Apparently market solutions don't work for every pollutant.

Cap-and-trade programs have become a favorite mechanism of the Bush administration and U.S. EPA, but a federal appeals court said today that a plan to regulate mercury emissions from coal-fired power plants is a violation of the Clean Air Act.

The EPA plan, which was set to take effect in 2010, would have allowed power companies that exceeded mercury standards to buy credits from other facilities, as opposed to implementing their own emissions controls. The agency first proposed the rule in 2004, scrapping Clinton administration regulations that called for lower mercury emissions at every plant.

But the U.S. Court of Appeals for the District of Columbia Circuit struck down the new rule, agreeing with a coalition of environmental groups and 17 states who had filed a lawsuit against the EPA. The plaintiffs argued that because mercury accumulates and falls to the ground close to its source, plants that buy credits to emit higher levels of mercury would create larger hotspots and endanger human health.

According to the Energy Department, coal-fired power plants account for about a third of the estimated 48 tons of mercury emitted in U.S. each year. The toxin is especially harmful to pregnant women who eat mercury-contaminated fish.

While environmental groups praised the decision, the EPA and power company officials said the ruling would delay the implementation of any mercury rule, causing greater harm in the long run.

"Ironically, with their aggressive litigation posture, the environmental community and their state allies have again caused uncertainty and delay in regulating mercury," coal lobbyist Scott Segal said in the Washington Post. "The Environmental Protection Agency essentially must return to the drawing board in developing a new mercury rule."