Crude oil was little changed after U.S. crude supplies jumped to their highest level in nearly 19 years, as the recession continued to depress consumer demand in the world’s largest energy user.

U.S. crude-oil stockpiles rose for a seventh week to the highest since September 1990, the Energy Department said yesterday. Inventories grew by 3.86 million barrels to 370.6 million last week, higher than a gain of 2.5 million barrels expected by analysts.

“The surplus in U.S. crude inventories is quite certain,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas SA in London. “For now the oil market will remain buffeted between bearish fundamentals and bouts of optimism coming from the equity markets.”

Crude oil for June delivery traded at $48.87 a barrel, up 2 cents, in after-hours electronic trading on the New York Mercantile Exchange as of 9:07 a.m. London time. It earlier fell as much as 48 cents, or 1 percent, to $48.37 a barrel.

Prices are up 9.6 percent so far this year, after tumbling 54 percent last year.

The 3.86 million barrels gain in stockpiles compares with analyst expectations of 2.5 million-barrel gain in a Bloomberg News survey. Gasoline inventories climbed 802,000 barrels to 217.3 million. A 700,000-barrel decline in the motor fuel was forecast.

Refineries Runs

Refineries operated at 83.4 percent of capacity, up 3.1 percentage points from the prior week and the highest since January, the report showed. It was the biggest increase since the week ended Dec. 5.

“Even with the refinery utilization number increasing by 3 percent, which is pretty big, there was a bigger build in crude stocks than people anticipated,” said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. “That tells you right away there is too much crude.”

The International Monetary Fund said in a forecast released yesterday that the world economy will shrink 1.3 percent this year, compared with its January projection of 0.5 percent growth. The lender predicted expansion of 1.9 percent next year instead of its earlier 3 percent estimate.

Total daily fuel demand in the U.S., the world’s largest oil consumer, averaged 18.5 million barrels in the four weeks ended April 17, down 6.5 percent from a year earlier, the department said.

Brent crude oil for June settlement declined 21 cents, or 0.4 percent, to $49.60 a barrel on London’s ICE Futures Europe Exchange, after falling as much as 56 cents, or 1.1 percent, to $49.25 a barrel.

Oil companies are storing close to 100 million barrels of crude oil at sea, the highest in recent times, Frontline, one of the world's biggest independent oil tanker owners said on Wednesday.

An oil market structure known as contango -- when oil for prompt delivery is cheaper than oil for later delivery -- has encouraged high levels of oil storage by trading firms for some months. Contango provides an incentive for traders to buy now and sell later.
Falling freight rates, helped by an oversupply of vessels during the global economic downturn, have also meant that oil companies have resorted to leasing ships to store oil.

Asked how much oil was floating on the seas, Frontline's acting chief executive Jens Martin Jensen told Reuters: "It's probably close to 100 million barrels... I'm talking about only crude."

"Three months ago it was probably close to 50-60 million barrels and then of course 12 months ago maybe there was nothing in storage where the oil price was," he said in a telephone interview.

Jensen said the amount being stored at sea was the most "in recent times" without giving further details. "It could remain like this for some time going forward," he added.

LOWER STORAGE RATES
The Oslo-listed group was storing about 20 million barrels of oil in about 10 Very Large Crude Carriers (VLCCs), Jensen said.

"It is economical to use floating storage as an alternative to oil storage facilities," he said. "Oil is in contango, there is money to be made in storage."
Analysts said oil companies and traders were the key players looking at storing oil at the moment.

One London-based analyst estimated that the current rate for 30-90 days storage using vessels was $37,500 a day, down from $55,000-$60,000 a day during the first quarter of 2009, making storing oil a cheaper option now.

The world's consumption of oil is estimated around 84 million barrels a day.

Weak demand has led to rising crude oil inventories in the United States, which last week reached a near 19-year high.

Earlier this week, France's Total told Reuters it estimated that 70 percent of the 100 million barrels of oil it saw in storage was crude and 30 percent refined products.

Traders have said oil company Shell has accumulated a large number of Forties North Sea benchmark crude oil cargoes over the past weeks for storage.

"There is an oversupply of ships right now -- that's why the rates are depressed. So there is room for more going in storage," said Frontline's Jensen.
Another London analyst estimated that 26 VLCCs were being used for storing oil by end March, with a further 13 to 14 vessels likely to be used for that purpose in the coming weeks.

"This will be the highest level of temporary floating storage we have seen in the tanker market since 1991," he said.

The world's VLCC fleet at the end of March was estimated to number 516 vessels with another 48 VLCCs expected to enter service this year adding more pressure on the sector, he said.

Editing by Keiron Henderson and James Jukwey

Demand for deepwater drilling equipment, led by Brazil and India, continues to grow at a slower pace amid the global recession and lower crude oil prices, said Transocean Inc., the world’s largest offshore oil driller.

The Geneva-based company is still participating in bids even as the number of tenders has declined, said Deepak Munganahalli, senior vice president for the Asia-Pacific region, at a conference in Singapore today. About 25 deepwater assets will become available within the next two to three years.

“That’s a very small number,” Munganahalli said at Sea Asia 2009. “Even last month there were significant fixtures in Brazil.”

Oil and gas explorers are postponing or scrapping deepwater projects, potentially reducing crude supplies by as much as 2.4 million barrels a day in 2011, Morgan Stanley said in a report in March. Oil prices in New York have declined 66 percent after soaring to a record $147.27 a barrel in July last year.

Day rates for drilling and support equipment for most contractors aren’t affected because the vessels were contracted before the recession for three- to five-year periods, Lionel Lee, managing director, Ezra Holdings Ltd., said at the conference. There will be pressure on pricing in the next tender, he said.

No new contracts have been awarded since August 2008 when Morgan Stanley estimated that companies needed 139 new production platforms to develop fields in deep seas. Since then, 11 orders have been canceled and 46 delayed by an average 15 months, according to last month’s Morgan Stanley report.

Worldwide spending on oil and gas exploration may drop 12 percent in 2009 to $400 billion, according to a report in December by Barclays Capital Research.

Federal and Alberta officials will make a last-ditch effort in California today to head off a regulation that would target oil sands emission levels and create a new barrier to the export of the unconventional oil.

Despite significant opposition, California's Air Resources Board is expected today to approve North America's first low-carbon fuel standard, a system that is expected to be a model for the U.S. federal government, 13 American states and several Canadian provinces that have proposed similar regulations.

The California board's regulations would require Canadian oil sands producers to dramatically reduce their emissions before their product could be sold in the state, or to purchase expensive credits from alternative energy producers, like those who make ethanol from non-food feedstocks.

