1. pollution-control investments do not generate any income for the enterprise since on firm is likely to invest in facilities whose marginal financial cost will be above the marginal tax benefit, unless legally required to. In order for pollution-control investments in excess of the legal requirements to be attractive, the incentive would have to provide a subsidy in excess of, or at least equipment cost.
2. There is no nonfinancial incentive for the firm to internalize the costs of environmental degradation that are legally external to it