(neither gas nor coal can easily substitute for liquid fuels used in internal combustion engines); and that the model relies on very restrictive structural assumptions including a misrepresentation of climate irreversibility and an incomplete endogenous growth model.

**Table 1: Innovation policies**

|**Policy areas**|**Intended**<br>**beneficiaries**|**Policy instruments**|
|---|---|---|
|1. Promoting frontier innovation<br>(innovation finance and other policies<br>for development and commercialization<br>of new-to-the-world knowledge)|Firms with<br>sufficient<br>technological<br>capabilities;<br>financiers|- government-funded R&D (public labs; matching grants, soft loans<br>and tax credits for private firms)<br>- patents and other intellectual property rights (IPRs)<br>- support for early-stage technology development (ESTD) finance<br>including support for private capital (angels, early stage VC)<br>-prizes and Advance Market Commitments(AMCs)|
|2. Promoting catch-up innovation<br>(policies to facilitate access to new-to-<br>the-firm knowledge and to stimulate<br>technology absorption)|All firms;<br>public labs &<br>universities;<br>all citizens|- open trade, FDI, IPRs, diaspora and ICT policies<br>- patent buyouts and compulsory licenses<br>- patent pools and open source mechanisms<br>- public procurement, standards and regulations<br>- support for finance to earlyadopters/demonstrations|
|3. Developing absorptive capacity<br>(policies to strengthen skills and more<br>broadly spur the accumulation of new<br>knowledge by entrepreneurs/firms)|All firms;<br>workers and<br>managers;<br>researchers;<br>trainers|- education and life-long learning policies<br>- enterprise-based worker training, management and entrepreneurship<br>training, and other technical and vocational education and training<br>(TVET)<br>- facilitating connectivity through global alliances and supplier<br>development linkages to global value chains<br>- rule of law, contract enforcement, competition, bankruptcy & re-entry<br>facilitation;urbanpolicies( ̳sticky‘ cities to attract and retain talent)|

Note: While some policy instruments like public procurement, standards and regulation are relevant for all three policy areas, they are listed in the area deemed most important to stimulate green innovation in most developing countries.

The following sections discuss in turn policies to support new knowledge creation, to strengthen diffusion and adaptation of existing knowledge to local contexts, and to develop absorptive capacity for innovation, as outlined in Table 1. Beyond the robust desirability of two sets of instruments to address the complementary knowledge and environment-related market failures, what distinguishes green innovation policies as opposed to generic (non-green) innovation policies? While there are still insufficient impact evaluation studies of green innovation policies, both in general and as applied to different developing country contexts, it is not premature to put a green twist on the innovation policies listed in Table 1 by prioritizing certain policy instruments over others based on defining characteristics of most green technologies. One key characteristic of most green technologies is that their broad diffusion and adoption is even more socially desirable than for non-green technologies, given the environmental externality. Another key characteristic is that the efficient use of green technologies requires them to be more heterogeneous than non-green technologies, given the significant variance of the underlying environment by locality (while a state-of-the-art computer chip will be the same whether used in Mexico or Thailand, green technologies require adaptation to local soil, water, air, wind and sun conditions, among others). So prizes, for instance, are typically a preferred policy instrument over patents to promote the creation and diffusion of green as opposed to generic technologies, as patents tend to inhibit both diffusion and the follow-on innovation that builds on the protected technologies, while prize funds can be targeted to meet well-defined objectives, with the developed knowledge widely disseminated and used by all once the prize is awarded. While Advance Market Commitments are a useful complementary demand-pull mechanism to prizes, they are still premature in most countries as there are not yet well-functioning 15