The announcement comes amid ongoing talks between Ottawa and builder Kinder Morgan over the fierce opposition to the Trans Mountain pipeline (TMX) from westernmost British Columbia and investor fears over political risks to the project.
Kinder Morgan, whose investors will meet later in the day on the issue, had given a May 31 deadline to clear up political uncertainty surrounding the project.
"We are prepared to indemnify the project against any financial loss that derives from (British Columbia) Premier John Horgan's attempts to delay or obstruct the project," Finance Minister Bill Morneau told a news conference.
"If Kinder Morgan decides at some stage not to proceed with TMX, the indemnification against financial loss would still be in place for another party who might wish to take over the project," he said.
The finance minister declined to provide details of its proposal.
Ottawa approved in 2016 the Can$7.4 billion (US$5.8 billion) twinning of the pipeline originally built in 1953 to move 890,000 barrels of oil per day from landlocked Alberta to the Pacific tidewater, for shipping to new overseas markets.
In exchange for a new 1,150-kilometer (715-mile) conduit that would allow Alberta to diversify its markets and get a better price for its resources, the province agreed to impose curbs to carbon emissions on its oil sands, which is the largest single pollution emitter in Canada and key to the nation meeting its Paris climate target.
But British Columbia's new social democratic government recently joined environmental activists' fight against the pipeline, provoking an Alberta boycott of its wines and threats to devastate the British Columbia economy by restricting oil and gas supplies to its neighbor.
Opponents of TMX are concerned about the risk of oil spills along Canada's pristine Pacific coast impacting fisheries and tourism.
The row reached a boiling point last month with nearly 200 protestors arrested, and concerns raised that British Columbia's opposition to TMX risked provoking a constitutional crisis and was scaring away international investors.
Prime Minister Justin Trudeau interupted a three-country trip to Peru, France and Britain to return home to try to mediate the disagreement.
Backing for the project, meanwhile, has risen since the feud erupted with a majority -- including in British Columbia -- now in favor of the project.
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