Siblings capture much of what I mean by corruption. When the state creates new privileges and hands them out, incumbents with hundreds of lobbyists will get the lion's share. Do we really want to place e.g. Tesla at a disadvantage to BP? (You can see this at work in wireless spectrum allocation, as ATT and VZN get basically all new desirable spectrum.) Maybe society is indifferent to smaller competitors' plight in general, but this won't be good for innovation.

Another aspect, perhaps more serious, is that it would be very difficult to audit incumbent carbon producers' use of carbon credits. These aren't physical items for which you can count inventory, nor are they currency which enters and leaves the corporation via double-entry bookkeeping; they are numbers on a spreadsheet that are credited and debited based on circumstances that have yet to be defined. Corporate executives may not be perfect stewards of shareholder interest, but they've never even thought of the stakeholders for carbon credits. Europe might not have had such problems, but my feeling is that our accountants aren't as honest or diligent as theirs are, and our corporations are governed differently.

Also, for years before the introduction of cap'n'trade, large polluters will have the incentive to remain large polluters, so they get the most credits they possibly can. This is why energy lobbyists love to promote cap'n'trade, and they won't complain about a decade of lead time for it.