During Obama's first term, the most politically palatable mechanism to regulate carbon was cap and trade, a system that would place overall limits on carbon emissions from major polluters but allow individual companies to "trade" their allotted caps within the system. The measure, originally championed by Sens. John McCain and Joe Lieberman, had a proven track record: During the 1990s, a similar plan had succeeded in controlling the pollution that causes acid rain. But this time around, the proposed legislation wound up so encumbered by complex accounting methods and phantom carbon "offsets" that even staunch advocates questioned its effectiveness. In the end, confronted by Tea Party attacks funded in large part by big carbon polluters, Obama abandoned cap and trade.
Since Obama's re-election, however, the idea of making Big Oil and Big Coal pay for their carbon pollution has re-emerged in another form: putting a direct tax on carbon emissions. House Republicans, naturally, have signaled their determination to fight such a plan, and White House spokesman Jay Carney has tamped down speculation on the matter, saying at a postelection press conference, "We would never propose a carbon tax."
But insiders think there's a chance the ground could shift. Were Republicans, citing deficit reduction, to produce a modest $20-a-ton carbon tax – an idea being pushed by right and left-wing D.C. think tanks – Obama would likely embrace it. "If it happens, it will be driven by budget, not environmental, concerns," says Jason Grumet, head of the Bipartisan Policy Center. But the cost of such a deal could be high: In exchange for a carbon tax, Republicans would likely demand an end to EPA oversight on carbon pollution from power plants.