You're right that it's impossible at the micro-level, but things don't need to be taxed down to that level. E.g. are we going to tax farmer John more than farm

You're right that it's impossible at the micro-level, but things don't need to be taxed down to that level. E.g. are we going to tax farmer John more than farmer Bob because John feels he needs to smoke cigarettes while farming (and thus makes some small extra contribution to CO^2 emissions), no. Measuring things at that level would be silly. But it's easy enough to get sufficiently right for the purposes of discouraging externalities and encouraging innovation. Farms, power plants, cargo ships etc. are all major contributors to pollution, and the taxes they pay can be calculated as a function of regular inspections, which all those industries need to undergo anyway.