While California does not currently consume oil from the oil sands, the largest state in the union is a potentially lucrative market for American refiners that do handle Alberta-based bitumen and upgraded synthetic crude.

As well, Calgary-based Enbridge Inc. is planning to build a pipeline to deliver oil-sands product to the West Coast, aimed at markets in Asia and California.

Under the low-carbon fuel standard, refiners and petroleum marketers will be required to track their supplies back to the wellhead.

This means marketers will have to provide an assessment of the carbon intensity of the fuel, based on guidelines being produced by staff at the Air Resources Board.

In a letter to California Governor Arnold Schwarzenegger that was filed with the board, federal Natural Resources Minister Lisa Raitt complained that the proposed rules appear to single out oil sands producers for punitive treatment.

"We are concerned that crude oil derived from Canada's oil sands may be discriminated against as a high [carbon-intensity] crude oil, while other crude oils with similar upstream emissions are not singled out," Ms. Raitt wrote in a letter sent Tuesday.

"This could be perceived as creating an unfair trade barrier between our two countries."

As part of the state's overall climate change plan, Mr. Schwarzenegger signed an executive order requiring the board to establish a low-carbon fuel standard in order to reduce emissions from the state's motor vehicle fleet by 10 per cent by 2020.

The California regulations would also be a setback for the corn-based ethanol industry, as the board's staff has concluded many sources of conventional ethanol is little better than gasoline when it comes to emissions. Ethanol producers are fighting back, claiming the regulator's methodology is flawed when it comes to determining the emissions that result from land-use practices.

Canadian oil industry officials are furious that the regulators have establish two standards: one for crudes that are already used in the California market and are included in a state-wide carbon intensity average, and another for crude type that are not now sold in the state and will have to fall below that average or face penalties.

The Alberta Energy Department, which has sent an official to intervene in today's hearing, wants to ensure the regulations aren't designed in a way that favours imported oil from Mexico and Venezuela, which can cause as much greenhouse gas emissions as Alberta crude. "We want to make sure that all sources are assessed on a full life cycle basis, from well to wheels," Alberta Energy spokesman Jason Chance said yesterday.

Several studies have concluded that the oil sands crude result in 20 per cent to 30 per cent higher emissions than fuel derived from conventional light oil, but the industry and Canadian governments argue the oil sands should be compared with other heavy oil sources, which make up an increasing share of the North American consumption.

Ms. Raitt argued California should take into account Canada and Alberta's efforts to reduce greenhouse gas emissions, including from oil sands facilities.

Simon Miu, a San Francisco-based scientist with the Natural Resources Defense Council, said it is critical the regulations penalize fuels that have a heavy carbon content as a way of encouraging low-carbon alternatives.

Mr. Miu recently concluded a study of oil sands emissions that concluded there is a wide disparity among oil sands projects. He said Canadian Natural Resources' Primrose in-site project produced 161 kilograms of carbon dioxide per barrel, while Petro-Canada's McKay River project emits only 34 kilograms per barrel.

An extra 2bn barrels of oil that would otherwise been left under the North Sea may now be extracted under new measures unveiled in the Budget.

Oil and gas companies operating in the UK Continental Shelf (UKCS) are to receive tax breaks to encourage exploration activity in smaller, more technically challenging fields that would otherwise not be viable.

Currently, companies that produce oil and gas from the UKCS are subject to corporation tax of 30pc plus a supplementary tax of 20pc. New fields given development consent will now have a "field allowance" which can be offset against this supplementary tax charge. Once this is exhausted the company will revert back to the full tax regime, with the speed of exhaustion of allowances depending on the profitability of the company.

Industry body Oil & Gas UK welcomed the move, but said that further action was needed to help existing fields with production. Malcolm Webb, OGUK's chief executive, said: "We now need to direct our attention to sustaining and promoting investment in and around many of our older fields to prolong their lives, to stimulating exploration activity and to opening up the frontier areas west of Shetland."

The Government also plans to make changes to the ring-fence corporation tax rules that will allow decommissioning costs to be carried back against profits to 2002 – even if the use of the oil and gas field is being changed.

The move is intended to encourage the development of gas storage and carbon capture facilities under the North Sea. Under previous rules, these losses could only be carried back for three years.

Energy group Centrica welcomed the changes. Nick Luff, finance director, said: "The announcements complement HM Revenue and Custom's clarification on Tuesday of additional support for the development of new gas storage in the UK."

This means it is eligible for tax relief via plant and machinery capital allowances.

The decision came after British Gas owner Centrica said in February that it planned to spend around £1.2bn converting the Baird gas field in the southern North Sea into the UK's second largest gas storage facility. It is expected that the project will commence commercial operations in 2013.

Simon Wills, managing director of Centrica Storage, said: "The UK is in need of more gas storage to ensure secure gas supplies for customers in the future. This year we saw the impact on gas supplies across Europe following the Russian dispute with Ukraine and one of the coldest winters for many years. These events highlight the importance of new storage to UK energy security and this decision is a sensible tax clarification which will help make these important investments more attractive."

A new generation of coal-fired power stations equipped for carbon capture and storage has been signalled by Energy Secretary Ed Miliband.

He told MPs up to four of the plants could be built by 2020 enabling the UK "to lead the world" in the technology.

The aim was to keep coal, a cheap fuel, within the UK's energy mix without abandoning climate change commitments.

The Conservatives said the government had dithered over the issue and yielded ground to other countries.

Carbon capture and storage (CCS) technology traps and stores carbon dioxide emissions from fossil fuels underground but has yet to be commercially proven.

The climate change secretary said successful CCS development could cut carbon emissions from coal by 90%.

In his Budget statement on Wednesday, the chancellor pledged funding for new projects alongside one existing scheme.

It is not clear where the new plants will be located although the government said areas where the greatest benefits could be generated included the Thames Valley, Humberside, Teesside, Firth of Forth and Merseyside.

'Low carbon path'

While acknowledging that coal posed a "stark dilemma" in terms of environmental and energy needs, Mr Miliband said there was an "international imperative to make coal clean".

Mr Miliband told MPs clean coal had an important role to play in providing the "diverse energy mix" the UK needed alongside nuclear power and renewable sources of energy.

He said the era of "unabated" growth in coal-fired plants was over and that future plants would have to demonstrate they could sustain "substantial" CCS capacity to get planning permission.

Once CCS is proven commercially viable, as the government expects by 2020, all existing plants will have to move to CCS across all their output within five years.

Mr Miliband said Thursday's announcement was a "decisive step" on taking the UK on a "low-carbon path".

