This is because innovators may not reap all the benefits of their innovations, and because environmental benefits may not be appropriately valued by markets. This is particularly the case for water-related innovation, where the opportunity costs and environmental costs of using or polluting water are not reflected in prices paid by water users. Since markets fail to deliver the appropriate level of environment-related innovation, policy interventions are required. The question then is: what is the best way to support the development and diffusion of eco-innovation?