Technical Progress is perhaps the mail vehicle to solve environmental problem in the long run. This paper builds Bertrand sequential game model and compares R&D incentives of four environmental regulation instruments based on heterogeneity product. The basic conclusion is auctioned permits and emission taxes offers the highest R&D incentive among four regulation instruments, command-and-control instrument have more dynamic efficiency than tradable permits under heterogeneity product market. Policy makers should avoid “one size fits all” when choosing environmental regulation instrument and consider fully the influence of market structure, regulation goal and demand function.