I've thought about this problem a lot and I think environmental damage is a uniquely good example of the need for regulation of the free market.

I realize the idea isn't perfect. But there is environmental damage that our technology doesn't have the means to fix. Therefore even if we punish wrongdoers we still end up with environmental damage.

Therefore I think there is a case for proactive measures, such as regulation, inspection and enforcement versus reactive measures like suing or jailing wrongdoers after the fact.