"There is no alternative to CCS if we are serious about fighting climate change and retaining a diverse mix of energy sources for our economy," he said.

The development of CCS in the UK has proved a slow process.

Opposition parties have claimed lack of government support has forced some operators to develop technology abroad.

The BBC's Environment Analyst Roger Harrabin said each new carbon capture project could cost £1bn.

While the power industry and some environmentalists welcome the strong new commitment to carbon capture, others argue that even coal plants with carbon capture equipment fitted will still produce substantial amounts of greenhouse gases, he added.

Earlier this year the European Commission approved more than £1bn in funding for CCS development at 11 coal-fired stations across Europe, including four in the UK.

The government is at risk of missing its climate change targets if it fails to make substantial investment in the country's electricity network, Britain's energy distributors warned MPs today.

The Electricity Networks Strategy Group, headed by the Department for Energy and Climate Change, has estimated that £4.7bn would be needed to upgrade the network and accommodate a further 45GW of power into the system, adding approximately £5 to every household's annual electricity bill.

But in evidence to the energy and climate change select committee's inquiry into the future of Britain's electricity networks, Scottish Power which along with National Grid and Scottish & Southern own the country's transmission network, has estimated full costs of upgrading at £37bn.

On the same day that the chancellor, Alistair Darling, announced an extra £525m to fund offshore wind investments, and included £7.6bn investment in transmission and electricity distribution infrastructure in his budget. Network operators warned MPs that government plans would fail if proper provision was not made to connect ambitious offshore and onshore wind projects, such as the Whitelee wind farm south of Glasgow, to an upgraded power grid.

Rupert Steele, head of regulation at Scottish Power, said that to decarbonise the energy sector, more electricity would have to be generated by coal-fired plants with Carbon Capture and Storage, nuclear and large-scale windfarms. To help reduce carbon emissions to 80% below 1990 levels by 2050, the government has promised to increase energy from renewable sources, such as wind power, by 15% by 2020. But Steele said that its success would depend on upgrading the electricity network. "Solid transmission is the backbone of the energy network and if these wires aren't there, it won't happen," he said.

He also accused the power regulator, Ofgem, of delaying progress on upgrading the network by 5-10 years. "The platform is burning, and to put off dealing with upgrading the network is wrong," he said.

Part of the problem, he said, was where most wind power is generated, namely in Scotland, and transporting that to areas of greater energy demand in England. "We know where the resources are, we know where the wind blows. We can't move them. We just have to get on with building the wires."

Scottish & Southern claims that more than 350MW of renewable generation developments have planning consent in the north of Scotland with no access to the grid. Mike Barlow, system manager of Scottish & Southern, said that to deal with the estimated 32GW increase in wind power generation by 2020, reinforced grid links would also be required, such as a deepsea cable from Scotland to north Wales. He also added that a Europe-wide "super-grid" could be catered for by including "jumping off points" to connect with other electricity grids in continental Europe.

The three operators said that the key mechanism in attracting investment would depend on the level that Ofgem sets the transmission price controls – a maximum cost they can impose for supplying electricity around the country.

National Grid's Alison Kay said that certainty about price controls and how the network upgrade is funded would be required to attract investment for the industry about greater capacity for renewable and nuclear energy would be transported around the national grid was essential. "To meet climate change targets we need to get some certainty on this," she said.

YOU can understand the frustration on both sides. Environmentalists worldwide are clamouring for bold action to end the burning of fossil fuels and plug the world into renewables. Politicians throw their weight behind a $14 billion scheme that would replace the equivalent of eight coal-fired power stations with tidal power. What do they get for their pains? Green outrage.

"This massively damaging proposal cannot be justified," said Graham Wynne, chief of the UK's normally staid Royal Society for the Protection of Birds (RSPB). Friends of the Earth said it was "not the answer". What is going on here? Have greens lost the plot? Has environmentalism been hijacked by big construction companies? Or do we simply have to learn that even environmental energy comes at an environmental cost?

The project causing all the controversy is the Severn barrage on the west coast of Britain, but similar stories are playing out across the world. As greens gradually win the argument for switching to renewable energy, they are finding that they don't always like the look of the new world they are creating.

The problem is one of scale. Bigness is often an issue for greens, many of whom grew up reading one of the movement's key texts: E. F. Schumacher's Small Is Beautiful. They liked biofuel while it was about recycling cooking fat, but not when it became growing millions of hectares of palm oil in former Borneo rainforest. Solar panels on roofs are good, but covering entire deserts with them is another matter. They like small wind turbines and even small wind farms, but get very jumpy as wind power reaches industrial scale.

Small may be beautiful, but it won't change the world. You can't generate vast amounts of green energy without large-scale engineering projects, which inevitably do some damage to the natural environment.

Greens have been here before, to some extent. Once, long ago, they loved large dams. From the 1930s to the 1960s, hydroelectricity was regarded as the new, clean and cheap source of electricity. Nobody cared about climate change then, but they did care about the killer smogs from burning coal. From the Rockies to the Alps, from Scandinavia to the Tennessee valley, nature would be harnessed to provide clean power for the masses. Woody Guthrie once wrote a song about the splendours of the Grand Coulee dam on the Columbia river: Roll along, Columbia, you can ramble to the sea, but river, while you're rambling, you can do some work for me he sang in 1941.

All that started to change in the 1960s after engineers tried to dam the Grand Canyon on the Colorado river and hikers rebelled. By the mid-1990s opposition to large dams had grown so intense that the World Bank stopped funding them for several years. Even after green projects became a major priority for most government aid agencies, none of them would touch China's Three Gorges dam on the Yangtze river, even though it replaces some 20 large coal-fired power stations. Projects like the Severn barrage are now provoking similar opposition.

The Severn estuary is a natural marvel. The British coastline has some of the highest tidal ranges (the difference between high and low tides) in the world, and the long funnel shape of the estuary gives it a tidal range that peaks at more than 13 metres, the largest in the world apart from the Bay of Fundy on the east coast of Canada. The tidal surge is so strong that spring tides create a wave running upriver, known as the Severn bore.

In January, the UK government announced its intention to go ahead with a major project to extract energy from the Severn's tidal range. The most likely option is a giant 16-kilometre barrage across the estuary, though the shortlist includes four smaller projects (see map and diagram).

First proposed 35 years ago, the full barrage would trap more than 400 square kilometres of tidal estuary behind a wall of concrete and sand. As the tide rises, sluice gates would be opened to let water in. At high tide the sluices would be slammed shut and the outrushing water forced through turbines. The barrage's theoretical peak generating capacity would be 8.6 gigawatts, enough to supply 5 per cent of the UK's electricity and 35 times as much as the largest existing tidal power plant, on the Rance estuary in France. Its lifetime might be more than a century, several times that of a conventional power station.

