Market-based regulations were first deployed to reduce sulfur dioxide emissions from US power plants in the 1990s, and cap-and-trade has since become the leading framework for reducing carbon dioxide and other greenhouse gases. But when the administration of US President George W. Bush proposed the same system for regulating mercury emissions from coal-fired power plants in 2005, environmentalists and many leading Democrats elected to fight. Nearly four years later, it appears a resolution might be in sight.

Last week US President Barack Obama reversed course, and directed the Justice Department to abandon an appeal to the Supreme Court, where the case has been pending since the US Appeals Court for the District of Columbia tossed it out last year. Although the industry has maintained its appeal, a request for dismissal by the federal government certainly bodes well for opponents.

The dispute centres on “hotspots.” Environmentalists argue that direct regulation makes more sense because mercury can build up downwind of dirty plants. Although markets might work well for carbon dioxide and other pollutants that disperse quickly, a cap-and-trade system could theoretically allow individual plants to simply buy credits and continue polluting, thereby endangering people who happen to live in the wrong place.

Advocates of the proposal downplay the danger of hotspots and say the rule would have reduced mercury emissions quicker and cheaper than direct regulation. Whether or not that logic would hold up at the Supreme Court is anybody’s guess, but barring a major surprise it appears that its time has run out.

The Obama administration must now implement its own regulations – and likely fend off the inevitable court challenge.