Environment or pollution taxes have been proposed as a way to reduce pollution, enforce environmental laws and induce corporations to adopt more sustainable development policies and practices. A pollution tax has two different manifestations. One, it could work as an actual tax based on levels of pollution output or environmental degradation. Two, it could work as a tax credit, with each corporation being allocated an annual pollution level based on numerous factors, such as the size of the corporation, the desired level of sustainable development, and the type of industry. The corporation could pollute free and clear until it reached its pollution quota and then it would be taxed on any pollution above and beyond this level.

Presumably, the tax on overpolluting would be restrictively high so as to give a strong incentive to develop within the annual pollution level. Furthermore, pollution would become a commodity in that companies who underpollute could sell their extra pollution credit to overpolluters at the market price for pollution. Governments could control this market by annually reducing the pollution tax credit levels. This credit reduction would lead initially to a reduction in available extra pollution credits, which would drive up the cost of polluting. This would cause overpolluters to reduce their pollution level or face a drastically higher cost of operation. And as the traditional underpolluters adjusted their practices in order to free up even more of their pollution credit, they would reduce their pollution levels too. Furthermore, once practices have been changed to accommodate lower pollution levels, it is unlikely corporations would revert back to their higher pollution levels just because more pollution credit came onto the market due to the high cost of changing corporate practices. The government would then lower the credit once again to reduce the surplus and to induce companies to reduce pollution further, continuing the cycle of increasingly lower pollution levels.

Some environmentalists and ethicists caution against licensing pollution, which then allows it to continue as a bad event but under some form of commodity regulation. In their minds, something that can and does harm human beings, flora and fauna should be eliminated, not rewarded.