David Brooks over at granitegeek.org did a recent post about a great report at SolveClimate.org about cap-and-trade. The three part series (part I, part II, part III) by Abby Schultz analyzes what we can learn from already established pollution trading schemes.
Meanwhile, the WSJ and Felix Salmon's blog are rehashing the carbon-tax vs. cap-and-trade debate. Salmon also did an earlier post in 2007 on why he thinks cap-and-trade is better that's also good reading.
Personally, I'm not sure which approach is the clear winner, but my guess is that either could work if well implemented and either could be a miserable failure if botched. In terms of simplicity and transparency, the carbon tax seems to win. While for flexibility, cap-and-trade probably wins. But IMO, that debate is moot. Most political analysts believe that there's zero chance of any carbon tax bill passing in the US, leaving cap-and-trade as the only politically viable way forward (assuming you think the problem needs to be addressed - which I do).
I actually read through most of the cap-and-trade provisions of the Waxman-Markey Bill, and they appear to be painstakingly stitched together to create a perfect blend of winners and losers so as to just barely get the bill passed. For better or worse, I don't think a carbon tax bill would have been able to pull off such a delicate political balancing act. Whoever said the legislative process was a lot like making sausage sure got that right.