"If Bob were a smart corn farmer, he would realize that fertilizer that washes down into Fred's fish pens is money wasted to him. He would find a better way to apply fertilizer, so that he wouldn't have to buy as much of it.
Economics can deliver a solution to this problem more effectively than can a regulation."
This is only true when the cost of the technological solution is equal to of less than the cost of the wasted fertilizer
Hint: It almost always is. Often, it doesn't cost a red cent extra -- just alter the practice. Understand that, in the first place, farmer Bob doesn't want his fertilizer washing down into Fred's fish pens. That doesn't serve his purpose, at all.
Consequently, if it is happening, he should be looking for a way to avoid this occurrence.
When it comes to protecting the environment, real education has a big role to play: how to recognize the opportunities for cost-savings and develop ways to achieve them. Ingenuity can resolve most of these opportunities.
Regulations are not a way to encourage ingenuity -- except in the legal community. Economics works every time.