Canada: Climate Change Regulatory Update: The "Made-In-Ontario Environment Plan" — More Carrots, Fewer Sticks And A Dash Of Sunlight

On November 29, 2018, the Government of Ontario released its Plan, " Preserving and Protecting our Environment for Future Generations: A Made-in-Ontario Environment Plan" (the Plan).1 The Plan provides Ontario's response to the federal government's carbon pricing backstop and touches on multiple environmental issues, including water pollution, greenspace, waste management and litter. This article will focus those parts of the Plan that address greenhouse gas (GHG) emissions and other types of air pollution. We have also prepared a companion article that focuses on the implications of the Plan for waste management in Ontario.

The Plan is a very high level document. It does not provide details on any new laws, regulations or policies. What the Plan does do is provide an overview of where the Government of Ontario is heading in respect of the environment, setting out its priorities and the ways in which it plans to approach environmental issues. With respect to climate change, the Plan reflects the previous political messaging - that Ontario will not put a price on carbon. For GHG emissions, the Plan will try implement measures to allow Ontario to achieve a target reduction in GHGs consistent with Canada's obligations under the Paris Agreement.

Ontario's approach to meet that target can be summed up as follows:

  1. More carrots, in the form of government spending and tax benefits for clean technology;
  2. Fewer sticks, in the form of flexible2 industry performance standards, ethanol standards and emissions-testing for heavy duty vehicles; and
  3. A dash of sunlight, with efforts to shed light on the emissions of public companies so that investors can make informed decisions.

In addition to climate change mitigation strategies, the Plan also recognizes the importance of climate change adaptation and resiliency, in keeping with the prior government's plans in this regard.

The Target: A reduction of 30% below 2005 GHG levels by 2030

The Cap and Trade Cancellation Act, 2018 required Ontario to 1) prepare a climate change plan; and 2) set a target for reducing GHG emissions.3 The Made-in-Ontario Plan fulfils both requirements and aims to reduce Ontario's GHG emissions by 30% below 2005 levels by 2030.4

The target aligns with Canada's 2030 target under the Paris Agreement.5 The Paris Agreement, however, is considered to be a relatively low threshold for international climate action. It was expected that achievement of its targets would only keep global temperature rises to below 2 degrees Celsius above6 pre-industrial levels – enough to avoid the most devastating effects of climate change, but not mitigate all of the negative effects associated with a warming world.7 Previously, Ontario had set a higher target of 37% below 1990 levels by 2030.8

The Strategy: More carrots, fewer sticks and a dash of sunlight

The figure below sets out the proposed strategies and their anticipated contribution to achieving the Ontario GHG emissions target. The subsections that follow explore in greater detail the "carrots", "sticks" and "sunlight" that form part of the Made-in-Ontario Plan.

Planned Emission Reductions in 2030 by Sector9

The Sticks: Industry performance standards, ethanol standards and emission-testing for heavy-duty vehicles

Ontario anticipates that 15% of Ontario's emissions reduction will come from the establishment of an emissions performance standard. Under this system, large emitters of GHGs would be required to reduce emissions based on their level of output or production.10 Each large industrial emitter would be required to demonstrate compliance on a regular basis. If an emitter cannot achieve the standard, there will be "compliance flexibility mechanisms", whereby an emitter may submit carbon offset credits or pay a certain amount to achieve compliance.11

The details have not yet been provided, but Ontario points to Saskatchewan's output-based pricing system for an indication of what may come. In Saskatchewan, facilities in certain regulated sectors that emit more than 25,000 tonnes of GHG emissions per year are subject to an output based pricing system.12

Interestingly, the federal government's Greenhouse Gas Pollution Pricing Act13 (the federal backstop) also includes an output-based pricing system which follows the same general principles. It is unknown as to the extent to which the Ontario Plan would differ from the federal backstop, and whether it could eventually comply with the federal requirements. However, Ontario has already missed the deadline to establish its own federally-compliant system, and Ontario has challenged the federal backstop in court.14 Under the federal regime, output-based standards are anticipated to be set at 80% of an industrial sector's average GHG emissions intensity for most industries. 15 An exception will apply to the cement, iron and steel, lime and nitrogen fertilizer sectors, which will have a less challenging standard of 90% of the sector's average GHG emissions intensity.16 For more detail on the federal government's output-based pricing system, see our October 9, 2018 article: "Ontario's Cap and Trade Program Ends and Federal Backstop Looms: Implications for Ontario Businesses".

