This paper analyzes the economic effects of environmental taxes on chemical fertilizer in producing rice. A charge of 10 percent tax on nitrogen fertilizer leads to a reduction in fertilizer use of 1.5 percent without changing rice yield, but the farm income is reduced by 0.6 percent. The tax rate of 100 percent leads to a reduction of 14.6 percent in fertilizer use, a 0.4 percent reduction in rice yield, and a 3.6 percent reduction in farm income. A significant feature of eco-taxes imposed on chemical fertilizers is their revenue potential, which could contribute to increasing government budgets for finance pollution control programs, such as education and R&D. This study provides an insight into the application of market-based instrument to achieve sustainable agricultural development.