Ironically,the estuary's enormous tidal range is also key to what the RSPB calls its "truly exceptional ecological value" - hundreds of square kilometres of intertidal mud flats, sand banks and salt marshes, around half of which the barrage would obliterate.

In the parts of the estuary enclosed by the barrage, low tide would be about 5 metres higher than before, meaning that much of the intertidal zone would be permanently flooded, including 190 square kilometres of treasured wildlife habitat that is home to 70,000 birds in winter. The surviving flats might compensate by hosting more wildlife, but nobody can be sure. The barrage would also be a barrier to migrating eels and salmon. Even the famous bore might disappear. Friends of the Earth says the barrage will "wreck one of the most important wildlife sites in Europe".

Unfortunately there is nowhere like it for a tidal barrage. Engineers have identified other potential sites to tap the UK's exceptional tidal range, including Morecambe Bay, the Solway Firth and the Wash. But because the electricity-generating potential of tides is equivalent to the square of the tidal range, the exceptional range of the Severn estuary means it has about 80 per cent of the potential national resource.

One alternative is to ditch the full barrage and replace it with lagoons along the estuary's coasts, which would generate electricity while saving some habitats. Lagoons are on the shortlist, but engineers advising the government say they would deliver less.

Or how about directly tapping tides for their strong currents? The idea is to create an underwater version of a wind farm, with turbines attached to the sea bed in areas where strong currents flow, such as through channels and around headlands. The engineering company Metoc has identified 20 coastal areas where this could be done around Britain, the best sites being the Pentland Firth between mainland Scotland and Orkney, and around the Channel Islands...contd.

Orbiting solar farms will be commercially viable within next seven years, says group

A leading American power company is hoping to turn science fiction into reality by supporting a project to set up solar panels in outer space and beam the electricity generated back to Earth.

Pacific Gas and Electric Company, which serves San Francisco and northern California, has agreed to buy electricity from a startup company claiming to have found a way to unlock the potential power supply in space.

The firm, Solaren Corp, says it will launch solar panels into orbit and then convert the power generated into radio-frequency transmissions, which will be beamed back down into a depot in Fresno, California. The energy would then be converted into electricity and fed into the regular power grid, PG&E said.

Although spacecraft and satellites routinely use solar panels, the project marks the first serious attempt to take advantage of the powerful and near-constant supply of sunshine in space.

Nasa and the Pentagon have been studying the idea of orbiting solar farms since the 1960s, and a number of private researchers have been looking at ways to tap into space-based solar energy.

But Solaren Corp, founded by a former spacecraft engineer, says it has developed a technology that would make it commercially viable within the next seven years to transmit electricity generated in space to a terrestrial power grid.

PG&E announced this week that it had agreed to buy 200 megawatts of electricity from Solaren starting in 2016. The deal has yet to be approved by California state government regulators and PG&E has not put any money into Solaren, but the promise alone has turned the notion of space based solar power from fantasy to reality.

"There is a very serious possibility they can make this work," said PG&E's spokesman Jonathan Marshall.

Unlike on earth, with its cycle of nights and days and where there can be clouds, sunshine in space is practically constant – aside from a few days around the spring and autumn equinoxes. That means the space-based solar panels could potentially produce a steady supply of electricity.

The sunlight hitting solar panels 200 miles in space would be 10 times as powerful as the light filtering down to Earth through the atmosphere. The satellite would then convert the energy into radio waves and beam them down to a receiving station on Earth. Spirnak did not give details of how this would work but said the technology was based on that now used by communications satellites, describing it as "very mature". He added that power losses via the radio-wave route are lower than transmission cables used on Earth. Another advantage of the plan is that it does not require large amounts of real estate. Ground-based solar installations require huge tracts of land.

Solaren has released relatively few details about the project. But Solaren's CEO, Gary Spirnak, said the company, a group of about 10 former satellite and aerospace engineers, was confident in the technology and timing behind the venture.

He argued that the science behind the orbiting solar farms was little different to that of communications satellites. "This is the exact same thing that satellites do every day. The basic technology is there," said Spirnak. "The bottom line is that this is not really a technology issue."

Daniel Kammen, a professor in energy and resources at the University of California, Berkeley, agreed: the most daunting challenge to Spirnak is cost.

"The ground rules are looking kind of promising. Whether we can do it at scale, whether we can do it affordably, whether it is too much of a technological leap or not, those are all factors," Kammen said. "It is doable. Whether it is doable at a reasonable cost, we just don't know."

Spirnak argues that a confluence of recent events now make the project more commercially viable. The cost of rocket launches – though still prohibitive – has been dropping because of the commercialisation of space, making it cheaper to send up and service solar panels.

Spirnak will face a difficult task raising funds for his project though, especially in this time of global economic recession. He said he was seeking in the low billions of dollars in investment – much higher than the usual $100m (£67m) to $200m costs for projects in renewable energy.

The federal government's declaration Friday that greenhouse gases are a threat to public health marked a first step toward likely regulation of the tailpipe emissions of cars, power plants and factories that scientists blame for global warming.

The decision by the Environmental Protection Agency was a clear break with the Bush administration, which downplayed concerns about global warming, and set the stage for a possible national standard for vehicle emissions and other federal efforts to curb such pollution.

The Obama administration already is developing a plan to make the U.S. auto fleet cleaner by regulating carbon dioxide emissions from tailpipes. But the move Friday also gives it the capacity to either regulate larger emissions producers such as power plants or prod Congress to set limits, which the administration would prefer.

Lawmakers have begun debating legislation that would crack down on power-plant emissions, which generate twice as much greenhouse gas as cars and trucks. But the prospect of the White House taking action could push Congress to come to an agreement.

"The Obama administration now has the legal equivalent of a .44 Magnum" to fight global warming, said Frank O'Donnell, president of the environmental group Clean Air Watch. "The bullets aren't loaded yet, but they could be."

Environmentalists celebrated the EPA's action as the clearest signal yet that the Obama administration is prepared to act boldly to combat global warming. O'Donnell called the move "a landmark moment in environmental history."

But critics say the EPA decision, and the regulations that could accompany it, could chill an already recessionary economy.

"An endangerment finding would lead to destructive regulatory schemes that Congress never authorized," a group of eight leading conservative and free-market activists warned the EPA in a letter this week. They added that "the administration will bear responsibility for any increase in consumer energy costs, unemployment and GDP losses" that result.

