I found an article that touched upon the political economy of tradable emission permits, from Resources for the Future. It is written by an expert on instrument choice, Wallace Oates:
It mentions the role of Thatcherism, Reaganism and a growing faith in market forces. But mostly it’s a story of how textbook economics came to be applied to environmental protection, once a few economists started to both master the politics of the problem and specialize in the environmental field. There was also a historical accident, when Congress in 1977 approved a provision for “Pollution offsets”. These are conceptually similar in some ways to tradable permits, except that “trades” can only occur within a single plant or firm. The success of this program made it easier to extend it to a cross-plant context.
Separately, Stewart’s coauthor of the 1985 law piece, Bruce Ackerman, doesn’t seem especially conservative to me. Then again, Social Justice in the Liberal State doesn’t seem to be a call to arms either.