In a bid to provide greater visibility to the public around the use of proceeds from Ontario’s planned cap-and-trade program, the provincial government introduced legislation on February 24, 2016 to ensure that such proceeds are transparently reinvested into green projects and actions that will reduce greenhouse gas (GHG) emissions.

Under the proposed Climate Change Mitigation and Low Carbon Economy Act (the Act) all proceeds from Ontario’s cap-and-trade program will be deposited into a new Greenhouse Gas Reduction Account, which would only fund projects and initiatives aimed at reducing GHG  emissions. To ensure accountability to the public, the Act would also:

  • Require an annual report on funds flowing in and out of the Greenhouse Gas Reduction Account, as well as a description of supported initiatives and their alignment with climate change action plans.
  • Enshrine Ontario’s greenhouse gas reduction targets (15% below 1990 levels by 2020, 37% below 1990 levels by 2030, and 80% below 1990 levels by 2050) in law.
  • Provide a framework for reviewing and increasing emission reduction targets, as well as establishing additional interim targets.
  • Require the government to prepare and implement a climate change action plan for achieving its targets, with progress reports and a review of the plan  at least every five years (the plan will include timelines, estimated GHG emission reductions from various initiatives, cost per tonne of reductions, amount of funding to be drawn from cap-and-trade proceeds, and types of initiatives that may be funded including those related to energy use, land use and buildings, infrastructure, transportation, industry, agriculture and forestry, waste management, education and training, and research and innovation).
  • Allow for transitional allowances to large industrial emitters which would be phased out over a period of time.
  • Establish a legal framework for the cap-and-trade program, including provisions for the registration of mandatory and voluntary participants, administration of cap-and-trade accounts for program participants, and the administration of emission allowances and offsets. Further details of the cap-and-trade program are set out in the draft Cap and Trade Regulatory Proposal issued on February 25, 2016. For a more detailed look at the key features of the draft cap-and-trade regulation, please refer to our overview here.

To facilitate linking, the proposed Act also includes compliance and enforcement measures for the province’s cap-and-trade program which are aligned with those measures set out in the Quebec and California cap-and-trade programs. Potential fines for non-compliance with the act are high, with minimum fines set at $5,000 and $25,000 and maximums as high as $4M and $6M for individuals and corporations, respectively, on first convictions. The Act also allows for the issuance of administrative monetary penalties, which are similar to the environmental penalties that can be issued under the Ontario Environmental Protection Act and the Ontario Water Resources Act.

In designing carbon pricing policies, the question of what to do with the revenues quickly becomes a heated topic of discussion. For example, British Columbia’s revenue neutral carbon tax was hotly debated when it was introduced in 2008 and continues to be a hot topic of discussion today. To assure British Columbians that carbon tax revenues are properly directed into rebates or reductions in other taxes, the provincial government implemented a law to require the carbon tax to be revenue neutral and for the Minister of Finance to annually prepare a three-year plan for recycling carbon tax revenues through tax reductions. Ontario’s proposed Act appears to be taking a page from the same book – by making the government accountable for its actions and ensuring that the proceeds of the cap-and-trade program are properly reinvested in green initiatives, the Act aims to bolster the credibility of the Ontario government’s climate change program among the broader public.

The Act has been posted on the Environmental Bill of Rights Registry and is open for comment until March 25, 2016 here. We encourage interested parties to provide comments to the government.