense the budget is a "wish list". While federal law requires the president to submit a unified budget, there is no obligation for Congress to consider it line by line, or even use it as a starting point in the annual tax-writing and spending process.

Prudently, the administration has been careful not to rely on permit auction revenues it may never be able to collect. The projections do not anticipate spending any money raised from the permit programme until October 2012.

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