This argument is a good way of understanding that there is no such thing as a free market. The air we breathe is treated differently to the land we walk on, under the laws we have adopted in most of society. Land is bought and sold, while air is in "the commons" and free to use for everyone, including big industry. Land was once also in the commons, before the process of Enclosure when capitalism really took off. Once it became clear that land was a necessary component in the capitalist mode of production, the government was called upon to legislate for the privatisation of all land. This was beneficial to the rich in two ingenious ways. It provided the means for the private ownership of land, from which to profit by renting it out to farmers etc. In addition, those who could not produce enough from the land to make rent were forced to move into cities and take up work in factories at pitiful wages.

Remember how this came about though, the government of the time had to "step in" and end the use of land as a commons and bring about its privatisation. This sounds like market intervention, doesn't it? We don't look at it that way though, as it was the government intervention that kicked off the whole machine of capitalism. The wealthy at the time were mostly in favour of it and so it had a lot of support.

So what is a free market? In order to have a market at all, you need a government which defends the property "rights" (a purely ideological/philosophical assertion by Locke and co.) of private owners of the stuff and things that we use to produce in this world. We use air to produce things too, as well as land. Just as land must be used to accept the refuse of our production and consumption (rubbish dumps, landfills), the air does too. We charge people to put stuff in landfills, so why don't we charge people to put stuff in the air? This carbon tax is effectively a way of "uncommonsing" the air, just as the land was in the 18th century. This proposed intervention is less popular among the wealthy, of course, as it is not a form of privatisation that they can easily profit from. Ultimately, if it comes to it, they will surely be passing the cost of this privatisation to the workers and consumers in the end anyway.

Free markets are not the same as the state of nature. A basic assumption is that if you want a benefit from someone, or you want someone to shoulder a burden in a way that benefits you, have you to transact with that person.

Say you run a delivery business, and your bike messengers can save a lot of time (netting you a higher profit) cutting across your neighbor's property. It's a free market when you can freely transact with your neighbor for an easement over his property; it's not a free market when the government fails to stop you from trespassing on his property without his permission.

Externalized costs from pollution aren't any different. Like trespassing, pollution burdens other peoples' property. Letting people pollute unchecked undermines the free market.