That's why your regulation should just directly tax what you don't like (like CO2 emissions), instead of going via some weird proxy that's prone to being gamed.
The potential to game things exists everywhere. Tax CO2 and people will want to find ways to technically reduce CO2.
For example, what if it becomes cheap enough to just convert all the CO2 to CO and we dump masses of carbon monoxide into the atmosphere instead? Or if its cheaper to convert CO2 to CO3 which imminently degrades back to CO2 in the atmosphere - would we be confident that the tax law would correctly handle this scenario where the emissions are technically a different substance? Etc..
The U.S. Sulphur Dioxide Cap and Trade Programme seems to be working pretty well. Our CO2 taxation programme only has to be as good as that one.
Yes, loopholes need patching up. The law doesn't need to be perfect, just good enough that complying with the law is simpler and cheaper than looking for loopholes.
For example, what if it becomes cheap enough to just convert all the CO2 to CO and we dump masses of carbon monoxide into the atmosphere instead? Or if its cheaper to convert CO2 to CO3 which imminently degrades back to CO2 in the atmosphere - would we be confident that the tax law would correctly handle this scenario where the emissions are technically a different substance? Etc..