The carbon tax should be set above the price to capture and sequester CO2. The fossil fuels industries, principally the coal industry, are doing feasibility studies and experimantation. I will be attending an industry confernce on this subject in June.

The last numbers I saw suggested an indifference price in the range of $25 per ton of CO2 (2007 dollars). This number is obviously a work in progress, but it equates to about 2 cents per kilowatt hour for coal burning power plants. Capture is for stationary sources only. Nobody is working on capturing carbon from mobile sources. But, conservation can have a major impact. The move to 30 mpg CAFE standard can reduce CO2 emissions by as much as 30%.

In the longer term, T. Boone Pickens is betting on making natural gas available as a transportation fuel. At the same fuel efficiency, switching from gasoline to natural gas reduces CO2 emissions by 35%.

"In the longer term, T. Boone Pickens is betting on making natural gas available as a transportation fuel. At the same fuel efficiency, switching from gasoline to natural gas reduces CO2 emissions by 35%."

Natural gas is already available as a transportation fuel in Australia.  Most taxis run on LPG (liquid petroleum gas,) and a solid minority of gas stations have an LPG pump.  There's a growth job market for "LPG conversion specialists," mechanics and gas-fitters who, for a couple thousand bucks, can convert your gasoline-powered car over to LPG.

The main drawback to LPG as fuel for internal-combustion engines is shortened engine life.  Gasoline condenses inside the cylinders of a cold engine and provides some additional lubrication over what you get from the motor oil.  LPG doesn't do that, thus an engine run on LPG tends to wear out sooner than an engine run on gasoline.  As you might expect this effect is more pronounced when the engine is run cold.  That's why LPG is more viable for commercial vehicles, such as taxis that are started once at the beginning of a shift and left running for hours, than for personal vehicles that are run for short periods several times daily with hours between trips for the engine to cool down again.

Even so, there seems to be some shift toward LPG for personal vehicles here in Australia.  That probably has a lot to do with the fact that Australia produces LPG from offshore fields in the Timor Sea but no oil to speak of at all.  Gasoline prices are increasing quicker than LPG prices, and already the fuel cost for kilometer driven is about half for LPG than it is for gasoline.  The time may come soon when this can fully offset reductions in engine lifespan.

As for carbon pricing, it seems to me that you have to allow for a large margin of uncertainty in the global warming risk calculations, with even low probability events given significant weight if they are truly disastrous.

Multiple feedback loops operate withing climate systems, some tending to dampen the effects of increased CO2 emissions others tending to reinforce them.  The thing that really  keeps the climate scientists up at night is not the 6-12C increase in average temperature predicted over the next century with business-as-usual CO2 emissions.  What really gives them the heebie jeebies is the idea that as a consequence of limited global warming, the arctic permafrost could melt and give up gigatons of methane to the atmosphere--methane being a much more potent greenhouse gas than CO2.  This in turn would be expected to drive a much more extreme and more accelerated warming trend.  Nobody believes that even this could turn the earth into Venus.  In other words, things would have to go almost unimaginably wrong for the earth not to remain minimally adequate for human habitation.  But it IS imaginable that such a rapid phase-shift in the earth's climate could outstrip human agriculture's ability to adapt, and that we could be faced with mass famine.

The problem such hypotheticals present for pricing regimes is that its pretty damn hard for scientists to state the probability of something like the permafrost methane release, and it's damn near impossible for them predict how the attendant temperature rise would effect civilization.