We need a Centre of Excellence and Concessionary Finance Program to Facilitate Multipurpose Canadian Arctic Defence Infrastructure Development

By: Kate E. Todd, Senior Fellow at Arctic360

As the Arctic rapidly emerges as a strategic hotspot, it has become clear that Canada must act quickly to secure its northern border and build the defence infrastructure required to do so. However, the Government of Canada faces significant hurdles in coordinating efforts and securing the necessary funding to develop this infrastructure. To break through these barriers, Canada urgently needs a Centre of Excellence to streamline the planning and execution of multipurpose Arctic defence infrastructure projects, paired with a concessionary finance program to attract infrastructure investment from a variety of stakeholders. Through these initiatives, Canada can unlock the infrastructure needed to bolster security, drive economic growth, and elevate living standards in the North.

Setting the Scene: Barriers to Arctic Defence Infrastructure Development

Canada’s vision is shifting north, towards the defence and security of the Canadian Arctic and its residents. Over the past five years, a number of policies, reports, and statements have urged the Government of Canada to develop multipurpose Arctic defence infrastructure. Experts argue that such development could strengthen Canada’s defence capabilities while improving the lives of Arctic residents and stimulating the economy. However, despite widespread agreement on the need for such infrastructure, the development of projects has been slow due to the complexity and high costs involved.

Two obstacles standing in the way of building a more secure Canadian Arctic through multipurpose infrastructure development are Canada’s system of government itself and the current fiscal environment. Canada needs to create a new governance mechanism that can overcome the government’s siloed approach to issues management and foster more coordinated decision-making. The federal government should also establish a concessionary finance program to attract private, territorial, and municipal investment and create a more collaborative financial approach for multipurpose Arctic infrastructure development. By implementing these solutions, Canada can streamline infrastructure development and better protect its Arctic interests.

Why Build Multipurpose Arctic Defence Infrastructure?

In recent years, Canada’s security in the Arctic has come under threat by both the rapidly warming climate and deterioration of the international security environment. The Arctic is warming at an alarming rate, triggering natural disasters and revealing valuable maritime shipping routes and resources previously buried beneath sea ice and permafrost. At the same time, Russia and China are investing heavily in military and infrastructure projects in the Arctic, vying to become dominant actors in the region. This poses a potential threat to Canada’s sovereignty in the Arctic, which makes up forty percent of the country’s landmass. Due to decades of underinvestment in Arctic infrastructure and defence, Canada struggles to monitor, let alone respond to, threats and emergencies in the region.

In light of these threats, Canada’s allies and leaders are calling for the federal government to invest in multipurpose Arctic defence infrastructure that can help secure Canada’s sovereignty, uphold the rules-based international order, and improve living standards of Arctic residents. The infrastructure deficit in the Canadian Arctic is estimated to be valued between $50 and $570 billion. Many Arctic communities lack essential infrastructure like roads, ports, airports, reliable power, or internet access. Due to this, governments, businesses, and residents face logistical challenges operating and living in the Arctic, having severely limited abilities to transport goods, people, and information in and around the region. Investments in multipurpose Arctic defence infrastructure would help close this gap, allowing the Canadian Armed Forces and Canadian Coast Guard to expand their operations, better monitor and defend Canada’s waters and territory, and enforce Canada’s sovereignty in the Arctic while improving the economy and reducing residents’ cost of living there.

What Infrastructure Should be Developed?

The Government of Canada should prioritize the development of multipurpose transportation, communication, and energy infrastructure that can serve government stakeholders, including the Department of National Defence, as well as the private sector and local communities. New transportation, communication, and energy infrastructure can connect Arctic military bases, communities, and businesses to the rest of Canada, improve the economy and residents’ standard of living in the North, and bolster Canada’s ability to respond to threats and emergencies in the Arctic.

When determining what projects to build, infrastructure proponents should construct a mix of well-established forms of infrastructure, like ports, airports, and fibre-optic networks, as well as more innovative infrastructure solutions, like floating energy barges or jetties and small-modular reactors. These newer solutions are more sustainable and resilient than traditional infrastructure, making them better suited to face the challenging conditions in the Arctic. Still, the key to maximizing the impact of any infrastructure project is ensuring that it serves multiple purposes. Multipurpose infrastructure would allow the Government of Canada to get more value from investments by benefitting a wider range of stakeholders. However, developing multipurpose Arctic defence infrastructure is easier said than done.

Obstacles to Development

Canada must overcome two obstacles to develop multipurpose defence infrastructure in the Arctic: the lack of coordination between stakeholders and the financial burden of development.

