Governments and international development agencies have intensified efforts to promote small-scale enterprises as an engine of propoor growth. In Brazil, however, small-scale industries may also be responsible for the bulk of air pollution emissions. Although employees of polluting small-scale industries in Brazil are not disproportionately poor, simulations suggest that stringent environmental regulation resulting in widespread closures of pollution-intensive small-scale industries would result in a nonnegligible increase in poverty among employees of these firms. The results suggest that the enthusiasm for small-scale enterprises needs to be tempered by awareness of the potential environmental costs imposed by this sector. Copyright 2004, Oxford University Press.