I first heard about cap and trade at this 2007 Labor and Sustainability Conference in Minneapolis where Jack Rasmus argued against it. According to Rasmus, market-based cap and trade did nothing to bring down carbon emission in Europe. Moreover, in creating a cap and trade market, we are potentially subjecting ourselves to even more market bubbles and busts. Many on the left argue instead for carbon taxes and heavy public investment in green infrastructure.
This debate on Democracy Now! (5/22/09) reveals, I believe, the problems with cap and trade.