Although details are not stated, we have seen this type of investment model proposed by the government before, where the government commits capital to higher risk projects that are potentially economically viable but have risks that are not well absorbed by private capital. The Budget also announced $1 billion of funding committed over five years directly to help draw in funding to Clean Tech Projects particularly where there is a perceived lack of patient capital or ability to scale up because of the size of the Canadian market. Details of the Framework are pending but again this is another policy tool that may be available to help the SMR industry. Examples of projects cited in the budget include funding green infrastructure and clean tech innovations. The proposal is that the Federal Government would create a framework that would allow investors to invest in “Green Bonds”, the proceeds of which will be used by fight climate change. The Budget announces $5 billion towards a “Green Bond Framework”. However, as the Federal Minister of Natural Resources has stated that there is no path to net zero in Canada without nuclear, we expect projects using SMRs will be eligible for Federal Government funding under this program. The goal of the Net Zero Accelerator is to support projects that “work to cut pollution, spur clean technology innovations, attract major investments, create good middle class jobs, and foster development of key supply chains to ensure Canadian industries and workers can use their low-carbon advantage to compete and win.” The projects and technologies that are to be supported are again not identified. The Budget includes a further $5 billion commitment towards this fund over a period of seven years. In December of 2020, the Federal Government announced a $3 billion investment towards the Strategic Innovation Fund’s “Net Zero Accelerator”. Despite this, it might be available to help first movers and, as is often the case with government programs, could ultimately be extended if it proved to be successful. Given the anticipated timeline for SMR manufacturers to have commercial production lines that are generating earnings, this tax reduction may not come as a widespread help to the industry. Details of the technologies that will be eligible for this tax treatment are left to be determined by the Department of Finance (in consultation with Environment and Climate Change Canada, Natural Resources Canada, Sustainable Development Technology Canada, and other key stakeholders). The reductions would last for seven years, commencing on Januand then would be phased out over a four year period winding up by January 1, 2032. The Budget contains an interesting proposal to grant up to a 50% tax break in general corporate and small business income tax rates for businesses that manufacture zero-emission technologies.

Tax Break for Manufacturers of Zero-Emission Technologies.In terms of policy tools, four stand out: The tools are there, but questions remain around their application, leaving many details to be determined. The green focus of the Budget includes some exciting policy levers that, when implemented, could provide continuing support, and be instrumental to the development of the industry and of small modular reactors (“ SMRs”) in particular. For those who are following emerging developments in the nuclear industry, the 2021 Canadian Federal Budget (the “Budget”) contains good news.

Federal budget 2021