Economists who first proposed cap and trade don't think that it will work for carbon emissions

http://johnrlott.blogspot.com/2009/08/economists-who-first-proposed-cap-dont.html

All this ignores whether there is a negative externality from carbon
emissions. But assuming that is the case, these economists don't think
that cap and trade is the way to go.

Mr. Crocker sees two modern-day problems in using a cap-and-trade
system to address the global greenhouse-gas issue. The first is that
carbon emissions are a global problem with myriad sources.
Cap-and-trade, he says, is better suited for discrete, local pollution
problems. "It is not clear to me how you would enforce a permit system
internationally," he says. "There are no institutions right now that
have that power."

Europe has embraced cap-and-trade rules. Emissions initially rose
there because industries were given more permits than they needed, and
regulators have since tightened the caps. Meanwhile China, India and
other developing markets are reluctant to go along, fearing limits
would curb their growth. If they don't participate, there is little
assurance that global carbon emissions will slow much even if the U.S.
goes forward with its own plan. And even if everyone signs up, Mr.
Crocker says, it isn't clear the limits will be properly enforced
across nations and industries.

The other problem, Mr. Crocker says, is that quantifying the
economic damage of climate change -- from floods to failing crops --
is fraught with uncertainty. One estimate puts it at anywhere between
5% and 20% of global gross domestic product. Without knowing how
costly climate change is, nobody knows how tight a grip to put on
emissions.

In this case, he says Washington needs to come up with an approach
that will be flexible and easy to adjust over a long stretch of time
as more becomes known about damages from greenhouse-gas emissions. Mr.
Crocker says cap-and-trade is better suited for problems where the
damages are clear -- like acid rain in the 1990s -- and a hard limit
is needed quickly.

"Once a cap is in place," he warns, "it is very difficult to
adjust." For example, buyers of emissions permits would see their
value reduced if the government decided in the future to loosen the
caps. . . . .