What is wrong with cap and trade? I don't have a strong understanding of the proposed law but it stands to reason that the free market would be able to find the most efficient method of reducing emissions.
Whatever you think about cap and trade, it's not a free market thing.
By definition a "free market" is free of government interference. A system created by and run by the government, with mandatory participation is about as anti-free market as it gets.
If a company can't opt-out of participation then it's not a free market.
For some reason I thought it was a plan treat carbon emissions as something that could be traded. So if I have a factory and lowering my carbon emissions would cost me $5000 per ton/day and you had a different type of factory that could lower it's emissions for $1000 per ton/day I could sell you my emissions for a negotiated price (in this example, let's say we settled on $1400 per ton/day) and you can lower your emissions and I can keep chugging along. The same amount of carbon is in the atmosphere but it only cost $1400 per ton/day and you got to pocket some money to make your factory run cleaner.
I understand now that it is much more complicated than that but I like the idea of what I thought it was.
Siblings capture much of what I mean by corruption. When the state creates new privileges and hands them out, incumbents with hundreds of lobbyists will get the lion's share. Do we really want to place e.g. Tesla at a disadvantage to BP? (You can see this at work in wireless spectrum allocation, as ATT and VZN get basically all new desirable spectrum.) Maybe society is indifferent to smaller competitors' plight in general, but this won't be good for innovation.
Another aspect, perhaps more serious, is that it would be very difficult to audit incumbent carbon producers' use of carbon credits. These aren't physical items for which you can count inventory, nor are they currency which enters and leaves the corporation via double-entry bookkeeping; they are numbers on a spreadsheet that are credited and debited based on circumstances that have yet to be defined. Corporate executives may not be perfect stewards of shareholder interest, but they've never even thought of the stakeholders for carbon credits. Europe might not have had such problems, but my feeling is that our accountants aren't as honest or diligent as theirs are, and our corporations are governed differently.
Also, for years before the introduction of cap'n'trade, large polluters will have the incentive to remain large polluters, so they get the most credits they possibly can. This is why energy lobbyists love to promote cap'n'trade, and they won't complain about a decade of lead time for it.
The biggest criticisms I've seen so far revolve around two things:
1) Many existing polluters can't afford much of a limit, but we don't want them to go bankrupt, so every proposal offers tons of 'free' allowances, which will inevitably be allocated more by congressional pull than metrics. It also favors existing polluters and discourages new entrants, even though they may be cleaner than the existing market.
In Europe these free credits (and their unpredictability) caused the value of carbon prices to fluctuate wildly, which undermined parts of the program
2) <This criticism is stupid to me, but it gets around> - The credits will just turn into one more big derivatives market, and be engineered to obfuscate real polluting by clever gaming of the trading system.
These are definitely fixable issues, but it's reasonable to be worried that implementation may be so complicated that it has nasty unforeseen consequences, since setting up a new market and regulating it well is rarely easy.
I think cap and trade establishes some type of baseline ownership of pollution rights. For instance, some company who's been in business for a while, say an electrical power generation company, gets an initial allotment of credits. If they need more, they buy them from another company. If they have too many, they sell them. The corruption happens during the initial allotment, and the law will probably also be written to favor established interest who own an exchange where they will charge fees for every transaction.
A tax is just money going into the Treasury, plain and simple. Then you at least have a chance to curb corruption before the government spends it.
By definition a "free market" is free of government interference. A system created by and run by the government, with mandatory participation is about as anti-free market as it gets.
If a company can't opt-out of participation then it's not a free market.