Generally I found Penny Wong's support for an Emissions Trading Scheme (ETS) based on 'cap and trade' to achieve a specific level of emissions reduction over an equivalent tax persuasive. If we knew exactly how the world operated then it wouldn't matter at all. One could set a quota to hit a certain desired emissions cutback or set the tax on emissions (the tax) to hit exactly this same level of cutback. But with uncertainty in the world about costs of mitigation in firms and in the damages that emissions cause things are not so neat. Setting a quota will then yield a variable price in the ETS (and hence a variable cost of compliance) whereas setting a fixed tax will mean that the level of emission reductions will be variable.
As Wong points out the ability to trade emissions quotas internationally is an attractive consequence of an ETS.
Some have ridiculed the European emissions trading market on the grounds that carbon prices have drifted close to low levels recently because of the recession. As John Quiggin points out, if you like taxes that act counter-cyclically to stabilise the economy - so called automatic stabilisers - this is not at all a bad outcome. The economy gets a carbon price reduction when it faces hard times and a boosted price when it can best afford it.
Other arguments for ETSs include the possible critical sensitivity of the environment to GGE variation and hence to catastrophic threshold effects. Maybe we wish to ensure that certain cuts in emmissions will be made. Transferable quotas based on an ETS also allow the use of markets to hedge risk. To quote Chichilnisky/Heal:
"Hedging could occur via the trading of derivatives such as futures or options on TEQs (transferable emissions quotas), a possibility mentioned in previous sections. To elaborate, if a utility anticipates a sharp increase in the costs of CO2 emission, it will choose the energy source that is least intensive in CO2 emissions. This exposes it to the risk that scientific research will reveal CO2 accumulation in the atmosphere to be less threatening than previously believed, with a consequent increase in the number of TEQs issued by regulators and a drop in their price. To offset the risk of being "wrong footed" in this way, the utility would either sell TEQs forward, or buy put options on them. In either event it would profit from a drop in quota prices, and this profit would in some degree offset the costs incurred unnecessarily by the selection of the least CO2—intensive technology".
My non-economic preference for supporting an ETS scheme over a carbon tax is that it has been agreed on by various enquiries under both the Howard government and the Rudd government's Garnaut review. Time to get on with it.
Update: There is literature supporting a tax rather than 'cap-and-trade'. This paper emphasises the revenue yielded by a tax and the ease (in the US) of introducing such a policy. I'll collect some material and post a response when I get time.