Via MR, some thoughts on carbon taxes:

However, this does not necessarily mean that revenue-neutral CO2 taxes, or auctioned allowance systems, produce a “double dividend” by reducing the costs of the broader tax system in addition to slowing climate change. There is a counteracting, “tax-interaction” effect (e.g., Goulder 1995). Specifically, the (policy-induced) increase in energy prices drives up the general price level, which reduces real factor returns, and thereby (slightly) reduces factor supply and efficiency.

Indeed, a triple dividend.  The reason, say, labor supply will fall is that the marginal labor was being sold to buy the marginal output that we have decided should not be produced because of the externality.  So this was part of the plan.