Issues in Designing a Cap-and-Trade Program for Carbon Dioxide Emissions
"...Reducing greenhouse-gas emissions would be beneficial in limiting the degree of risk associated with climate change, especially the risk of significant damage. However, decreasing those emissions would also impose costs on the economy—in the case of CO2, because much economic activity is based on fossil fuels, which release carbon in the form of that gas when they are burned. Much of those costs will be passed along to consumers in the form of higher prices for energy and energy-intensive goods.

Designing a cap-and-trade program to achieve such reductions would include
important decisions about whether to sell or give away allowances. Those rights
to emit greenhouse gases would have substantial value, and policymakers’ choices about how to allocate them could have significant effects on the federal budget and on how the gains and losses brought about by the program were distributed among U.S. households. If policymakers chose to sell the allowances, they could use the revenue that would arise in many different ways, including to offset other taxes, to assist workers or low-income households that might be adversely affected by the cap, to support other legislative priorities, or to reduce the budget deficit. Policymakers would also need to decide whether to include provisions to help contain the cost of the policy by allowing firms flexibility as to when they reduced their emissions and whether to include provisions to address effects on international trade, particularly for energy-intensive goods."