Green technologies display unusually strong growth and are well on the way to establishing a 'mega-trend' in technology development. To exploit the associated economic opportunities, many industrialised countries have started to follow an innovation-oriented approach to environmental policy. Against this background, the ways are examined in which environmental policy can effectively 'govern' technological change and secure environmental improvements. What is needed is a clear focus on prioritising the ecological effectiveness of environmental innovations, devising 'smart regulation' through instrument mixes and addressing the inherent limitations of innovation-oriented policies.