Generally, I'm a pretty big fan of cap and trade schemes as the best way to avoid as much climate disruption as we possibly can. I've got great faith in markets as effective mechanisms for efficiently dealing with complexity. I also this a market-based solution is a better than a carbon tax in terms of engaging a broader range of people (particularly in the taxophobic US) in positive conversations about what we can and must do.
One of the common arguments in favor of a carbon tax over cap and trade is that the latter is too complicated and confusing and open to abuse. Well, this story certainly supports that position:
It's about a scheme in Europe to profit from VAT taxes associated with carbon credits. As we've seen with the meltdown, sometimes being too efficient can lead to collapse - and the need for some very inefficient rescue measures (stimulus spending, increased regulation and enforcement) not to mention the more important non-financial suffering being endured by so many losing their houses and jobs as a result.
Don't get me wrong, I still think free-market based capitalism is the worst system, except for all the others... full of great opportunities for improvement - but given the demonstrated level of civility in the debates in the US Congress, I am more and more coming around to thinking a simple simple simple tax shift - increase a carbon tax, decrease income tax, net result is zero (except that we encourage hiring and discourage wasteful energy use).