• The Coordination Problem Multipurpose infrastructure development is inherently complex due to the number of stakeholders involved. Canada’s Department of National Defence, other federal departments, territorial and municipal governments, Indigenous groups and organizations, and the private sector should all take part in planning and executing multipurpose Arctic defence infrastructure projects. However, each of these stakeholders has distinct interests, which can complicate projects. Unfortunately, Canada has limited experience developing multipurpose, Arctic, or defence infrastructure, and lacks the institutional structures needed for effective stakeholder coordination. To address this, the federal government should create a new governance mechanism to facilitate collaboration and streamline planning. By working together, stakeholders can identify shared priorities, avoid inefficiencies, and uncover synergies and opportunities for cost savings.

• The Financial Problem Canada’s fiscal situation adds another layer of complexity to multipurpose Arctic defence infrastructure development. Since 2023, the federal government has had to scale back spending and reallocate resources to meet existing commitments, leaving little fiscal room for new initiatives like infrastructure development. If Canada wishes to develop multipurpose Arctic defence infrastructure, it will have to find a creative way to finance these projects. Infrastructure development costs in the Arctic are substantially more expensive than projects in southern Canada, making it difficult for the Government of Canada to finance Arctic infrastructure projects alone. How much more expensive is difficult to determine, due to a lack of publicly available information about the cost of infrastructure development or research on the subject. One of the only documents that provides an estimate of how much more Arctic infrastructure development costs is a 2015 report by the National Indigenous Economic Development Board, that states that Northern projects cost approximately 145 percent more than those in southern Canada. Moving forward, the Government of Canada needs to develop a strategy to encourage a variety of stakeholders to invest in multipurpose Arctic defence infrastructure. By doing so, the federal government can distribute the financial risk and burden of infrastructure development among stakeholders while meeting its own goals.

Getting Serious About Development: New Coordination and Funding Solutions

To overcome the coordination problem, the GC should establish a Multipurpose Arctic Defence Infrastructure Development Centre of Excellence. This independent body would coordinate and execute all federally funded multipurpose Arctic defence infrastructure projects, ensuring that all relevant stakeholders are consulted, their needs and priorities are considered, and potential synergies and cost savings are identified throughout the infrastructure planning process. To do this effectively, the Center would bring together and be staffed by representatives from the Department of National Defence, other federal departments (such as Crown-Indigenous Relations and Northern Affairs Canada and Public Safety Canada), Indigenous groups and organizations, territorial and municipal governments, and the private sector. The head of the Centre would report directly to the federal Cabinet, reflecting the complexity and importance of multipurpose Arctic defence infrastructure development.

A centralized governance mechanism like this would help the government streamline the development process, avoid duplication of efforts, and develop multipurpose Arctic defence infrastructure more quickly and efficiently. By directly involving relevant Indigenous groups and organizations in decision making, the Centre could also ensure that projects respect Indigenous rights while aligning security and economic objectives with the priorities of local communities.

On the financial front, the federal government should establish a concessionary finance program to attract alternative investment in multipurpose Arctic defence infrastructure development. This program should offer flexible low-interest loans, grants, or equity investments to prospective investors, as well as first loss guarantees to protect investors from financial risk. The program should also offer fund-matching incentives to investors willing to collaborate on multipurpose projects. Through this, the Government of Canada could leverage outside expertise and capital while maintaining control over the development of infrastructure that serves the nation’s strategic interests.

It could be argued that the Canada Infrastructure Bank, a pre-existing federal Crown Corporation, was created to solve these very coordination and funding issues. However, the Canada Infrastructure Bank’s mandate is not specific enough to streamline multipurpose Arctic defence infrastructure development. Instead of focusing on projects in the Canadian Arctic, the Canada Infrastructure Bank prioritizes investments in trade and transportation, green, broadband, and Indigenous community infrastructure, rather than much-needed multipurpose Arctic defence infrastructure. Another issue with the CIB is that it does not report to Cabinet. As a Crown Corporation, the Canada Infrastructure Bank ultimately reports to the Minister of Housing, Infrastructure and Communities, hindering its ability to be directed by and communicate with other ministries whose mandates also involve multipurpose Arctic infrastructure development. Lastly, the Canada Infrastructure Bankis also constrained, by law, to only invest in revenue-generating projects, which severely limits what infrastructure development it could contribute to in the North. It is also unable to offer loan guarantees without the explicit approval of the Minister of Finance, impeding its ability to ‘de-risk’ projects for potential multipurpose Arctic defence infrastructure development partners. Instead of relying on the Canada Infrastructure Bank or attempting to expand its purview, the Government of Canada should elevate the issue of multipurpose Arctic defence infrastructure development by establishing a distinct Centre of Excellence and finance program.

By implementing these solutions, Canada can break through current barriers to multipurpose Arctic defence infrastructure development and begin building the infrastructure it needs to secure its sovereignty, enhance its economy, and improve the lives of its residents in the Arctic.

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