In its ruling, the EPA declared that carbon dioxide and five other greenhouse gases endanger public health. "In both magnitude and probability, climate change is an enormous problem," the agency declared. "The greenhouse gases that are responsible for it endanger public health and welfare within the meaning of the Clean Air Act."

The ruling includes a lengthy summation of scientific warnings about human contributions to climate change, and of the potentially devastating impacts that could result.

But in finding that greenhouse gases endangered public health "within the meaning of the Clean Air Act," the EPA also moved beyond what most Americans think of as air pollution, said Bill Farland, a former top EPA scientist who is now senior vice president for research and engagement at Colorado State University.

The EPA is equating otherwise benign gases that are leading to rising temperatures with traditional pollutants such as smog and lead, he said.

"Clearly, you can expose animals and humans to [carbon dioxide] without a harmful effect," Farland said. "On the other hand, in today's society there's mounting information that if you continue to release CO2, it's going to be problematic from a climate-change perspective."

Friday's decision said that automobiles, which produce about 20 percent of the nation's greenhouse-gas emissions, contribute directly to climate change. The administration is expected to develop vehicle-emissions limits along the lines of strict regulations that California and other states are attempting to adopt.

Some industry groups said the text of the decision appeared to give the administration an "off ramp" to avoid widespread regulation.

William Kovacs, a vice president for the U.S. Chamber of Commerce, said the finding allows the EPA to delay emissions limits until technology improves and compliance costs fall, a move he said would avoid "disastrous" regulations that would all but put the EPA in control of the entire economy.

Alistair Darling on Wednesday gambled on a rapid economic recovery and severe spending cuts to regain control of public finances ravaged by the world’s worst financial crisis since the second world war.

In an austere Budget that raised taxes on the rich and nearly halved planned spending growth, the chancellor told the House of Commons that the public finances would not return to comfortable levels until 2017-18 after borrowing would surge to £175bn this year.

Mr Darling insisted that it was right to provide limited help for business investment, green projects, housing and pensioners in the short term, and to squeeze government spending only after the recovery started “towards the end of the year”.

He forecast the economy would contract by 3.5 per cent in 2009 but rebound quickly thereafter. Annual growth would reach 1.25 per cent in 2010 – higher than many economists expect – and rise to 3.5 per cent from 2011.

The chancellor said Britain and the rest of the world had learned the lessons from the 1930s when the “failure to act turned a serious downturn into a prolonged depression”. He said: “We will not repeat those mistakes again.”

But the simultaneous release of International Monetary Fund forecasts showing a much slower recovery and continued contraction in 2010 fuelled opposition anger that the Budget was based on absurdly optimistic growth forecasts. Describing the figures as “massaged”, David Cameron, Conservative leader, lambasted the Treasury’s prediction that consumer demand growth would return to pre-crisis rates by 2011. “This wouldn’t be a U-shaped recovery. It would be a trampoline recovery,” he said.

In a video interview with the Financial Times, Vincent Cable, the Liberal Democrat Treasury spokesman, said the government had been “totally dishonest” in assuming “spectacular recovery and rates of growth”.

He said: “What has happened is a kind of reverse engineering. They have worked out what kind of growth you’d need in order to get the budget deficit down and just assumed it on the basis of no economics whatsoever.”

The Treasury said its forecasts were not far out of line with most economists. Ben Broadbent, of Goldman Sachs, said: “Most of the underlying projections in the Budget are – regrettably – perfectly reasonable”.

Economists said that levels of borrowing were so high that Britain would be at the mercy of government bond markets for the whole of the next parliament.

The initial gilts markets response was not encouraging. The yield on 10-year government bonds rose 0.12 percentage points to 3.44 per cent as traders fretted about a flood of new issuance. Sterling fell almost 1 per cent against the currencies of Britain’s main trading partners.

Mr Darling sought to constrain the explosion of public borrowing by making sustained cuts in public expenditure plans. He forecast public spending as a share of national income would fall from a peak of 48 per cent this year to 39 per cent in 2017-18.

In comparison, the £2.2bn additional tax increases for the rich next April will make almost no dent in the public finances.

Robert Chote, director of the Institute for Fiscal Studies, estimated that the deficit would tie the hands of chancellors for years to come. “Whoever takes office in the election after next will still have to find another £45bn a year in today’s money by the end of their parliament to eliminate this deficit,” he said.

But Mr Darling said: “We have confidence in Britain’s future and in our country’s strength. You can grow your way out of recession. You cannot cut your way out,” he said.

Sterling was punished on Wednesday after the UK Treasury revealed the state of public finances and its borrowing requirements in the coming fiscal year, as well as economic growth expectations.

Alastair Darling, the Chancellor of the Exchequer, said finances would not come into balance until 2016, with net debt peaking at 79 per cent of gross domestic product in 2014. Meanwhile, growth forecasts were slashed, and even projected growth of 1.25 per cent by 2010 was doubted by many currency analysts.

“This seems unlikely given that the deleveraging process will take several years,” said James Knightley at ING. “At the same time households will be saving as unemployment continues to rise and wages fall.”

Earlier in the session, data showed that although the number of new claimants rose by less than expected in March, the official unemployment rate held at 4.5 per cent, its highest level since 1998. Furthermore, average earnings fell 2.1 per cent in February, the weakest on record, leaving the three-month rolling annual rate of increase at just 0.1 per cent, another record low.

The pound fell 1.1 per cent to $1.4519 against the dollar, lost 1.5 per cent to Y142.60 against the yen, while the euro rose 1.6 per cent versus the pound to £0.8963.

There was much volatility elsewhere. With foreign exchange markets still focused on risk sentiment, the afternoon turned turbulent as equity market players decided how to interpret the latest raft of US earnings reports.

There was good news from AT&T and Boeing, but results from banking group Morgan Stanley cast a shadow over the financial sector as its profits were hit by bad debt provisions and writedowns.

The US dollar and the yen initially advanced at the expense of higher-yielding units such as the Australian and New Zealand dollars and emerging market currencies, but reversed as equity markets moved into positive territory.

Investors have now digested a number of banking results in recent sessions, and the response has been mixed. Equities rallied last week after stronger-than-expected profits from Goldman Sachs and JPMorgan, but sold off in response to similar results from Bank of America on Monday.

“To guess how markets will react to positive or negative surprises at the moment is as good as a coin flip,” said Richard Wiltshire at ETX Capital.

The euro managed to reverse early losses against the dollar to trade 0.6 per cent higher at $1.3016, while the yen outperformed the dollar, up 0.5 per cent to Y98.12.

