This paper reports research on the relationship between sourcing strategy of a firm and its environmental innovation propensity. The data is taken from the Spanish Technological Innovation Panel (PITEC) survey during the period of 2007-2011. The uniqueness of the Spanish innovation structure and the increasing relevance of environmental issues for the Spanish economy make it a proper setting to investigate environmental innovation dynamics. The results from 5,352 firms indicate that large firms are more likely to undertake environmental innovation than small- and medium-sized firms (SMEs). These firms rely quite equally on all four sources of knowledge – internal, market, institutional and freely-available sources – when deciding to develop environmental innovation. The broad horizons with respect to knowledge sources are likely to increase firms’ propensity to introduce environmental innovation. In addition, we provide the evolutionary nature of firm’s innovation search as firms grow in size. Small firms rely on both internal and freely-available sources rather equally, while internal source is the most relevant for medium firms, and market is the most important source used by large firms in driving environmental innovation. Particularly important is how firms who are already innovators and who receive local funding from the Spanish government are more likely to introduce environmental innovation.