Although reducing pollution using pollution permits may seem quite different from using Pigovian taxes, in fact the two policies have much in common. In both cases, firms pay for their pollution. With Pigovian taxes, polluting firms must pay a tax to the government. With pollution permits, polluting firms must pay to buy the permit. (Even firms that already own permits must pay to pollute: The opportunity cost of polluting is what they could have received by selling their permits on the open market.) Both Pigovian taxes and pollution permits internalize the externality of pollution by making it costly for firms to pollute.