And, if that's what they did, this is closer to what the government is supposed to do, according to the externalities literature.

Normally, they just pocket the revenue from taxing bads, which obviously doesn't compensate whoever's harmed by the bads, it just reduces them closer to the socially optimal amount.

The way this stuff is really "justified" theoretically, is by measuring how much each individual is harmed by an externality, taxing the producer by the aggregate amount, and then giving that money to the harmed parties. The biggest problem with this is that it's metaphysically impossible to know how much those individuals are harmed. The lesser problem is that once you account for the costs of administering a realistic government process, it's no longer a net social benefit.