Not my area, but Willem Buiter in The Financial Times has this to say on cap and trade:
What this discussion shows is how much superior a straightforward uniform tax on CO2E emissions would be to a cap & trade scheme. It avoids the non-transparent initial allocation of the permits, and it does not require an efficient secondary market for permits trading. Efficient financial markets have not exactly been prominent since August 2007. Trusting the efficient allocation of permits to the same people and institutions that brought us the Great Financial Crisis of 2007-2008 would not, in my view, be wise. Taxing emissions makes exactly the same informational demands on the authorities as the cap & trade scheme - they must be able to monitor the actual volume of emissions. Taxing emissions avoids the potential problems of speculative bubbles and market manipulation in the markets for permits.
Silly Willem Buiter!
From the point of view of the banksters* (and hence the Finance Wing of the FKD (and hence the administration)):
1. Non-tranparent allocation of permits
2. Speculative bubbles
3. Market manipulation
are all Good Things. They're opportunities to collect rents in the form of fees, campaign contributions from the fees, arbitraging regulatory capture, and future employment or consultancy at the firms doing to the manipulation.
NOTE * For example, politically wired Goldman Sachs. Caveat, again, that this is not my area, and the link is from 2008. But still.
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It isn't just the fees
McCain wanted to give the permits away, Obama’s initial auction idea seems to be slipping into the same corrupt trough from which McCain took his idea. The opportunity for mischief is orders of magnitude greater with a cap and trade system than it is with a tax system. Naturally, our political class prefers cap and trade and our media can’t seem to understand any of the details.