Want more clean energy projects? Give communities a stake

BIG’s infrastructure projects in America and around the world have been hampered by a history of exploitation and distrust between companies 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 about 30% of U.S. clean energy project failures, according to a 2021 study. to study in the magazine Política Energética. 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 to overcome centuries of economic and social exploitation of First Nations.

The key is indigenous ownership.

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

The approach is direct. Government entities in Canada facilitate and support loans to First Nations, who in turn purchase shares in large projects. Companies 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 stable source of income. And government officials manage to improve conditions for First Nations.

Now, a C$5 billion federal loan guarantee program, launched in detail in April, is expected to dramatically expand the effort. At a conference in Toronto focused on Indigenous property the same month, I saw the public-private and cross-sector coalition come together to support this initiative. “This is an approach that will, above all, promote local economic prosperity,” Chrystia Freeland, Canada’s finance minister, told the crowd. “This will promote prosperity for all of Canada and all Canadians.”

Canada, with vast resources, large tracts of First Nations reserve lands and a terrible history of exploitation, is particularly suited to lead the way in this regard. But the collaboration also offers tips for supporters of the energy transition elsewhere: allowing frontline communities to have a stake in a project allows infrastructure to be built more quickly and with potentially better outcomes for the people living in them. nearby. Making it work outside of Canada will require new ideas and a willingness to experiment.

Indigenous peoples faced a long history of legal, economic and cultural weakening 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 First Nations property rights. Over the past 15 years, the country has been involved in a national reckoning over these practices. In 2008, then-Prime Minister Stephen Harper, a Conservative, apologized for the residential schools program and promised an expansive reconciliation agenda. Today, almost three quarters of Canadians they say they support indigenous reconciliation programs.

From these reconciliation efforts emerged an idea that was simultaneously conservative and radical: signing up First Nations to participate in major projects. This would provide indigenous communities with new sources of wealth without disrupting Canadian industry. And so began a wave of experimentation as provinces launched loan guarantee programs for First Nations looking to participate in large infrastructure projects. Under the schemes, First Nations take out loans to buy shares in projects and provinces act as guarantors, allowing Indigenous communities to take advantage of low interest rates normally only offered to trusted 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). Shortly before I arrived in Toronto in April, the Trudeau government revealed details of a C$5 billion national loan guarantee program to expand these efforts. “In my opinion, this is a critical step in terms of economic reconciliation,” Jonathan Wilkinson, Canada’s energy minister, told me after the announcement.

The portfolio of the First Nations Major Projects Coalition, the non-profit organization that has come to play a key role in helping Indigenous communities engage in business, provides useful insight 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). The deals include 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 involved oil and gas, including a liquefied natural gas facility in Newfoundland, although the group says 85% of its portfolio supports the energy transition.

“We are at a point in Canada where the development of large resource development projects requires Indigenous inclusion,” says Justin Bourque, who runs Âsokan Generational Developments, an Indigenous-owned company that consults on partnerships between industry and indigenous groups. “For the most part, we are now focusing on equity ownership.”

If the approach was founded on a desire for reconciliation, it was catalyzed by an appreciation, in the industry, of the commercial case for indigenous ownership interests. For decades, relations between First Nations and companies interested in developing resources on their lands have been mired in antagonism rooted in the legacy of colonialism. Relations were so tense that markets viewed projects that touched indigenous lands in Canada with skepticism.

Ownership risks change the nature of the dialogue, with indigenous communities becoming full-fledged investors. In doing so, indigenous communities gain the privileges and influence of financial partners. This allows them to better shape projects to avoid local environmental damage. And companies gain a partner who wants to see projects come to fruition, which means approvals happen more quickly. This partnership is viewed favorably by financial markets, as investment certainty reduces the cost of capital and the indigenous partnership increases ESG scores.

Max Chan, senior vice president at the natural gas pipeline company Enbridge, told me how Indigenous equity interests helped his company emerge from a long history of turbulent relationships. “It was really the culmination of decades of history and relationship building, and a lot of that, admittedly, we didn’t get right. And then we learn from that,” he said. “It was very clear to us that the property was very important to these communities.”

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

Collaborative dynamics apply outside of Canada and beyond Indigenous communities. In the US, for example, polluting industries have disproportionately located their facilities in communities of color, often promising jobs and economic rejuvenation but only generating pollution. The relationship between the frontline communities where energy infrastructure is located and the companies that operate there is tense, to say the least. And in wealthier communities, many residents organize against energy infrastructure, fearing it is an eyesore.

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

In this context, community involvement has become a buzzword. For some companies, that means hosting a few town halls and promising jobs while spending big behind the scenes to move projects forward as quickly as possible. But others were interested in more substantive approaches. Forward-thinking investors, especially those who support clean technology, have demanded that companies create community impact plans. And the Department of Energy (DOE) is requiring companies receiving its loans and grants to draft Community Benefit Agreements, legally binding documents that explain how a community will benefit from a project.

“We simply won’t be able to deploy clean energy on a mass-market scale unless we have a plan to ensure that people have at least a psychological interest, if not a literal ownership interest,” Donnel Baird, CEO and founder from clean technology company BlocPower, told me last year.

One approach to local ownership that has been successful in the US is a program known as community solar, in which local community members can purchase an ownership stake in a small solar farm located in their community. Variations on the approach are now in effect in more than 40 states, according to the Department of Energy (DOE). data. DOE also has a Tribal Energy Loan Guarantee Program; In March, the department made its first loan under the program since its creation in 1992.

But the concept of participation in local ownership has so far remained much smaller in the US. On the one hand, there are practical restrictions. Outside of tribal lands, 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 cultural resistance. Developers and financiers are reluctant to give up equity in their projects and are used to getting what they want without a true community partnership. And local communities remain deeply skeptical about partnering with industry.

Sooner or later, though, someone will figure out how to do it better – and if Canada’s success is any indicator, it will have a lot to gain.

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