Prizes are the best mechanism to foster innovation in climate change technology

More generally, within such nonmarket institutional arrangements, there is a greater role for the state in setting and implementing innovation policy, and hence, it is easier to account for environmental considerations. Under such schemes, it is the government—rather than the market—that establishes the criteria for receipt of a reward.239 The government sets the targets within a prizes scheme, defines categories of research within which grants are available, and prioritizes research projects conducted in its own laboratories.240 In doing so, the government may prioritize the need to develop climate change technologies. The government may also set various criteria and conditions for funding that relate to the environmental impact of the innovation at hand. Such criteria and conditions “could be incorporated, for example, into guidelines for peer review of grant applications [or] in award criteria for procurement auctions.”241 Under both the prizes and public-funding schemes, the government sets the size of the reward as well. With respect to prizes, though administrators commonly fix the reward in advance, various scholars have advocated for the use of sales data—or other proxies of the invention’s actual impact—in setting the reward.242 Notably, in the specific context of climate change technologies, due to the significant gap between market demand and social value, sales data cannot serve as a good measure of social value, and other assessments of ex post outcomes (e.g., in terms of reduced greenhouse gas emissions) need to be articulated.243 One “side benefit” of nonmarket funding mechanisms—which is, in fact, often presented as their main virtue—lies in their potential to foster innovation while avoiding the deadweight loss resulting from noncompetitive pricing of patented inventions.244 This is, indeed, a major benefit in the particular context discussed in this Article, in light of the significance of ensuring broad access—both by consumers and by follow-on inventors—to climate change technologies.245