Externalities occur in markets, but they also exist in governments. Government is the ultimate negative externality- they impose costs on non-consenting third parties.

The existence of externalities does NOT justify the existence of a state- or any form of mass violent domination.  It’s the equivalent of saying- “Externalities exist. Therefore the Koch Brothers have the right to coercively involve themselves in voluntary exchanges and take 25% of everyone’s income annually, anyone who disobey’s rules made by the Koch Brothers should be put in a cage and shot if they resist.”