The CP solves and is comparatively better than the plan.

In light of the patent system’s shortcomings in the environmental domain, the analysis conducted in this Article supports increasing the use of other policy instruments for incentivizing innovation alongside the patent system.221 There is a variety of such alternative incentive mechanisms that may be applicable in different contexts.222 In the environmental domain, two non-patent incentive schemes that seem to hold a particular promise are prizes (monetary rewards provided to the first person to deliver a specified invention),223 and direct ex ante governmental funding via R&D subsidies and grants, cooperation agreements, or procurement.224

Despite the central role of the patent system in discussions of incentives for R&D,225 there has been a reemerging scholarly interest in the foregoing alternative mechanisms in recent years.226 Several scholars have also noted the potential beneficial use of such alternative mechanisms in the specific context of environmental innovation.227 Sure enough, governments already employ these (and other) types of mechanisms to incentivize innovation alongside the patent system.228

The critical analysis of the patent system conducted in this Article supports this direction and provides further justifications to look beyond IP while designing innovation policy. Recognizing the substantial limitations of the patent system as an incentive mechanism in the particular domain of climate change technologies reinforces the need to afford a significant role to non-patent incentive schemes in this context and attend to important questions related to the operation of such schemes. This Article’s systematic exploration of the patent system’s limitations can assist in identifying the categories and types of innovations with respect to which the need to rely on such non-patent mechanisms may be particularly acute.229 For instance, while the case for direct government funding of basic research is well established, it is much less so with respect to applied research.230 Yet, once we acknowledge that patents may underperform even in the context of green consumer goods, as this Article’s analysis clearly shows,231 it becomes apparent that governments must find ways to supplement patent incentives in regard to downstream R&D as well.

The main advantage of the aforementioned alternative schemes over the patent system in the context of climate change technologies is that they do not rely on market demand in directing the allocation of resources for R&D. While patents are generally considered superior to other incentive mechanisms because of their ability to use “private information about the value of inventions” to direct innovation,232 in a context where market demand so clearly fails to reflect societal needs, the use of alternative mechanisms may actually be advantageous.233 Among other things, such nonmarket incentive mechanisms can be used to incentivize basic and upstream research,234 development of innovative products and processes that are not highly demanded by businesses or individual consumers,235 and innovative solutions that are required to address the needs of poor populations.236 In addition, as these alternative incentive schemes do not rely on exclusionary mechanisms in providing incentives to innovate, they can be used to promote development of valuable but highly nonexcludable innovations.237 Furthermore, such alternative mechanisms may be more compatible with a broader definition of innovation that does not necessarily focus on “techno-fixes” but may encompass other types of innovative solutions as well.238

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