Want More Clean Energy Projects? Give Communities a Stake

Big infrastructure projects in America and around the world have been hamstrung by a history of exploitation and distrust between corporations and local communities, from solar farms in the southwest to fossil fuel pipelines in the Great Plains. A lack of community engagement and local resistance occurred in some 30% of clean energy project failures in the U.S., according to a 2022 study in the journal Energy Policy. In Canada, an unlikely triumvirate of finance, government and indigenous communities has found a better way—advancing Canada’s green energy transition, potentially making big money for investors and helping overcome centuries of economic and social exploitation of First Nations.

The key is indigenous ownership.

At least 135 major energy and related projects in Canada have moved forward with some form of indigenous ownership, according to an April report from the law firm Fasken, and billions in new funding from the Canadian national government is set to accelerate that trend. “The path to net zero runs through the traditional territories of our community,” says JP Gladu, Principal at Mokwateh, an Indigenous-owned consultancy that works on energy issues. “We’re the ones that have the ability to unlock Canada’s potential.”

The approach is straightforward. Government entities in Canada facilitate and backstop loans to First Nations, which in turn buy stakes in major projects. Businesses love it because it helps advance their projects. Indigenous communities love it because it gives them greater control over projects in their backyard while providing a steady source of income. And government officials get to improve conditions for First Nations.

Now a CAD $5 billion federal loan guarantee program, rolled out in detail in April, is set to dramatically expand the effort. At a conference in Toronto focused on indigenous ownership the same month, I saw the public-private, cross-sector coalition come together behind it. “This is an approach that is going to, first and foremost, advance indigenous economic prosperity,” Chrystia Freeland, Canada’s finance minister, told the crowd. “It’s going to advance prosperity for all of Canada and all Canadians.”

Canada, with vast resources, large swathes of First Nations reserve lands, and an ugly history of exploitation is particularly well-suited to lead the way on this. But the collaboration also offers hints for energy transition supporters elsewhere: allowing front line communities to own a stake in a project gets infrastructure built faster and with arguably better results for the people who live in its vicinity. Making it work outside Canada will require fresh thinking and a willingness to experiment.

Indigenous people have faced a long history of legal, economic, and cultural disempowerment in Canada. The government funded a program to remove indigenous children from their families for “assimilation” in residential schools. Indigenous people face well-documented discrimination in everything from policing to health care. And, to this day, the country’s Indian Act limits the property rights of First Nations. Over the last 15 years, the country has engaged in national reckoning over these practices. In 2008, then-prime minister Stephen Harper, a conservative, apologized for the residential schools program and promised an expansive agenda of reconciliation. Today, nearly three-quarters of Canadians say they support indigenous reconciliation programs.

From those reconciliation efforts emerged an idea simultaneously conservative and radical: underwriting First Nations to buy into major projects. Doing so would provide indigenous communities with new sources of wealth without disturbing Canadian industry. And so a wave of experimentation began as provinces launched loan guarantee programs for First Nations looking to buy into major infrastructure projects. Under the schemes, First Nations take out loans to buy stakes in the projects and the provinces act as a guarantor, allowing the indigenous communities to take advantage of low-interest rates typically offered only to reliable government entities.

Since 2009, loan guarantee programs have taken off across the country, including in the influential provinces of Alberta (home to the country’s oil industry) and Ontario (the country’s economic center). Just before I arrived in Toronto in April, the Trudeau government unveiled the details of a CAD $5 billion national loan guarantee program to supersize these efforts. “This in my mind is a critical step forward in terms of economic reconciliation,” Jonathan Wilkinson, Canada’s energy minister, told me after the announcement.

The portfolio of the First Nations Major Project Coalition, the non-profit that has come to play a key role helping indigenous communities participate in deals, provides a helpful lens into the nature of these projects. Since its founding in 2017, the coalition has facilitated indigenous ownership in 17 major projects; the capital cost of these projects totaled CAD $45 billion (USD $32 billion). Among the deals are a transmission line in British Columbia, a lithium mining project in Ontario, and a carbon capture and storage project in Alberta. Some of these projects have involved oil and gas, including a liquefied natural gas facility in Newfoundland, though the group says 85% of its portfolio supports the energy transition.

