A new tapered wave integral equation method was derived to simulate the conical diffraction of electromagnetic waves from rough surfaces. Both the full matrix inversion and the banded matrix iterative approaches are developed. By using.the principle of reciprocity and energy conservation, all four Stokes parameters are calculated for polarimetric passive remote sensing of rough surfaces. We show in this paper that for a moderately rough surface, the third Stokes parameter can be as high as +/-20-degrees-K. The tapered wave integral equation approach can deal with a rough surface with a large slope. The new method presented in this paper is compared with the previously published plane wave integral equation method and the extended boundary condition method. Very good agreement is obtained. Unlike the plane wave integral equation method and the extended boundary condition method, the tapered wave integral equation method does not have the kinks imposed by Floquet models and it requires a shorter surface length in most applications.