It's not a market failure, it's a governmental failure
And therein lies the rub: in America, it is frequently not clear that the government has the power to regulate such activity. The Clean Air Act and other similar regulatory acts were considered revolutionary when they were passed because no one was sure if they were even legitimate exercises of federal power.
Today, we generally agree that such regulation is within the scope of the federal government's power, but that is only because we have already grown up in a society where the government exercises such power.
However, as you can see from some comments on this thread, some people still deny the federal government's ability to regulate commercial activity.
Questioning whether the federal government has the right to do something doesn't mean you don't believe government at any level has no right to do anything. There's a lot of stuff the federal government does which I don't think it should be able to do legally, but which state or local government should. Local effect pollution is one of these, although diffuse pollution should be handled federally. I guess you could handle pollution from Michigan affecting Pennsylvania by either PA entities (private or the state) suing MI entities (private or the state), such that MI makes it illegal to spread certain pollution across state borders.
And therein lies the rub: in America, it is frequently not clear that the government has the power to regulate such activity. The Clean Air Act and other similar regulatory acts were considered revolutionary when they were passed because no one was sure if they were even legitimate exercises of federal power.
Today, we generally agree that such regulation is within the scope of the federal government's power, but that is only because we have already grown up in a society where the government exercises such power.
However, as you can see from some comments on this thread, some people still deny the federal government's ability to regulate commercial activity.