With Budget 2023’s “made-in-Canada plan” released in late March, the federal government has laid out its net-zero industrial policy – a response to the U.S. Inflation Reduction Act (IRA) and the EU’s Green Deal Industrial Plan. While Canada has tabled a variety of clean economy policies to support industry since 2016, the latest proposals represent a step toward a true industrial strategy. The plan signals an intention to get strategic and intentional about the way the government coordinates its different programs and instruments.
The made-in-Canada plan seeks to bolster manufacturing at home and secure a place for Canadian firms and products in global supply chains.
Canada’s industrial policy has four tiers of tools: carbon pricing and regulations, investment tax credits, public funds (namely, the Canada Growth Fund and the Canada Infrastructure Bank) and targeted investments in priority sectors. Together with the controversial investment credit for carbon capture, utilization and storage from Budget 2022, the government has now earmarked $83 billion to support Canada’s net-zero industrial policy.
While there has been a lot of focus on tax credits, these measures, as well as accompanying subsidies, do not constitute an industrial strategy on their own. A modern industrial strategy must involve a dynamic process of collaboration with the sector that integrates the tools into a clear strategy.
For example, the tax credits receiving much attention in the IRA are supported by excellent work in the U.S. Department of Energy to set clear targets, organize supply chains and work with industries directly to identify and solve challenges in a dynamic way. The U.S. approach benefits from decades of work to develop the institutional mechanisms for coordinating commercialization strategies between the government and industry.
Canada needs to develop a similar approach: targets and sector tables to hash out clear strategies that organize and focus work in the sectors. Without intentional development of such coordination mechanisms, Budget 2023’s commendable initiatives will risk falling into the Canadian pattern of spreading innovation supports (research funding and R&D and investment tax credits, for example) too thin.
It is difficult to assess whether the proposed tax credits and other measures – such as subsidies for battery plants – address the needs of Canadian businesses, target activities in which Canada can be globally competitive, and trigger private investment at the speed and scale required. A custom industrial policy approach is needed for each sector, reflecting the unique supply-chain challenges and supply/demand barriers to adoption for each solution.
We have proposed three key elements to kick-start industrial policy in Canada and to build capacity for strategic collaboration in government and among other stakeholders.
Goals: A modern, strategic industrial policy should have goals that are concrete economic objectives (or targets) and that refer to the deployment, production and performance of key technologies – for example, the amount of clean hydrogen produced by a specific future date. Goals and milestones should be indexed to a vision of Canada’s place in specific global supply chains.
Public–private partnerships: International best practices in industrial policy underline the key role of robust public–private partnerships in priority sectors, supported by deliberative tables and independent intermediaries. These partnerships would create collaboration clusters at the sector level, which would be used to align strategy, policy and financing.
Government bodies: How can best practices be applied to government institutions in Canada? Institutional innovation is often necessary to build the culture and practice of modern industrial policy with a net-zero focus. Cross-departmental interaction and synergy would be important to set up a new industrial policy process for success. But setting up those processes will take time, and the need to act is urgent, so it is important that government bodies work closely with industry and independent intermediaries to catalyze strategic action now.
While there has been a lot of focus on tax credits, these measures, as well as accompanying subsidies, do not constitute an industrial strategy on their own
Canada, including the federal civil service, has fallen behind in modernizing our institutions for industrial policy. Leadership and coordination will require some resources, but the needs are tiny compared to budgetary resources already announced. To correct this, the federal government needs to take deliberate steps to build the culture and the capacity to effectively and efficiently pursue our most promising opportunities for value-added growth and jobs on the path to net-zero emissions.
Encouraging signs include the Regional Energy and Resource Tables and the links with the recently announced Sustainable Jobs Act. The skills and worker needs for the net-zero transition are massive. These requirements should also be translated into concrete goals and milestones in the Sustainable Jobs Plans and must be an integrated part of a comprehensive strategy covering all sectors.
Industrial policy is not, however, the sole responsibility of the Government of Canada. Federal leadership and partnership with provinces, territories, industry, Indigenous communities and other stakeholders is required. A well-designed and -executed industrial policy-development process will result in other levels of government and industry sharing responsibility in policy development and implementation. Distributed leadership in a modern industrial policy would help future-proof outcomes against government changes.
To support this effort, the Transition Accelerator has established the Centre for Net-Zero Industrial Policy. The centre will bring together experts and practitioners to forge the insights and action Canada needs to compete in the new economy. In contrast to only a few years ago, a strong global consensus has developed around the technologies that can be functional, economic and net-zero, and those that cannot. A net-zero industrial strategy is critical for laying a foundation for broad-based prosperity in the years ahead. Industry, including the Business Council of Canada and other associations and companies, has recognized this.
Now that substantial funds have been committed, Canada needs a process to ensure these resources are used as effectively as possible to build supply chains and mobilize the private capital necessary to compete – a modern, made-in-Canada industrial policy.
Bentley Allan is transition pathways principal and Derek Eaton is director of industrial policy at The Transition Accelerator.
