Two ways: first, people do not currently value environmental protection. When the environment deteriorates to a certain point, people will be motivated to do environmental protection in the absence of regulation.
Second, allow lawsuits for damage to property resulting from pollution. There could be a neat little lawsuit right now: NY and NJ residents vs. 5 biggest polluters in the world, on account of Sandy and the scientific evidence that Sandy was very much a result of AGW. (But then, it should be noted that lawsuits decided by courts is a governmental function.)
Your explanation ignores both externalities and transaction costs, not to mention more subtle things like information asymmetries and cognitive overload. You can't just ignore the parts of economics that don't fit into your ideology.
> Your explanation ignores both externalities and transaction costs
Well, handling property damages in court is deterring "tragedy of the commons" by making putting the commons-over-user at financial risk.
> ... more subtle things like information asymmetries and cognitive overload.
You pay someone to give you information. We do this now: our taxes fund the EPA and they give us information.
> You can't just ignore the parts of economics that don't fit into your ideology.
I'm not a libertarian. To the best of my understanding, there are some things that really should be done by the private sector and not by the government (airport security, for example). There are also things that really should be done by the government and not by the private sector (the trend of privatizing prisons disturbs me).
You asked a question, though: how would a libertarian society's environment be protected. I offered up an option.
My point is that he libertarian approach is non-sense.
You have a market failure: pollution creates negative externalities and are over-produced in a free market.
You use one common solution to market failures: create property rights that can be protected by litigation.
You now run into another economic problem: Coase's theorem only guarantees efficient outcomes if transaction costs are low. The cost of litigation to enforce injuries as diffuse as environmental injuries would be huge.
You also run into another problem: it's nearly impossible to track injury resulting from pollution to a source once it's out and mixed with all the other pollution.
The libertarian approach runs face first into the brick wall of the very economic theory it's based on.
The sensible solution, as Coase himself noted, is a regulatory apparatus to stop pollution before rights are violated. As a lawyer I'd love the litigation free-for-all that would arise in the libertarian scenario, but it's just an unworkable approach. The fact that it is repeated so much is a triumph of ideology over rationality.
About the transaction costs issue... how do class action lawsuits rate in terms of transaction costs?
I'm with you that the libertarian approach is somewhat worse on the effectiveness scale than what we're capable of doing in our current system. But I'm not going to go so far as you and say it's nonsense.
A current issue in my area (Minneapolis metro area) is 3M's PFCs contaminating ground water in Lake Elmo, Oakdale and Woodbury. 3M released these chemicals into the area starting in the 1940s, when their health and environmental effects were not known. Regulation would therefore not have helped in this particular case.
The court system is working, though: the State of Minnesota is suing 3M for damages, and 3M is engaged in clean up. Note that this lawsuit is not alleging an infringement of regulations (at least, not to my knowledge), but instead is focused on 3M having negatively affected property regardless of intent.
This is one example of the court approach working (I've got my fingers crossed that 3M's gonna lose).
My point is, framing it as a property rights issue and handling it in the courts is a helpful thing and not nonsense.
A lot of the "privatization" today is no-bid contracts given out to corporatist entities. Nothing like today's situation would exist in a libertarian society, also because so many prisoners are drug offenders. Unfortunately this scan is kind of bad, but this is an excellent book on various topics on privatization: http://www.scribd.com/doc/64560944/Benson-1990-the-Enterpris...