"We think it will be very good for enterprises and hopefully for environmental protection too," said Eva Kraav, the Environment Ministry's secretary general who drafted the new law.
Under the previous legislation, companies that could prove they reduced their pollution emissions by 25 percent in the past year were exempt from paying a special tax on pollution.
To qualify, firms needed to submit a detailed plan to the Environment Ministry that outlined how they would go about reducing their emissions of 15 different pollutants.
At the end of the year the ministry would check to see if the 25 percent reduction was achieved and at that point the company would be issued an exemption from paying the pollution tax, or charge as the government prefers to call it.
But since this rule was enacted in 1993, only one firm, the large Kunda Nordic Cement company, has qualified for the exemption.
"It is hard to make all the necessary changes in just one year, it costs a lot of money," said Kraav. "The cement factory was only able to do it because they managed to get a loan from the International Monetary Fund."
Now, with the changes approved by Parliament in late February, companies have three years to achieve a 25 percent reduction in pollution. And instead of getting the tax exemption only after the firm can demonstrate it is polluting less, companies will qualify for the exemption as soon as the Environment Ministry approves their pollution reduction plan.
The government hopes entrepreneurs will be able to use the money they save by not paying the tax to help cover the costs of making their operations more environmentally friendly.
Green groups are concerned that by giving businesses their reward right away, some firms may not follow through and deliver on their promises.
But the government insists it will have tight controls in place. Companies that apply for the tax exemption will have to sign an agreement with the ministry allowing regular monitoring to take place. The agreement will also stipulate the penalty a company will have to pay if it does not fulfill their end of the deal.
"It will be set up so that it will not be in their interest to not follow through," Kraav said.
The business community is reserving judgment until the details of how the system will work are made clear.
"It sounds nice," said Reet Teder, a lawyer and tax expert with the Estonian Chamber of Commerce. "It will depend on how expensive the applications for the tax exemption will cost. If you don't need to pay the pollution tax but the application and state fee [for the exemption] is 200,000 kroons, then that could end up being equal to the original tax."
The law is part of a wider government effort to get Estonian industry to meet the stiff environmental protection requirements of European Union membership. Estonia began entry talks to enter the EU last March.