Dion, considered one of the leading candidates in the Liberal race, said his proposal would not increase the total tax burden in Canada, but would promote cleaner technology using techniques that have been tested in Northern Europe.
"As a candidate, I am making it a major priority to have an environmental tax reform in Canada," the former environment minister said in a wide-ranging discussion.
"There will not be a carbon tax but there are many other environmental taxes that other countries are using that we are not using in Canada."
Environmentalists have advocated a carbon tax to discourage the use of high-polluting fossil fuels, but the idea has been taboo in Canada, especially in Alberta where it evokes memories of the National Energy Program of the 1970s.
As an example of his suggested approach, Dion said tax revenue from a tar-sands operation in Alberta could go toward a pipeline for removal of the waste carbon.
"It's a way to have a revolution, not only for the environment but for the energy efficiency," he said.
"You can tax polluting sources of energy as long as the same sector may have the source of the revenue to decrease the emissions not only of greenhouse gas but mercury, for instance."
On another matter of concern in Alberta, Dion said calculation of equalization payments in Canada should include 50 per cent of natural resource revenue in all provinces.
Currently, Alberta is excluded from the equalization calculations, as are non-renewable natural resources in other provinces. Dion's proposal therefore would take more money from Alberta to use in subsidizing poorer provinces.
On the issue of Senate reform, Dion proposed a system under which premiers would have a say, though not a veto, in the naming of new senators.
He also said senators should be placed on fixed terms of six to 10 years to increase the chances of younger people being named. Currently, he said, there is an incentive for prime ministers to name senators in their 60s, otherwise they would be in the chamber for decades.
Dion opposes an elected Senate saying it would inevitably seek new power to go with its elected status, leading to possible stalemates paralyzing with the House of Commons.