Beware the hidden dangers of a cap-and-trade system.

A big reason the real estate crash was such a colossal mess is that no one was regulating the most exotic—and most in need of regulation, many would argue—derivative instruments like the credit-default swaps that almost sunk AIG (AIG). Is it reasonable to assume that a carbon market, especially one that's being built essentially from scratch, would have stopgaps and safety valves built into its infrastructure?

Maybe. The Obama administration is certainly more regulation-minded than Bush 43, and Congress is dutifully following up on populist outrage generated by mortgage-related misdeeds. Still, there are still many, many ways oversight could fall short. For instance, trading carbon on an exchange would give greater price transparency and keep parties from engaging in the kind of speculation that crippled the mortgage-backed securities market; however, it's safe to say that the financial services industry will lobby hard against any sort of exchange-trading requirement for carbon, as it has with other classes of derivatives.

Wall Street is already making its presence known. According to the Center for Public Integrity, there are 130 finance and insurance industry lobbyists currently working on climate change. Matt Taibbi's recent takedown of Goldman Sachs (GS) in Rolling Stone (excerpt here), while delivering in his usual paroxysm of indignation, nonetheless raises some valid concerns about Goldman's cozy relationship with top economic officials and advisers. Alumni of the investment-banking giant are certain to have a hand in shaping the government's stance on carbon trading, which means the resulting system will benefit them first and taxpayers (not to mention the environment) second.

Since carbon is essentially a commodity, it's safe to assume that the Commodity Futures Trading Commission would inherit the responsibility for overseeing the CO₂ market. Unfortunately, not everyone is convinced the CFTC is up to the task. In a CNBC interview, Michelle Chan from environmental group Friends of the Earth laid into the CFTC's Bart Chilton over Chilton's assertion that the commission is willing and able to weed out speculative run-ups in prices or even outright fraud. Although CFTC Chairman Gary Gensler made headlines on Tuesday when he called for curbs on speculative investing in the energy markets, he didn't offer a plan to do so. Skeptics have already started asking if the commission is willing and able to tackle this issue. As recently as last fall—when the memory of $4-a-gallon gas was still fresh in America's mind—acting Chairman Walter Lukken told the House committee on energy and commerce that speculators had nothing to do with the rapid run-up in oil prices.

President Obama has backed away from his campaign-trail pledge to auction off 100 percent of the carbon credits in circulation; in fact, current plans call for auctioning off a mere 15 percent of them and giving away the rest to power companies. Aside from the ire this has created in those who see the giveaway as a capitulation to the energy industry, eliminating a mechanism that would establish the base price for carbon credits could have market implications. If all credits were auctioned, they'd have a stated value right off the bat. If they're given away, that creates much more uncertainty about their actual value, which sets the stage for the kind of fall holders of many mortgage-backed securities took last year.

The market's also going to be expanded—and complicated—by carbon offsets. Offsets are get-out-of-jail-free cards that allow the bearer to pollute beyond what it would ordinarily be permitted. They work like this: Entities that take carbon dioxide out of the atmosphere—like agricultural concerns whose plants convert CO₂ back into oxygen—get offsets for that biochemical activity. They are then free to sell those offsets to power plants and other emissions-spewing companies.