Hmmm. Then I think we disagree on the role of economics in determining "waste".While I agree with Kevin (I originally misinterpreted his "fully internalizes all costs" to mean "is now" price when he meant "would be" price.), and I acknowledge the problem of ideological pricing, I want to point out an important assumption: functioning markets.
First, assume that appropriate laws/regulations force the price of a bottle of water to fully internalize all costs. Second, assume that the water inside the bottle is exactly the same as what comes out of the tap (though I assure you, some tap water tastes pretty bad).
Some people may still be willing to pay the price here in Palo Alto (where the tap water tastes pretty good BTW). Maybe it really is more convenient for them. Maybe they think it raises their status in their local primate dominance hierarchy. Maybe some deep psychological need makes them feel happier when they drink from a fresh bottle.
Who are you or I to say those preferences are "wrong" if they're willing to pay the price? They are balancing the pricing signal from the market with their own utility function. IMHO, anything beyond that moves from the domain of economics to ideology.
Consider "buying the right to pollute" with one's fully-priced Fiji water. If the price is paid but the bottle still ends up in the Bay, does that mean that the "fully-internalized" price really is? It's my fear of such a market failure that leads me to use paper (not plastic), since the damage from a breakdown in the "plastic bag recovery market" appears higher to me.*
So -- if fully internalized means that the bottle is fully removed from the environment, we are set. This problem, btw, is the same as I pointed out with the carbon offset market. If I pay, but offsets do not occur (or would have occurred anyway), then my payment does not accomplish the advertised goal.
Bottom Line: Price is not a perfect signal (but it's often better than anything else), and it's even less-perfect in thin, new or opaque markets. "Getting prices right" involves more than paying retail.
* I am at heart a market fundamentalist, so take these caveats as a friendly suggestion to make something quite good even better. Government involvement (e.g., plastic bag fees or bans) is not automatically a good idea.