Trudeau Weighs Limits on Oil and Gas in Indigenous Resource Loan Plan

(Bloomberg) -- Prime Minister Justin Trudeau and his cabinet are planning a multibillion-dollar loan program to help Indigenous groups in Canada buy equity in resource projects. But the government is still debating whether to include the oil and gas sector within it. 

The program, which is expected to be announced in the coming weeks, will see the government provide guarantees for loans to Indigenous organizations, using Canada’s AAA credit rating to negotiate better terms for credit. First Nations often have difficulty securing loans because they can’t use the federal land they control as collateral, and some don’t have long credit histories. 

Trudeau’s government sees the loan plan as a tool for improving the economic prospects of Indigenous communities, which suffer from higher rates of poverty than the rest of Canada. The loans may be used for buying stakes in mines, power plants, transmission lines and a range of other projects — including many seen as critical to achieving Canada’s climate goals.

But the government is still wrestling with whether fossil fuel projects should be eligible, and if so, under what terms. Government backing for the oil and gas sector has frequently divided Trudeau’s cabinet, as some ministers push for a harder line on climate policy — particularly Quebec-based members such as Environment Minister Steven Guilbeault, a former Greenpeace activist.

In a letter sent to Trudeau dated Oct. 6, four Indigenous groups argued that barring oil and gas projects from the loan-guarantee plan would “exclude Indigenous peoples from stable, prosperity-delivering investments — in some cases, their only local opportunities.”

“This program cannot be driven by an ‘Ottawa-knows-best’ policy approach — the judgment of Indigenous Nations about projects to pursue must be respected,” said the letter, signed by groups including the First Nations Power Authority, the Indigenous Resource Network, the First Nations LNG Alliance and Asokan Generational Developments.

People familiar with internal government discussions said the issue is not yet settled. The loan program is expected to be quickly oversubscribed, creating pressure to set priorities, said the people, who spoke on condition of anonymity to discuss private deliberations. They declined to provide a total dollar figure for the loan guarantees the government expects to make available. 

Economic Drivers

Some within government are concerned that fossil fuel projects, which often have easier access to private capital, may crowd out loans to riskier clean energy or critical mineral projects that might otherwise have difficulty attracting investment, particularly at a time of higher interest rates. 

But another concern within government is that placing too many restrictions on the loan program would interfere with the principle of Indigenous self-determination. Although Trudeau’s administration has promised to phase out most fossil fuel subsidies, that pledge makes a specific exception for projects that “support Indigenous economic participation.”

It’s unlikely the government would make all oil and gas projects ineligible, said one person with knowledge of the internal deliberations. 

One option being debated is to set an emissions-intensity threshold for what kinds of projects could be funded. That would mean certain fossil fuel projects — for example, low-emission offshore projects, or natural gas power plants with carbon capture systems — could still qualify for loan guarantees.

Another option is to allow high-emission projects, but give them less favorable loan conditions.

For some Indigenous groups, oil and gas projects are the only feasible ones nearby, especially when it comes to generating affordable electricity, said Guy Lonechild, chief executive of the First Nations Power Authority.

“We’ve got to find ways as a country to help generate wealth in underprivileged communities,” he said.

John Desjarlais, executive director of the Indigenous Resource Network, pointed out that oil and gas is still “a huge economic driver” for some Indigenous regions. The program needs to be “inclusive and respectful of the different Indigenous communities right across Canada, the different opportunities that they have to invest,” he said.

Karen Ogen, chief executive officer of the First Nations LNG Alliance, put it more bluntly. “In the past, we’ve had absolutely no say,” she said. “So we want to be able to have a say, and to say, ‘This is what we want. How are you going to work with us to move it forward?’”

In a statement, Natural Resources Minister Jonathan Wilkinson’s office did not directly comment on the loan program but said economic reconciliation was a priority. “We are committed to supporting Indigenous communities in their efforts to meaningfully participate in Canada’s economy through partnerships in major natural resource projects.”

©2023 Bloomberg L.P.