Abstract: One of the important standards to assess the environment policy instruments is how much the environment policy instruments are able to set spurs to the technology innovate of firms. However, the previous literature on environment policy instruments has not differentiated the clean technology from end-of-pipe technology, which has different impacts on the firm technology innovations. Meanwhile, the previous literature put more emphasis on the oligopoly game among the firms, however ignored the status quo that those Small and Medium-sized Enterprises (SMEs) in China play a key role in both of economy and employment. The perfectly competitive market which constitutes tens of thousands SMEs in China is an essential part of Chinese economy. In the view of these reasons, the research is started under the condition of perfect competition, and a strict distinction between clean technology and end-of-pipe technology is made, as well as the profits model of enterprises and social welfare function are constructed. As a result, the critical value of emission quota, emission fee (tax), subsidy and tradable permit as well as the optimal level of social welfare maximization are concluded. Meanwhile, the enterprises' ways of environmental technology innovation and enterprises' choice on whether they choose to innovate are examined and differentiated. At the end of the paper, the effect orders of environment policy instruments on environmental technology innovation are obtained. The result of this paper could provide a policy reference to government on how to spur the innovation.

Key words: environmental policy instrument, SME, innovation incentive, clean technology, end-of-pipe technology