Utilities are increasing their investment in smart grid technologies because of the rising demand for electricity, the aging transmission and distribution infrastructure in developed countries and the need for real-time visibility of energy supply and demand to optimize service reliability and cost. Government policies are contributing to this rising investment in the smart grid in many countries around the globe. Using Rothwell and Zegveld's innovation policy framework as a starting point, this paper compares innovation policy in smart grids across the Pacific; specifically, China and the USA. This research describes the policy tools used by both countries and presents results that indicate national preferences for innovation policy that differ in the ways in which they are linked with the state of the power system. China has preferred to use "supply-side policy," which focuses on "public enterprise, scientific and technical development and legal regulation." The USA has preferred to use "environmental-side policy," which focuses on "scientific and technical development, financial, political and public enterprise." This paper also describes in detail a number of innovation policies being pursued in the smart grid industry in both China and the USA. (C) 2013 Elsevier Ltd. All rights reserved.