But high yielders remained weak as risk appetite remained fairly fragile.

The New Zealand dollar fell 0.8 per cent to $0.5574 and 1.6 per cent to Y54.56, while the Australian dollar lost 0.3 per cent to $0.7079 and 0.8 per cent to Y69.44.

The global economy will contract sharply this year and recover only sluggishly in 2010, the International Monetary Fund said on Wednesday as it called on governments to sustain or even increase fiscal stimulus next year.

The IMF said that world output would contract by 1.3 per cent this year and grow by just 1.9 per cent the year after in what it described as a “substantial downward revision” of its January forecasts, when it said that the global economy would grow by 0.5 per cent this year and spring back to 3 per cent growth in 2010

Its assessment provides a sobering counterpoint to excitement over “green shoots” of recovery in some recent data.

The new forecasts came as Japan reported its first quarterly trade deficit in nearly three decades for the year to March, highlighting the global downturn’s effect on the world’s second-largest economy, which remains heavily reliant on exports.

Meanwhile, Tim Geithner, US Treasury secretary, warned against prematurely scaling back efforts to support the global economy.

Speaking in Washington DC, Mr Geithner noted “encouraging signs” in the world economy and financial markets. But he said: “We still face significant risk and challenge. For this reason it is critically important that we continue to act to strengthen the basis for recovery.”

His comments came as the US authorities prepared to discuss the outcome of bank stress tests with executives from Friday. The authorities will explain to each bank how much, if any, extra equity they need in order to be well enough capitalised to comfortably withstand a deeper-than-expected recession.

Bank examiners are putting a lot of weight on a measure known as tangible common equity (TCE) ratios, which relate a bank’s equity to its total assets.

They will demand different levels of equity capital from different banks, depending on the quality of their portfolios and the risks they are running.

The IMF, in its World Economic Outlook, said: “By any measure, this downturn represents by far the deepest global recession since the Great Depression.”

It added: “Even once the crisis is over, there will be a difficult transition period, with output growth appreciably below rates seen in the recent past.”

The fund blamed the worsening prospects on the intensifying “vicious circle” between the ailing financial sector and the shrinking real economy.

Overall credit to the private sector in advanced economies will decline in 2009 and 2010 as banks continue to reel in lending, it said. Any global recovery would depend on more decisive efforts to shore up financial institutions, it added.

Alistair Darling committed the UK to cutting greenhouse gases by 34 per cent by 2020 in the first legally binding "carbon budget" in the world.

The ambitious target will transform the way the UK generates and uses energy and the Chancellor announced £1.4 billion of new funding to aid the transition.

This will include £525 million to increase the number of homes powered by offshore wind farms by 2.8 million and £375 million to improve energy efficiency in businesses and homes through insulation and more efficient heating systems.

He also found £45 for small scale renewables like wind turbines on houses and £25 million for community heating schemes - where villages or small residential communities share energy generated from waste or wood. Some £405 million will go towards encouraging so-called 'green collar' jobs in the environment industry through boosting manufacturing in low carbon goods like solar panels.

More controversially, he announced £90 million for research into carbon capture and storage (CCS) on fossil fuel power plants, such as coal, oil or gas. The money will go towards up to four plants demonstrating the new technology that captures carbon dioxide from coal-fired power stations and stores it underground.

However experts said the spending would not be enough to meet the ambitious emissions targets and criticised the Chancellor for failing to introduce more green measures to stimulate the wider economy.

Environmental groups had high hopes for this year's budget following President Barack Obama's "new green deal" in America and the Government's earlier commitment to cut greenhouse gases by 80 per cent by 2050.

Lord Stern, the former World Bank economist who first advised the UK on the dangers of climate change, said the UK will have to up the target to 42 per cent following any international agreement to on climate change in Copenhagen at the end of this year.

He also said the UK will have to increase funding for renewables if the targets are to be met in the long term.

"The transition to a low-carbon economy cannot be achieved overnight and it is important to acknowledge that it will continue to make demands on the public finances over the next 10 years, and that there will be areas in which consumers must pay more, for instance through an increase in fuel duty," he said.

Mr Darling said the 34 per cent target will be met by cutting emissions in the UK rather than buying offsets from abroad but he failed to commit to the 42 per cent target at Copenhagen.

Andy Atkins, Executive Director of Friends of the Earth, said it was a "massive missed opportunity".

The energy industry largely welcomed the investment but said more funding will be needed over the long term if the target is to be met.

David White of the Institution of Chemical Engineers, said the 34 per cent target was "unattainable" without more investment in green infrastructure and skills.

John Sauven, Executive Director of Greenpeace, was angry that CCS has been given backing without any announcement on power stations. Energy companies want to build up to six coal-fired power stations in the UK, including at Kingsnorth in Kent, and environmentalists want the Government to make clear none can go ahead without the new technology.

An ambitious plan to shore up investment in Britain’s struggling North Sea oil industry and transform it into a renewable energy hub for the future was unveiled today by the Chancellor.

The budget announcement contained a package of measures designed to ensure that an additional 2 billion barrels of oil are extracted from smaller oil and gas fields that are currently only marginally economic because of weak oil prices.

The measures include tax exemptions that will mean North Sea operators developing fields of a certain size pay only the basic rate of corporation tax of 30 per cent on income rather than the supplementary rate of 50 per cent currently charged on most fields.

Another measure will allow oil companies to swap mature oil fields without incurring capital gains tax - a step that will accelerate the trade in partly depleted fields, which has slowed sharply in recent months.

“There is, at the moment, less incentive to explore and extract oil from the North Sea,” said Alistair Darling.

“So I am bringing forward incentives to encourage smaller fields to be brought into production.”

Derek Leith, head of Ernst & Young’s oil and gas business, said the measures were welcome and would help encourage fresh investment in the industry, which is suffering a steep drop in investment because of the credit crunch and the fall in global oil prices.

But the Chancellor also unveiled plans to transform the North Sea into a clean “energy hub for the future” with £525 million of support for offshore wind energy projects over the next two years.

He said the development of the North Sea oil industry had made Britain a world leader in offshore oil and gas and stressed that he was “determined that we will replicate this success in renewable energy”.

He also said that the European Investment Bank would supply an extra £4 billion of extra funding for offshore wind projects around the UK.

And in a push to tackle the emissions from coal and gas fired plants, the Chancellor said a new funding “mechanism” would pay for between two and four projects which test the use of technology which captures and stores carbon underground.

The Chancellor provoked outrage from drivers yesterday with the return of the fuel price "escalator".

