For those who are following emerging developments in the nuclear industry, the 2021 Canadian Federal Budget (the “Budget”) contains good news. 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. The tools are there, but questions remain around their application, leaving many details to be determined.
In terms of policy tools, four stand out:
- Tax Break for Manufacturers of Zero-Emission Technologies. 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. The reductions would last for seven years, commencing on January 1, 2022 and then would be phased out over a four year period winding up by January 1, 2032. 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). 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. 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.
- Net Zero Accelerator. In December of 2020, the Federal Government announced a $3 billion investment towards the Strategic Innovation Fund’s “Net Zero Accelerator”. The Budget includes a further $5 billion commitment towards this fund over a period of seven years. 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. 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.
- Green Bond Framework. The Budget announces $5 billion towards a “Green Bond Framework”. 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. Examples of projects cited in the budget include funding green infrastructure and clean tech innovations. Details of the Framework are pending but again this is another policy tool that may be available to help the SMR industry.
- Innovative Technologies. 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. 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 does not explicitly identify nuclear technology as “Clean Tech” but also does not exclude it. Details of the funding will be of great interest to the industry.