“We’re at a point now where in Canada development of major resource development projects requires indigenous inclusion,” says Justin Bourque, who heads Âsokan Generational Developments, an Indigenous-owned firm that consults on partnerships between industry and indigenous groups. “Most of the time, we’re now focusing on equity ownership.”

If the approach was founded out of a desire for reconciliation, it has been catalyzed by an appreciation in industry of the business case for indigenous ownership stakes. For decades, relations between First Nations and the companies keen to develop resources on their land had been mired in antagonism rooted in the legacy of colonialism. Relations were so fraught that markets viewed projects that touched indigenous lands in Canada skeptically.

Ownership stakes change the nature of the conversation with indigenous communities becoming full-fledged investors. In doing so, indigenous communities gain the privileges and influence of financial partners. That allows them to better shape projects to avoid local environmental harms. And companies gain a partner that wants to see projects come to fruition, meaning that approvals happen faster. This partnership is looked upon favorably by financial markets as investment certainty brings down the cost of capital and indigenous partnership boosts ESG scores.

Max Chan, a senior vice president at pipeline company Enbridge, told me how indigenous ownership stakes helped his company emerge from a long history of fractious relations. “It was really the culmination of decades of history and relationship-building, a lot of it, admittedly, we didn’t get right. And so we learned from that,” he said. “It was very clear to us that ownership was very important to these communities.”

The new federal program, and the broader effort to offer indigenous communities equity stakes, is sector agnostic, meaning that fossil fuel projects qualify just like clean energy ones. But it could be crucial for the energy transition both in Canada and around the world. Major projects in Canada not only include wind and solar but also mining for the critical minerals necessary for batteries for electric vehicles and energy storage.    

The collaborative dynamics apply outside of Canada and beyond indigenous communities. In the U.S., for example, polluting industries have disproportionately located their facilities in communities of color, often promising jobs and economic rejuvenation but then only delivering pollution. The relationship between front line communities where energy infrastructure is located and the companies that operate there is fraught, to say the least. And, in wealthier communities, many residents organize against energy infrastructure fearing that it will be an eyesore.

Numerous studies have documented how this opposition can lead to the rejection of projects—or make the approval process go incredibly slowly. The list of projects in this bucket is long, including everything from transmission lines proposed to bring clean energy to cities to new carbon management technologies like carbon capture facilities.

In that context, community engagement has become a buzzword. For some companies, it means hosting a few town halls and promising jobs, even while spending big behind the scenes to get projects moving as fast as possible. But others have taken an interest in more substantive approaches. Forward-thinking investors, particularly those who back clean technology, have demanded that companies create community impact plans. And the Department of Energy (DOE) is requiring companies that receive its loans and grants to come up with Community Benefit Agreements, legally binding documents that explain how a community will benefit from a project.

“We’re simply not going to be able to deploy clean energy at scale to the mass market unless we have a plan for ensuring that folks have at least a psychological stake, if not a literal ownership stake,” Donnel Baird, CEO and founder of clean technology company BlocPower, told me last year.

One approach to local ownership that has seen success in the U.S. is a program known as community solar in which local community members can buy an ownership stake in a small solar farm located in their community. Variations on the approach are now in place in more than 40 states, according to Department of Energy (DOE) data. The DOE also has an Tribal Energy Loan Guarantee Program; in March, the department gave out its first loan under the program since it was created in 1992.

But the concept of local ownership stakes has thus far remained much smaller in the U.S. For one, there are practical constraints. Outside of tribal land, who can claim to represent the community in a transaction? And how will they finance participation in a project? And then there is what I would call almost a cultural resistance. Developers and financiers are reluctant to give up equity in their projects and are accustomed to getting what they want without true community partnership. And local communities remain deeply skeptical of partnering with industry.

Sooner or later, though, someone is going to figure out how to do it better—and if Canada’s success is an indicator they’ll have a lot to gain.

TIME receives support for climate coverage from the Outrider Foundation. TIME is solely responsible for all content.

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Justin Worland Toronto