The True Price of Gas by Alonzo Fyfe

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When people are able to engage in activities that impose a cost on others, without paying for those costs, then this is a subsidy. It is also a form of theft. These types of distortions in the market reduce the incentive to avoid behavior that does harm to others. In fact, given the size of the incentive, it might even encourage people to do things harmful to others.

Many big businesses, while they use the terms ‘capitalism’ and ‘free market’ for public relations purposes, invest huge amounts of money in policies that distort the market, allowing them to engage in behavior harmful to others without paying a penalty, effectively obtaining a ‘subsidy’ from the victims harmed by their actions.
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For example, imagine a driver, having filled up his SUV, walking into the convenience store to pay for it. He hands the clerk a credit card, who rings up the gasoline at about $3.00 per gallon. The clerk then says to the customer, “I’m sorry, sir, you are out of credits. I can take $3.00 from your credit card, but you’re going to have to come up with something to cover the additional costs.”

The customer then fumbles through his wallet, looking through a stack of coupons. He picks a coupon – one that shows a family standing in front of their house. The house has been in their family for a couple of generations now. “Take the house; that should cover my additional costs. And, while you’re at it, take the grandfather as well. Put the credit on my account.”

One shows a soldier in uniform. The coupon allows the taking of one arm and one leg in a conflict meant to secure some other country’s oil supply for American use. Another coupon also shows a soldier, but offers the soldier’s life in exchange for gasoline credits. Typically, drivers do not pay these costs. A third coupon shows a village in Africa, its crops ruined by drought, its people starving and dying of thirst. By using these coupons, the individual shift the costs off his or her actions onto others and expect those others to pay the cost, allowing them to take only $3.00 per gallon out of their own bank
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The SUV owner has only a few of these coupons. Exxon-Mobile and other companies have vaults full of them. Whenever they need a few billion dollars, they cash in coupons for the destruction of whole counts and even some nations. They are permitted to go to their bank, coupon in hand, and exchange a whole hospital full of patients for a few tens of millions of dollars.
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http://atheistethicist.blogspot.com/2007/07/true-price-of-gas.html

Much more at the link

The same might be said about carbon credits.

Are you referring to carbon trading schemes? And you say they would still hide the true cost of using fossil fuels? It's another free market scheme but it's a regulated scheme, if it's done well - charing high enough for the credits and closely monitoring trading with high fines and penalties for abuses - seems like a carbon credit scheme would bring out the hidden costs.