Other than industry performance standards, Ontario may also impose higher renewable fuel standards in the longer-term. Ontario currently requires that gasoline contain 5% ethanol, a renewable fuel produced mainly through the fermentation of corn and wheat.17 The Plan envisions that the ethanol content of gasoline could be increased to 15% as early as 2025, reducing GHG emissions further.18

Finally, the Plan intends to reduce air pollution emissions generally by redesigning the emissions testing program for heavy-duty vehicles, such as commercial transport trucks, and by strengthening on-road enforcement of emissions standards.19 This will have implications for many air pollutants, including GHG emissions.

The Carrots: Clean Tech Funding and Tax Benefits

The Plan also has various strategies that are intended to promote private investment in clean technology.

The most concrete way the Government will support clean tech is by creating a new funding pool called the Ontario Carbon Trust. In total the program would devote $400 million over four years. $350 million would be used to create an emission reduction fund to support GHG reduction emissions. The remaining $50 million would be used to fund a "Reverse Auction", allowing bidders to send the Government proposals for emissions reduction projects and compete for contracts based on the bidder who can reduce emissions for the lowest cost.

Green Bonds, government bonds meant to fund projects with environmental or climate benefits, may also be on the horizon. The Government states that it will work with the Ontario Financing Authority to issue Green Bonds to allow Ontario to raise funds for "green" projects by the end of the fiscal year.20

Apart from funding, the Plan proposes to modify the Ontario tax regime to favour clean tech. Consistent with the previous Liberal government's plans,21 Ontario will follow federal changes to the Accelerated Capital Cost Allowance,22 which will support technology investments in clean energy generation and energy conservation equipment by allowing businesses to defer income to later years where they make these investments.

The Sunlight: Carbon disclosure

A final component of the Plan aims to shine light on the environmental practices of companies. Ontario intends to work with the financial sector to promote disclosure of not only typical financial information, but also climate change related information. Ontario also wishes to encourage the Ontario Securities Commission to improve guidance on climate-related disclosures, so that investors can better understand the climate impacts (and associated risks) of public companies.23

The Back-up Plan: Building resiliency in the face of a changing climate

Finally, the Plan recognizes that the effects of climate change are already being felt in Ontario, and are likely to worsen in the future. As a result, the Plan outlines strategies to increase the resiliency of both public infrastructure and personal property, in collaboration with municipalities and developers, among other stakeholders. These strategies do not represent a significant divergence from the previous government's strategy on climate change resiliency. The strategies include:

  1. Undertaking a climate change impact assessment to help identify how climate change is likely to impact Ontario, especially in respect of its infrastructure, economy and natural environment.24 This builds on prior monitoring of climate change impacts and prior intentions to undertake a province-wide risk assessment on the effects of climate change.25
  2. Working with municipalities to develop climate and energy plans,26 in keeping with the recommendations of the prior provincial government.27
  3. Reviewing the Municipal Disaster Recovery Assistance ("MDRA") program, which was launched in 2016,[28] to encourage municipalities to incorporate climate resilience improvements when repairing or replacing damaged infrastructure after a natural disaster.29
  4. Reviewing the Building Code30 to support the adoption of energy efficiency measures and to better equip new homes and buildings to withstand extreme weather events. 31 Reviews were already being considered at a national32 and provincial level.33
  5. Reviewing land use planning policies and laws with an eye to improving climate change resiliency.34 A review was already underway by the previous government.35

Conclusion

The Made-in-Ontario Plan moves away from carbon pricing and seeks to reduce the regulatory burden on industry. The Government of Ontario has set a target in line with international agreements and has begun thinking about how to tackle that target in the absence of a cap and trade system or carbon tax. The details are yet to come, but the Plan is a signal about where the Government is going. It's a Plan that focuses on the carrots, has fewer sticks and shines a bit of light on the environmental practices of public companies.

The Plan is being made available for comment. Comments can be submitted up to January 28, 2019 by visiting the Environmental Bill of Rights website.

*This article is accompanied by an article on the waste implications of the Made-in-Ontario Environment Plan. It is also the latest update in a series of articles on the climate change regulatory regime. For more details, please see the October 9, 2018 article, "Ontario's Cap and Trade Program Ends and Federal Backstop Looms: Implications for Ontario Businesses", and October 29 article, " Climate Change Regulatory Update – The Feds Double Down on Carbon Pricing".

