Since the 1990s, environmental issues have become a major concern for policy makers. To tackle climate change, the development of new technologies compatible with sustainability issues must play a key role. A specific feature of environmental innovation is that, in addition to generating knowledge spillover, it also generates environmental spillover. Rennings (2000) called this specificity of eco-innovation “the double externality problem” and pointed out that this problem diminishes the incentives of firms to innovate. The purpose of this article is to explore both determinants and productivity effects of environmental innovation using an extended CDM model (Crépon, Duguet and Mairesse, 1998). First, we distinguish two types of R&D: environmental and non-environmental. Second, we introduce environmental regulation variables at the firm level as drivers of environmental innovation. Combining both of patents data extracted from REGPAT and HAN OECD databases with financial firm data collected from DIANE database and the firm research and development (R&D) survey, the empirical analysis is carried out for French firms over the period 2003–2015. Preliminary results show that private economic returns in terms of productivity are lower for environmental innovation than for non-environmental innovation. This validates the hypothesis according to which market incentives alone are not sufficient to allow the environmental innovation of firms to increase considerably. More efforts in terms of green promotion and environmental regulation are important for the flourishing of such innovations.