Arthur Pigou was an economist who developed the concept of externalities and thought seriously about the problems resultant from negative externalities. Negative externalities are seen when the production or consumption of a good or service harms an unrelated third party. Pollution is an example; chronic air pollution increases mortality rate and health risks of those in the surrounding area.
His solution was a tax on the participants of the activities which resulted in such harms. An important factor of such a tax is that it is in proportion to the harms of those sources. In the example of car emissions the tax would vary depending on the impact of each car, and it would be charged to the producer of the externality . In this sense the London emissions charge is a crude Pigouvian tax.
The benefit of such a tax is that it discourages those behaviours that impact negatively upon the commons or uninvolved third parties. This allows for greater efficiencies in the economy. An unavoidable issue with such a tax is that the harms can prove difficult to measure. This often results in regressive Pigouvian taxes, such as the aforementioned emissions charge, which are flat rate taxes. These flat rates take a greater percentage of the income from poorer people.