Cost of carbon? We can't see it.
I like this article; you make a lot of sense.
Before I rip you apart, let me declare my prejudices:
I'm not convinced of the case for anthropogenic carbon-based global warming thermageddon - too much of this seems based on computer modelling, and, as we know, computers cannot yet forecast next week's weather accurately. I also don't buy into the "it's peer reviewed science so it must be right" argument, because I understand the peer review process. I do, however, believe in global warming (by which I mean that average global temperatures have risen over the last two centuries). I also think that a cautious approach might be useful, because of the damage we might be inflicting to our life support systems (i.e. the planet Earth).
I also believe that, if you use fossil-carbon faster than it is generated, it will eventually run out.
Now, if CO2 and methane are responsible for global warming, everything that generates them should be included in a trading system, or that system makes no sense. Of course, you need to believe in the free market for that to happen, and need to set a 'safe' quota, which is, obviously, artificial. Note that a lot of the environmentalist activists (the noisy ones) don't have much faith in the free market, as they used to be communists. In fact, a lot of the same people who are pro-global tackling of environmental problems seem to be anti-globalisation (and they never see the irony in that).
If a tariff is to be universally applied to greenhouse gases, based on their 'real' cost, that could work. But in order to be effective, the tariff would have to then turn into grants to compensate those who are, to use your analogy, downstream of the factory.
For instance, let us assume that Bangladesh is going to need to relocate its entire population because of global warming. A tariff on carbon could pay for that. Similarly, if hurricanes are expected to increase from three to four a year (say), the clean up cost of one of those hurricanes would be paid for by the tariff.
The problem with our 'green taxes' is that they go into general exchequer, rather than being ring-fenced to help the environment. So we are inevitably talking about a rise in taxation here, which, frankly, a lot of people won't swallow. Instead they'll say 'But I already pay fuel duty!'. Probably followed by 'GB's rip-off Britain!'. (I've been reading too much Have Your Say, sorry.)
Actually, the problem with global agreement over this (or anything else) is that different people have different ideas of justice. For instance, somebody in a poor, unindustrialised, African country might think that it is only fair that the industrialised First World pays more based on the amount of carbon that has already been released since 1800 (or whenever). Somebody in Alabama or Antwerp may think that, as the problem is current and global, every person on the planet should pay the same (this is pretty much the argument used in this article, by the way).
The African, of course, would be right, objectively. Any carbon tax should be retrospective. But practically, this would be impossible.
If I am totally honest, I don't think that humans are psychologically equipped to deal with a problem of this magnitude. We are used to defending our camp against the threat of marauding wolves. Even when we know that we ourselves are the threat (or even if we might be), we can't help but look for other external threats. Notice how quick people are to blame the US or China here. Yes, they are the biggest polluters, but, in the end, they are made up of people trying to make a living, just like us. And they will be just as quick to point the finger at everyone else if no agreement can be reached.
That's the problem with Copenhagen, and the problem with this argument - economics is just one facet of politics. And politics, to a greater or lesser extent, is the art of shifting the blame.