Mr Darling announced plans for fuel duty to go up by 2p per litre in September and by another 1p per litre in real terms every year for the following three years, helping to balance the public books and save 2 million tonnes of carbon-dioxide emissions over five years.

But motorists' groups say that the measures – taken alongside the 2p rise that came into force at the start of this month, and the end of the VAT holiday in December – will push tax on fuel up by a whopping 6 per cent over the next 12 months, adding up to £200 to the average family's costs.

The fuel price escalator was introduced by the Conservatives in 1993, and by the time it was scrapped in 1999 had pushed tax up to account for over 80 per cent of the price at the pump. Fuel is currently around the 92p a litre mark, nearly 55p of which is duty.

Adrian Tink, at the RAC, said: "Today's announcement is another brutal blow for motorists who have already witnessed a decade of non-stop rises."

Not all Alistair Darling's motoring pledges are so unpopular. Yesterday's Budget also confirmed plans for a car scrappage incentive designed to boost new car sales (which are down by nearly a third this year). The government will put up £1,000, to be match-funded by the carmaker, for drivers replacing a car or small van more than 10 years old with a new alternative. The scheme will start in May and will cost the government £300m.

Car companies have been lobbying hard for measures to raise demand, and similar schemes already in place across Europe have had some significant results. In Germany, sales shot up 20 per cent following the introduction of a €2,500 (£2,240) incentive. Paul Everitt, at the Society of Motor Manufacturers and Traders, said: "The industry is primarily interested in getting consumers back into the showrooms. If you own one of the 10.5 million vehicles that qualify, then this will get your attention."

But experts say the 50:50 funding split undermines the plan, and smacks of hard bargaining between its supporters in the Department for Business and those holding the purse strings in the Treasury. "The vehicle makers are putting a brave face on it," Professor Garel Rhys, at Cardiff Business School, said. "This is the compromise the Treasury was prepared to accept, kicking and screaming." There is also likely to be little direct effect on the car makers. With only 14 per cent of the vehicles bought in the UK actually made here, the chief benefits will accrue to the rest of the sector – to the component makers, dealerships, service centres, and insurance companies that employ some 600,000 people across the country.

Case Study: 'Pay more and I might scrap it'

Ben Anderson, 29, Trainee forester

Mr Anderson owns a 38-year-old VW Beetle with 200,000 miles on the clock, valued at £3,000.

"I listened with interest to the car scrappage scheme because it almost tempted me. My car is a historical vehicle, so I don't pay tax on it, but then I am concerned about the environment and I recognise new cars are more fuel-efficient.

I worry that if I buy a new car its value might depreciate by £2,000 in a year anyway, so maybe I should just wait and buy it in a year's time. Ultimately, I only drive a few miles a day. On balance I think I'd rather keep my car than trade it in for £2,000, though if they raised the discount I might reconsider.

If the Chancellor is really serious about the environment then he'd have invested much more in it. The billions on offshore wind, energy efficiency schemes and low-carbon energy sound like publicity-seeking spin to me."

Loyal Labour supporter. Preferred Blair to Brown – prefers either to the Tories.

Britain's economic stimulus measures, promoted by Gordon Brown as part of a "global green new deal", will accelerate global warming instead of curbing it, an investigation by The Independent on Sunday has established.

The investigation also shows that most of the Prime Minister's vaunted green initiatives have not materialised and, in some cases, are likely to set back his professed strategy for "the creation of a low-carbon economy". It has found that, over the past four years, ministers have launched a staggering 91 consultations relating to the issue, while actually doing little.

The revelations come as the Chancellor, Alistair Darling, prepares to unveil what ministers insist will be a groundbreaking green Budget. Yesterday, the Secretary of State for Energy and Climate Change, Ed Miliband, told the IoS that it would represent "a massive greening of the Government".

Last year's Budget, however, was similarly trailed in advance as "the greenest ever", but actually led to a slight fall in the revenue coming from green taxes. And though Gordon Brown promised in 1997 to put "the environment at the core of the Government's objectives for the tax system", income from such taxes fell by 22 per cent during his 10 years as Chancellor.

As the IoS exclusively reported last month, green measures form only 6 per cent of the Government's stimulus package, compared to 13 per cent in Germany, 21 per cent in France, 38 per cent in China and 81 per cent in South Korea. And now a new study shows that the British package will increase rather than reduce emissions of carbon dioxide.

Carried out for WWF and E3G – a respected environmental group – it found that the harmful effects of new spending on roads, which will increase traffic, far outweighed the contribution of extra expenditure on energy saving and rail infrastructure. And it points out that Britain has "yet to include any investments at all dedicated to renewable energy".

Examination of Mr Brown's hyped green initiatives since becoming Prime minister reveals a similarly sorry picture, as the panel (right) shows.

He has repeatedly promised that Britain will increase the proportion of its energy coming from renewable sources to 15 per cent by 2020. But a new study to be published on Tuesday by Cambridge Econometrics is expected to show that, if current policies continue, it will grow from 1 per cent to only 1.5 per cent by then.

The Government has consistently failed to provide incentives that are routine in other countries. Four years ago, it promised to provide £50m to help develop wave and tidal power, an area where Britain has a potential world lead. But the resulting Marine Renewables Deployment Fund has yet to give a penny to support this. Installation of rooftop windmills has been held up through bureaucratic delays over planning issues at the Department for Environment, Food and Rural Affairs. Gordon Brown wrote to one manufacturer last August saying the issue had been resolved, but the hold-up continues.

Homeowners have also been discouraged from installing other renewable energy systems, such as solar electric panels. Just as they were beginning to take off, ministers slashed the level of grants available. They will end such funding for commercial buildings and charities altogether in June.

The Government has promised to introduce "feed-in tariffs", which would pay people for excess energy they produce. But these are not due to come in for a year for electricity and for two years for heat – causing a funding gap that threatens to drive some installers out of business.

There is a similar failure to honour an undertaking by Mr Brown last September properly to insulate six million houses over the next three years. In practice, this would involve providing cavity wall insulation to a million homes. The official Cavity Insulation Guarantee Agency told the IoS last week that filling cavity walls was running at just 500,000 homes a year.

Mr Brown promised to augment a scheme called the Carbon Emissions Reduction Target, under which the big energy companies have to help households save fuel and electricity. But the Government is now threatening to gut the scheme by allowing the companies to get away with simply offering people advice.

He also undertook to tackle fuel poverty. But ministers accept they will fail to meet a legal obligation to end it among vulnerable groups next year, and have cut funds, even as the number of households affected has risen from 4.3 to 5.4 million last year.

Last week's heavily publicised promotion of electric cars follows the same pattern, since the cars for which grants will be available will not be on the market for at least two years.

