> I'm curious as to why you think completely unregulated industry would result in the most reduction in pollution, when industries with no pollution regulations (but with other regulations) have repeatedly shown to pollute enormously at every opportunity. What mechanism would cause industry to suddenly care about their pollution in that scenario?

How could those industries not pollute enormously, when they have to quickly adapt to any new government law or regulation (or they will die) in an unpredictable political and legislative scenario? Even if a company had plans to contain their pollution (and therefore funds allocated for this), they would quickly have to divert those funds as soon as a new regulation impeded on their business. When companies are run in unpredictable, ever-changing scenarios such as being regulated by a government, they can't look into the future with confidence to make financial decisions for it in the present (such is the nature of not being able to predict the next rule coming down the pike).

As for your question, it's simple, really. The mechanism that would cause industry to suddenly care about their pollution is called private property - which, don't kid yourself, is not the "private property" extant in the U.S. where there are still taxes for land that is owned, there's eminent domain, there's civil forfeiture, etc. Which is crazy, considering the constitution really only allows the government to own 10 square miles of land, but that's besides the point.

With private property, industries would be very careful not to pollute, say, a nearby river they don't own, because the owner might sue them for having damaged their property (just like you can sue for someone driving a wrecking ball through your house by accident or with intent to damage). If the company in question does own their nearby river, they will still have to make sure that they are only polluting the river they own, and not any downstream rivers that are not their property, or they might get sued by those downstream-river owners.

The government's job, in this scenario, is to enforce contract law and property rights (via tort law) through its justice courts. Since the river owners and the polluting company (in our example) don't have a contract with each other, only tort law applies. Clearly the company damaged these owners' rivers downstream (let's suppose) so the courts will decide the company must either cease and desist (destroying the property of river owners) and compensate them for the damage caused, or offer to buy them out, or offer to draw a contract that the river owners would agree to instead of winning the lawsuit.

If the company owns the nearby river and there are no downstream rivers, they can choose to pollute that river without consequences. If people aren't happy with that, they have many choices: they may bring awareness to the cause, stage a boycott, pool money to offer to buy the river (though the company isn't required to sell, its shareholders nevertheless like money and will be forced to weigh between 1. selling the river and finding some place else to store their waste and byproducts, and 2. continuing to pollute the river that causes them so much grief they have people offering them money to stop - the company will have to find a way to solve that impasse). Most probably this would be solved swiftly since the options outlined do not need the government.

I'm sure this will probably raise more questions for you than answer them, but having gone through that same path I can tell you all those questions have satisfying answers scattered all across many books by Rothbard, Nozick et alii but most of them have been compiled nicely by a very smart and helpful lady called Mary J. Ruwart.