Argument: Governments under cap-and-trade systems have an incentive to "cheat"

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Ronald Bailey. "Carbon Taxes Versus Carbon Markets: What's the best way to limit emissions?". Reason Magazine. 24 May 2007: [T]he travails of the ETS highlight the fact that governments have every incentive to cheat. If they issue enough permits, their electricity companies will be able to generate power without adding to their costs—or the costs of their customers. And low energy costs give a nation’s businesses a competitive advantage over businesses in other countries.

"Cap-and-trade or carbon taxes? The feasibility of enforcement and the effects of non-compliance". Jon Hovi1 and Bjart Holtsmark, Department of Political Science, University of Oslo, and CICERO Center for International Climate and Environmental Research. 30 June 2006: the implications of non-compliance in a tax regime differ in important ways from the corresponding implications in a cap-and-trade regime. In a cap-and-trade regime emissions trading can make inaction legitimate for buyers of emission permits. In particular, overselling of permits by one (or a few) permit exporting countries might completely undermine the regime’s environmental effect. In a tax regime, by contrast, one country’s non-compliance can not make inaction by other countries legitimate. It follows that an agreement based on a harmonized carbon tax will always have some effect, provided that at least one country complies.