Meanwhile a study by a consulting firm, JDS Associates, has counted 91 separate consultations concerning sustainable energy launched by the governments in Westminster, Edinburgh and Cardiff between May 2005 and January 2009.

Last night Greg Barker, the Conservatives' energy spokesman, said the investigation showed ministers and civil servants were locked in "mid-20th-century attitudes to producing energy". Simon Hughes, the Liberal Democrat environment spokesman, said the Prime Minister was content to "paint a green picture" without taking practical action.

The amount of energy used by coal fired power stations to create the electricity to recharge electric vehicles makes them half as efficient as diesel cars, according to the research.

Britain's carbon emissions could even go up if there is a sudden surge in demand for electric cars, the new research warned.

It will call into question a £250 million government scheme announced last week offering consumers £5,000 subsidies to buy a new electric car.

The research conducted by the group Transport Watch found that diesel powered vehicles emit approximately half as much CO2 as electric cars when the use of fossil fuels to produce electricity is taken into account.

The research paper says: "We conclude that the notion that electric cars will reduce emissions is a fiction."

Factors making the rechargeable cars less efficient include the amount of electricity lost on the journey between the coal fired power stations which generate it and the point where it recharges the car, and the energy lost by the batteries and the motor.

The researchers calculated that of the energy burned in a power station, only a quarter reaches an electric car after leakages and losses along the supply chain are considered, giving the vehicle an energy efficiency score of 24%.

A modern diesel engine, by contrast, achieves 45% efficiency.

The research suggests that if fossil fuels are to be burned, it is much more efficient to do it within the engine of a vehicle rather than at a power station and then try to send it via the National Grid, where a lot of energy is wasted, and finally to store it in a battery which in itself might leak power.

Currently the bulk of the electricity used to charge the batteries of electric vehicles is generated by fossil fuel burning power stations.

Only 20% of UK electricity is generated by 'clean' methods such as nuclear power.

The research by Paul Withrington of Transport Watch concludes that CO2 emissions could actually go up if there is suddenly a big demand for electricity to recharge batteries as it would have to come from existing fossil fuel power stations.

He calculated that in China, where most generation of electricity is coal fired, electrification of diesel powered transport would double the emissions from that sector.

There are also big financial and environmental costs involved in setting up a battery charging network.

Mr Withrington said: "The government should re-examine their assumptions and should not encourage this until they have decarbonised the generating industry. At the moment, it is nuts. If you bought an electric car now you would be looking at generating the same amount of carbon or more."

The Government's plans have also drawn criticism from motoring groups.

Philip Gomm, of the RAC Foundation, said: "Electric vehicles are not a panacea. They are good for generating headlines but not necessarily at saving the planet, at least not in the short term. For today and tomorrow, a lot more attention needs to be paid to refining existing petrol and diesel technology, and making cars smaller and lighter as a way of saving fuel – something recognised by the Committee on Climate Change. These are proven solutions to an immediate problem."

The RAC has also questioned where the Government derived its £5,000 incentive per vehicle figure, when previous grants to buy electric cars have been £1,000.

Chicago wants them before 2016 when it hopes to host the Olympics Games. California is ready to start work straight away, even if most of its citizens can't imagine travelling to Chicago, or anywhere else, if it is not by car or plane. New York, Boston and Washington are convinced they already have them, but they don't.

This is the frenzy that has been set off by President Barack Obama telling the country it is time to catch up with Europe and Asia, and get serious about high-speed trains.

He is offering an initial pot of $13bn over five years towards what he called "the most sweeping investment in our infrastructure since President Eisenhower built the Interstate Highway System in the 1950s".

In truth, it is not that much money, which is why transport officials from Oregon to Pennsylvania and many states in between will now scramble to come up with proposals that will win favour in Washington.

Decisions on allocating Mr Obama's money, some of it from the January stimulus programme and the rest from the federal budget, will be made at the end of the summer.

The last five decades since President Eisenhower put the focus on America's roads have been endlessly discouraging for advocates of trains.

Never mind if it was the steam locomotive that built the country in the first place, pushing its frontier from east to west. The automobile was the undisputed king.

Amtrak, which runs a scrappy national network, still has to share most of its tracks with the freight companies, while making do with rolling stock from the 1970s. And while the pride of its fleet are the zippy-looking Acela trains connecting Washington to Boston, congestion and wiggly tracks mean they never meet their high speed promise, and average a non-zippy 80 mph.

"We are decades behind Europe and Asia in developing high-speed infrastructure," said Rick Harnish, executive director of the Midwest High Speed Rail Association. "Having a president who understands how critical this is to our future is a real game-changer." Travel on some Amtrak routes, including those served by the Acela, has jumped recently, in part because of fluctuating fuel costs.

Impatience with road congestion and growing awareness of global warming means Mr Obama's vision of up to 10 regional high speed rail networks is likely to be politically popular. Encouraging him behind the scenes is Vice President Joe Biden, a self-confessed railway lover.

Nor did it go unnoticed when Californians on election day last November approved a $10bn bond issue for a high speed line between Los Angeles and San Francisco. Governor Arnold Schwarzenegger will be at the front of the queue for the new federal money to give the project a boost with the goal of having the first trains in 10 years.

But the project has its critics. "When Eisenhower built the highways, people already had cars and were buying cars at a high rate. It was an expansion of a system with huge pent-up demand," said Adrian Moore, a transport policy expert with the libertarian Reason Foundation in Los Angeles. "There is no huge pent-up demand for rail service; it's more like build and hope." Critics also note that while high speed trains are part of everyday life in Europe and Asia, they rely on government subsidies and it is unclear if successive administrations would be ready to make the same commitment. Finally, there is concern the $13bn will be spread too thinly. Construction of the California line alone is expected to cost as much as $45bn.

But if Mr Obama really is launching a revolution in rail transport, no state will want to be left out. "We will be dusting off studies and seeing which have the greatest merit and how good a case we can make," said Allen Biehler, Pennsylvania's Secretary of Transport, who has his eye on connecting Pittsburgh to Philadelphia.

The plans in California call for trains with top speeds of 220mph, cutting the travel time between Los Angeles and San Francisco to two and a half hours – short enough to compete with air travel. In Chicago, they foresee a network for all the Midwest.

"Imagine boarding a train in the centre of a city," Mr Obama challenged. "Imagine whisking through towns at over 100 miles an hour, walking a few steps to public transport, and ending up just blocks from your destination. Imagine what a great project that would be to rebuild America." In Europe, yes we can. For most Americans that will be a surprisingly large leap.