Barack Obama suffered a major defeat in his quest to impose a cap-and-trade system on the US energy sector last night, as the Senate formally rejected any attempt to pass such a scheme through budget reconciliation rules.  In fact, two-thirds of the Senate voted against such a move, with 26 Democrats crossing the aisle to protect the filibuster for cap-and-trade legislation (via The Corner):

Please pass Al Gore a Valium — and better make it a double — because his cap-and-trade dreams just took a dive in the U.S. Senate. In a vote late Wednesday, no fewer than 26 Democrats joined all 41 Republicans to insist that any new cap and tax on carbon energy would require at least 60 votes.

Tennessee Republican Lamar Alexander called it “the biggest vote of the year” so far, and he’s right. This means Majority Leader Harry Reid can’t jam cap and tax through as part of this year’s budget resolution with a bare majority of 50 Senators. More broadly, it’s a signal that California and East Coast Democrats won’t be able to sock it to coal and manufacturing-heavy Midwestern states without a fight. Senators voting in favor of the 60-vote rule included liberals from Wisconsin, Michigan and West Virginia. Now look for Team Obama to attempt to impose cap and tax the non-democratic way, via regulation that hits business and local governments with such heavy costs that they beg Congress for a less-harmful version.

Though the press corps has barely noticed, this means that two of President Obama’s most economically destructive priorities have taken major hits in the last two weeks. The cap-and-tax collapse follows Pennsylvania Republican Arlen Specter’s decision to oppose Big Labor’s attempt to eliminate secret ballots in union organizing elections. If Mr. Specter holds firm, and as swing state Democrats also look for cover, Republicans will be able to prevail on a filibuster.

Filibusters are not allowed on budget bills, and the Obama administration has repeatedly floated the notion that cap-and-trade should be handled as a budgetary matter.  In fact, they’d like to press most of their agenda through on this process, but obviously that has little support on Capitol Hill.  They will not be able to ram their agenda down the throats of Republicans, and will now have to find ways to negotiate.

Even with negotiation, though, the bigger problem is with Rust Belt Democrats.  Evan Bayh may have lost on the budget bill today, but his Gang of 15 centrist Democrats will immediately re-form in the face of cap-and-trade imposition.  The system will make energy costs skyrocket, as even Barack Obama freely admitted in a January 2008 interview with the San Francisco Chronicle:

The problem is not technical, uh, and the problem is not mastery of the legislative intricacies of Washington. The problem is, uh, can you get the American people to say, “This is really important,” and force their representatives to do the right thing? That requires mobilizing a citizenry. That requires them understanding what is at stake. Uh, and climate change is a great example.

You know, when I was asked earlier about the issue of coal, uh, you know — Under my plan of a cap and trade system, electricity rates would necessarily skyrocket. Even regardless of what I say about whether coal is good or bad. Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, uh, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.

They — you — you can already see what the arguments will be during the general election. People will say, “Ah, Obama and Al Gore, these folks, they’re going to destroy the economy, this is going to cost us eight trillion dollars,” or whatever their number is. Um, if you can’t persuade the American people that yes, there is going to be some increase in electricity rates on the front end, but that over the long term, because of combinations of more efficient energy usage, changing lightbulbs and more efficient appliance, but also technology improving how we can produce clean energy, the economy would benefit.

If we can’t make that argument persuasively enough, you — you, uh, can be Lyndon Johnson, you can be the master of Washington. You’re not going to get that done.

The Obama administration tried to master Washington, but the damage Obama himself predicts to the energy and manufacturing sectors is too much for even Democrats to swallow. The costs will impact the entire production line; as energy costs increase, it inflates the costs of producing goods, transporting them to market, and conducting the retail transactions to sell them. With the American auto industry on the ropes already, imposing huge costs on coal and steel would drive a stake through the heart of Detroit.

The defeat of the dishonest strategy envisioned by Obama and Harry Reid is good news, but it’s not the end of the fight, either.