Innovation is an inherently risky and uncertain process. Many of the broader challenges to innovation in general are both mirrored and exaggerated in environmental innovation. The four primary issues are externalities, uncertainty, asymmetric information, market power. Green technology is characterized by two market failures: the public goods nature of knowledge and environmental externalities. In addition, uncertainty regarding the qualities of the innovation, as well as future prices of inputs and substitutes will complicate the development and adoption processes. Ultimately, uncertainty and changing regulations may both encourage and inhibit environmental innovation, providing policymakers with a critical and challenging role in the process. This study centers on the three aspects of environmental innovation: development, dissemination and financing. As such, it also aims to offer some guidance as to the types of enabling factors that can play a role in positive national or (sub)regional systems of innovation, in the developed and developing world. The discussion focuses on recent work on the role of uncertainty, the participation of emerging and developing nations, and the variety of market actors and strategies in place. The paper also considers the policy instruments that are available, the cost, benefits and consequences of their use. As scholars continue to analyze when, where, why and how eco-innovations are developed and adopted, it is essential that government policymakers aim to reduce uncertainty and risk and foster transparency in the market. This continues to be a field of increasing future importance, and a rich area for continued academic study and analysis. Consumers, government policymakers and innovators would all benefit from a greater understanding of the process of technological change that contributes to the development, diffusion and financing of environmental technologies.