Longterm we need to create a market for negative emissions, carbon capture and sequestration (CCS). This is essential for actually reducing atmospheric carbon PPM. Achieving carbon neutrality only halts the climb of carbon PPM.
So I think a carbon tax needs to have CCS in mind. One possibility it to apply a carbon tax on all carbon as it is extracted from a sequestered state and supply a carbon tax credit for all carbon captured and sequester. The tax and credit could be in the same amount per tonne. Thus, the tax revenue neutral when every tonne extracted is matched with a tonne sequestered.
Bioenergy CCS (BECCS) is one such technology that provides sequestration. A BECCS plant sources a renewable carbon neutral source such a wood pellets. So burning this adds no above ground carbon. But the plate is also fitted with CCS technology that captures the carbon from the exhaust such that it can securely sequestered under ground. Thus, carbon that the trees once drew from the atmosphere finds its way back underground.
From what I've read the cost for BECCS to sequester carbon is about $100/t. Plus it generates electricity on demand from a fuel. A carbon tax without a sequestration credit would not properly incent a BECCS plant. It would potentially incent a bioenergy plant without CCS. So the CCS piece needs something extra to get it going.
I believe the carbon tax credit could also help the oil industry move forward in a constructive way. So consider that the tax is imposed on crude as it is extracted. When oil is refined, some products really ought to be sequestered or counted as such. For example, petroleum coke is a coal like substance that represents the dregs of oil. If burnt it has the highest carbon emissions per BTU of any oil product. It's nasty near worthless stuff. It should be properly disposed of rather than sold and potentially burnt. So the tax credit would incentives proper sequestration. Arguably asphalt could be counted as sequestered.
Other carbon tax schemes attempt to tax emissions, not extraction. What I am suggesting puts the burden of proof of sequestration on the party seeking the tax credit. Suppose some automaker developed a CCS system for diesel engines. The tax credit provides a mechanism to reward the installation and proper use of that equipment. One gets the credit when the carbon is properly sequestered. Service stations could gather this material from the vehicle and send it on to a valid sequestration service. That final service gets the tax credit, so it basically pays the service station for it, while the service station uses this revenue to offset the cost of service. Thus the value of the CCS works it's way all the way back to car owner and there is a clear system in place to set that the carbon is properly disposed.
So far these option only help the oil industry reduce a fraction of its extracted carbon. There are many other negative emissions technologies that oil companies may want to pursue. Essentially oil companies are geo-engineering outfits. Thus far they have focused on how to get carbon out of the ground, but they could just as well specialize in ways to put carbon back in the ground. This would by a full cycle life approach. Technologies are being developed, but the big problem is actually economic. There has to be a sequestration market that places a bounty on loose carbon. A carbon tax that provides a sequestration credit could continue to incent CCS well past the time when net zero emissions is achieved. This means could mean that the oil industry could remain viable well past the point when oil is no longer used for fuel. It may well take centuries to finally return atmospheric carbon to 350 ppm. The oil industry could spend the next hundred years just putting it back in the ground. Why should carbon be taxed today? Because CCS is slow and costly. If we fail to tax carbon, it will tax our descendents for many, many generations to come.
