Basically, taxing the externalities is the market based solution. Banning is a ham-fisted inefficient method.
Also, many people will argue that if a market is subject to such taxes, then it is no longer a free market. Perhaps you're not one of them and would consider such people misguided ideologues (we'd agree on that). However, the existence of such participants in the discussion needs to be acknowledged, and it very quickly feels like you're pointless talking about semantics.
Well, yeah.
“Free market” doesn't mean “free of regulation of which I personally disapprove”. If government has a thumb on the scale deliberately skewing outcomes, it's not a free market.
> Perhaps you're not one of them and would consider such people misguided ideologues
What does ideology have to do with that? One can oppose l’aissez faire capitalism (which Info, heartily) and recognize that Pigovian taxes are contrary to it.
It isn't considered that by economists. It's a means of internalizing the externalities, not deciding what, when, how and by whom to provide goods and services.
> many people will argue that if a market is subject to such taxes, then it is no longer a free market.
They're wrong. Externalities are pushing costs onto other people without their consent, which is not free market.
Every market has rules, and the term "free market" tends to degenerate into "market with rules that I happen to like", which isn't particularly useful.
Same for the "central planning" thing. It's always a matter of degree.
1989 called, they want their dichotomies back.
Two things governments are good at: taxing, and starting wars. Why not take advantage of the first?
It even has the advantage of being a revenue source for the government, rather than a revenue sink. The government has to tax something, why not externalities?
Around here, the government decided to tax plastic shopping bags. Geez, just put a tax on it instead. Raise the tax until plastic shopping bags become scarce enough. Then if someone really wants a plastic shopping bag to use, say, to clean up after their dog, they can if they're willing to pay. Much better than being charged with a crime.