In this paper we have taken an Innovation Systems approach to examine the structure and function of the Irish Agri-Environmental Knowledge and Innovation System with the aim of improving water quality in Ireland. Utilising a methodology due to Hekkert et al., (2007), we described and analysed the Innovation System under a number of headings, particularly focusing on specific incentives and features. A key part in changing the regulatory or public incentive system is to change the behaviour not only of the farmers but also of the policy makers to facilitate the movement to a more localised approach. The fundamental message of this paper is that improving a complex local environmental externality • Requires local solutions and information and incentives • Taking an Innovation System perspective to the problem solution • Means that changing the behaviour of farmers may involve changing the behaviour of others upstream within the innovation system, requiring an examination of their incentives and motivations • Local information is necessary to facilitate local decisions • While solutions are local, one must by mindful of transaction costs. Where transaction costs higher than the cost of implementation locally, then it may make sense to focus on less targeted measures, particularly in areas with lower risk.