It’s probably easier to visualize on a graph like this one. (I’m saying the difference between Pf and Pr, at least in some cases, may be higher than the externality, which is a real-life example of what the op is talking about).
I think that, strictly, Stuart was arguing that the difference between Pm and Pf exceeds the externality cost, which may well be true. However, politically it is of course much easier to force a polluting monopoly to lower its price (to Pf) than to subsidise said monopoly still further. It is also economically more efficient (there are better things to do with public money).
You may also be right that the externality cost exceeds the difference between Pf and Pr—referring to the UK numbers, does the externality actually work out at less than about 5p per kWh? Even if it does, I’d argue that it is unrealistic to expect the price to drop to Pr and stay there indefinitely (while the suppliers go broke).
I think that, strictly, Stuart was arguing that the difference between Pm and Pf exceeds the externality cost, which may well be true. However, politically it is of course much easier to force a polluting monopoly to lower its price (to Pf) than to subsidise said monopoly still further. It is also economically more efficient (there are better things to do with public money).
You may also be right that the externality cost exceeds the difference between Pf and Pr—referring to the UK numbers, does the externality actually work out at less than about 5p per kWh? Even if it does, I’d argue that it is unrealistic to expect the price to drop to Pr and stay there indefinitely (while the suppliers go broke).