Title page 1

Contents 5

Abstract 3

Acknowledgements 4

Executive summary 7

1. What role for industrial policies in Canada? 8

Addressing the productivity slowdown, the innovation gap and the digital transition 9

Supporting small businesses and young firms 11

Closing the Venture Capital scale-up gap 12

Decarbonising the economy 13

Specific challenges 14

2. Green industrial policies 17

Canada's climate policy mix 17

Supporting development and adoption of clean technologies 19

The Canadian Investment Tax Credits Suite 21

Opportunities and challenges in Canada's areas of specialisation 23

Monitoring and adapting the policy mix to uncertain times 24

3. Policies for small businesses and young firms 26

Quantifying support for SMEs and young firms in Canada 26

Policy instruments 30

What can complement the policy mix to support SMEs and young firms? 36

Endnotes 38

References 40

Annex A. Industrial policy expenditures in Canada: a quantitative assessment 51

Annex B. Canada's green policy support relative to selected G7 economies 67

Annex C. Best Practice: the SDE++ in the Netherlands, a horizontal and competitive scheme 69

Annex D. Selected programmes out of scope of QuIS 71

Annex Endnotes 72

Table 2.1. The Investment Tax Credit (ITC) suite 22

Figure 1.1. Canada's business R&D expenditure remains low, despite government support 10

Figure 1.2. Canada-based VC-only rounds decline in later stages of the VC lifecycle 12

Figure 1.3. Economic activity in Canada is carbon and energy-intensive 13

Figure 2.1. Grants and tax expenditures for green industrial policies in Canada are rising but remain below those of comparable countries 19

Figure 2.2. The focus of policies has shifted from clean technology development to adoption, while some policies target anticipated areas of specialisation 20

Figure 2.3. Canada's comparative advantage in clean tech is limited 24

Figure 3.1. Canada's industrial policies mostly support SMEs and young firms via loans and loan guarantees 27

Figure 3.2. Like other G7 economies, Canada has increased support for SMEs and young firms 28

Figure 3.3. Involvement of Canadian government in VC is above OECD average but has decreased recently 34

Boxes 18

Box 2.1. Green Industrial policies in QuIS 18

Table A A.1. Canada's largest industrial policy instruments in 2023 53

Table A A.2. Federal spending dominates Canada's industrial policy, with provincial governments playing a key role on local level 63

Table A C.1. SDE++ 2023 round, approved projects 69

Figure A A.1. Canada has a relatively higher density of policies to GDP than other QuIS G7 countries 54

Figure A A.2. Canada's industrial policy support in 2023 remained largely unchanged compared to 2022 55

Figure A A.3. Canada provides less industrial policy support across instrument types compared with other G7 countries 56

Figure A A.4. Canada relies more on tax expenditures than on grants and ranks lowest among QuIS G7 countries in terms of total expenditures 57

Figure A A.5. Canada has the second lowest share of GDP allocated to financial instrument support 58

Figure A A.6. Canada's industrial policy priorities differ from benchmark countries, focusing more on regional policies through grants and tax expenditures 59

Figure A A.7. Almost half of support via financial instruments are directed towards SMEs and young firms 60

Figure A A.8. Labour market and skills policies vary widely across benchmark countries in terms of the scale, targeting and objective of support 61

Figure A A.9. Province-specific policies focus on sectoral, investment and energy cost support; support to SMEs and young firms and to R&D... 64

Figure A A.10. Sectoral policies mainly target the manufacturing and ICT sectors 65

Figure A A.11. Sectoral policies are mostly targeted towards the ICT and manufacturing sectors 66

Figure A B.1. Canada's green spending still trails significantly behind that of the benchmark economies 67

Figure A B.2. Despite an increase from 2019 to 2023, Canada invests less in green compared to Germany, Italy, France, and the UK 68

Annex Boxes 52

Box A A.1. Methodology of QuIS 52

Box A A.2. Addressing Green Skill Gaps: From Assessment to Action 62