Upholding the rule of law (punishing fraud, theft, murder, and other infringements of the rights of others) is the job of the government in a free market system. Protecting consumers from themselves and picking businesses to subsidize/grant privileges to is not.

The gray area, which I consider to fall in the 'upholding the rule of law' category, are consumption-based regulations or incentives, where a practical piece of society (like burning fuel) infringes on the rights of many others to a small degree, and this is where a carbon tax could easily fit in a free market system. In fact, it could be argued that the system is freer than if there were no pollution taxes at all, because then people would be allowed to infringe on the property rights of others (via shared atmosphere, oceans, climate) unhindered.

Historically property rights were defended by the owner.