Footnotes

1 Ontario Ministry of the Environment, Conservation and Parks, " Preserving and Protection our Environment for Future Generations: A Made-in-Ontario Environment Plan" (November 29, 2018) [the "Plan"].

2 Plan, at p 26

3 Cap and Trade Cancellation Act, 2018, S.O. 2018, c. 13, ss. 3, 4. Ontario Plan, at p. 18. For more details on the Cap and Trade Cancellation Act, see our article " Ontario's Cap and Trade Program Ends and Federal Backstop Looms: Implications for Ontario Businesses" (October 9, 2018).

4 Plan, at p. 21.

5 Government of Canada, " Progress towards Canada's greenhouse gas emissions reduction target (February 2, 2018).

6 United Nations Framework Convention on Climate Change, The Paris Agreement (October 22, 2018) ["UNFCCC, 2018"].

7 UNFCCC, 2018.

8 " Ontario Releases New Climate Change Strategy" (November 24, 2015).

9 Plan, at p. 24.

10 Plan, at p. 26.

11 Plan, at p. 26.

12 Plan, at p. 26.

13 Greenhouse Gas Pollution Pricing Act, S.C. 2018, c. 12, s. 186, Part 2.

14 Government of Ontario, " Order in Council 1014/2018" (August 1, 2018).

15 Government of Canada, " Update on the output based pricing system: Technical backgrounder" (July 27, 2018) ["OBPS Technical Backgrounder"].

16 OBPS Technical Backgrounder.

17 Ethanol in Gasoline, Ontario Regulation 535/05, s. 3.

18 Plan, at p. 33.

19 Plan, at p. 10.

20 Plan, at p. 30.

21 Under the previous government's " Climate Change Action Plan", the Province stated it would work with the federal government to explore opportunities for accelerated capital cost allowance for GHG reducing technologies. See s. 2.2 (June 8, 2016).

22 Plan, at p. 30.

23 Plan, at p. 29.

24 Plan, at p. 19.

25 Former Ministry of the Environment and Climate Change (November 22, 2017) " How we're adapting to climate change" (November 22, 2017, archived online).

26 Plan, at p. 37.

27 " Research and Information Gathering on Climate Change Mitigation and Adaptation: Report prepared for the Ministry of Environment and Climate Change" (January 2016), at p. 6.

28 The MDRA helps municipalities that have incurred extraordinary costs, such as infrastructure repair costs, because of a natural disaster: Ontario Ministry of Municipal Affairs & Housing, "Municipal Disaster Recovery Assistance: Program Guidelines" (2016), s. 3.2.

29 Plan, at p. 20.

30 Building Code, Ontario Regulation 332/12.

31 Plan, at pp. 20, 32.

32 The National Research Council ("NRC") is responsible for updating the National Building Code of Canada every five years, which serves as a model for Ontario's provincial code, with modifications. The next version will be released in 2020. In 2016, the NRC and Infrastructure Canada allocated $40 million for the Climate-resilient Buildings and Core Public Infrastructure Project to integrate climate resiliency into building and infrastructure design, guides and building codes. See: National Research Council, " The National Research Council Canada and Infrastructure Canada take the lead in preparing Canada's buildings and infrastructure for climate resiliency" (February 23, 2018).

33 On July 14, 2017, The Ministry of Municipal Affairs released a series of proposed changes to Ontario's Building Code that would come into effect in January 2019. For example, under the previous Ontario government, mandatory hurricane straps and backwater valves in houses were proposed to be introduced to the Building Code effective January 2019. Ministry of Municipal Affairs "Potential Changes to Ontario's Building Code: Summer And Fall 2017 Consultation."

34 Plan, at p. 21.

35 In 2014, the Provincial Policy Statement was updated to require municipalities to consider the effects of climate change for planning resilient communities. Then, with Bill 68, changes were made to several municipal laws, including the Municipal Act, 2001, City of Toronto Act, Municipal Conflict of Interest Act, and Planning Act to increase municipal power to address climate change. Finally, in 2017, the Growth Plan for the Greater Golden Horseshoe ("GGH"), Greenbelt Plan, Oak Ridges Moraine Conservation Plan and the Niagara Escarpment Plan were all updated to require consideration of climate change adaptation. See: Government of Ontario, " How we're adapting to climate change" (November 22, 2017 archived online), and Bill 68, Modernizing Ontario's Municipal Legislation Act, 2017.

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