Some places where generation will gravitate to:
1) places where it's cheapest or free
2) people who want to help for idealogical reasons
3) people who want to get some coins without the inconvenience of doing a transaction to buy them

There are legitimate places where it's free.  Generation is basically free anywhere that has electric heat, since your computer's heat is offsetting your baseboard electric heating.  Many small flats have electric heat out of convenience.

How expensive is heating oil?  With the price of oil so high, if it's actually more expensive than electric, then generating would have negative cost.

There's also kids putting it on their parent's power bill, employees their employer, botnets, etc.

Case 3 comes into play for small amounts.  The overhead of doing an exchange doesn't make sense if you just need a small bit of pocket change for incidental micropayments.  I think this is a nice advantage vs fiat currency, instead of all the seigniorage going to one big entity, let it go in convenience amounts to people who need to scrape up a small amount of change.

Which makes it essentially powered by tax revenues.
except it is a tax you can opt out of by having a clue about computer security.

Agreed, that also solves the problem.  But is a much more extensive change to the system that changes it in many other ways as well.  It is more difficult to analyze.  My proposal is just a small tweak to the existing algorithm that preserves most of its current characteristics.  Adjustments would still be synced on a block boundary, so no stronger time synchronization would be needed.  No additional communications between clients would be needed.  The frequency of the adjustments would still be low (but more stable) so no additional sensitivity to latencies.