Is it possible to have a SP environment for developers to use to deploy and test their applications to for free? Please advise if this is possible and how to got about it.
Best way is you can participate in the developer program of Office 365 . See Join the Microsoft Office 365 Developer Program.
Additionally, If you have MSDN subscription then you will get lot of benefits. You can check those benefits here.
If you are open for paid SharePoint Online plan then you can Compare SharePoint Online options.