Eco-innovation is a crucial driver to meet two major current challenges: to set the economy on a growth path and to halt the deterioration of the environment. However, the evidence base on environmental policies’ impact on eco-innovations is very limited - in particular when considering both process and product innovation and when including competition in the output market. Hence, the project aimed to analyse the effects of different policy instruments when allowing for the dual character of eco-innovation and strategic interaction in the output markets. In the (first) stage of the project we derived theoretical results for different policy instruments. In a potential second stage of the project, the theoretical predictions can be experimentally tested in the lab.