October 11, 2018 Cap and…

October 11, 2018

Cap and Trade - Help Desk
Cap and Trade Branch
77 Wellesley Street West
10th Floor, Ferguson Block
Toronto ON M7A 2T5
Canada

Dear Sir/Madam,

Re: Bill 4, Cap and Trade Cancellation Act, 2018
EBR Registry Number: 013-3738
Ministry: Ministry of the Environment and Climate Change
Posted September 11, 2018 to the Environmental Registry

Introduction

Viridius Lex LLP welcomes the opportunity to provide commentary on the proposed Bill 4, An Act respecting the preparation of a climate change plan, providing for the wind down of the cap and trade program and repealing the Climate Change Mitigation and Low-carbon Economy Act, 2016 ("Bill 4").

As lawyers with Viridius Lex LLP we support businesses and social enterprises that are seeking to meet and exceed evolving regulatory requirements, including clients in the following sectors: clean tech, food and beverage, agriculture, textile and design, and trades. Our clients see the value in sustainable practices to their bottom line, their clients, and the community, now and into the future.

We write to express our concern with respect to the introduction of Bill 4, the proposed repeal of the Climate Change Mitigation and Low-carbon Economy Act and its regulations, and the repeal of a clear and predictable carbon pricing regime (the cap and trade program) in Ontario without providing a firm climate change plan or emissions target. In particular, we are concerned that the proposed legislation will, as drafted, have a disproportionately negative impact on sustainable business including compliant companies that bought credits in the cap and trade program, organizations, companies and programs that were funded with the revenue from the cap and trade program, companies providing sustainable goods/services, and conservation and GHG reduction programs/services. Further, we are concerned that the proposed legislation presents an inadequate replacement for the existing legislative and regulatory framework on climate change. The consequences of climate change are expected to seriously impact small and medium sized businesses.

Importantly, we hope that Ontario’s law and policy on climate change will be considered as reliable and consistent, and promote investment in Ontario. Ontario’s sustainable businesses, which are amongst the economic sectors most impacted by the proposed legislative changes, hope to see a commitment from Ontario to do its share in reducing GHG emissions while creating a regulatory framework that is predictable and fair.

Impact of Climate Change on Agriculture and Small Business

Climate change has had serious socio-economic effects. Longer and hotter summers have significant implications for many sectors, including agriculture, forestry, and buildings. According to Agriculture and Agri-Food Canada, a changing climate can have unpredictable impacts on agriculture.[1] The high temperatures in March 2012 caused apple trees to bloom early, only to lose lost 80% of their fruit because of a severe frost two months later. Climate change increases the intensity and frequency of droughts and violent storms. As the frequency of such events increases, crop yields decrease and could reduce pasture availability and the production of forage, requiring alternative feed sources or the need to reduce herd sizes. Climate change could also affect crop pests and disease, weed growth would increase due to higher levels of atmospheric Carbon Dioxide and there would be an increased prevalence of pests and pathogens in livestock and crops. All of this will have a detrimental impact on Ontario’s food security. Increased extremes in temperature and precipitation also mean increased risk of flooding in communities across the province. The Toronto floods in July 2013, resulted in more than $940 million in damages while a severe ice storm in December 2013 resulted in $200 million of property damage in Ontario. [2] According to the most recent Greenhouse Gas Progress Report from the Environmental Commissioner of Ontario’s (ECO),[3] “[i]n the first five months of 2018, extreme weather had already resulted in nearly three-quarters of a billion dollars in insured damage in Ontario. This was followed by a summer of dangerous heat waves, floods, and forest fires in Ontario and around the world.”

A July 2013 report produced by Small Business Majority and the American Sustainable Business Council [4] studied the impact of climate change on the small business sector. The report noted that Hurricane Sandy of 2012 cost approximately U.S. $65 billion and had a negative effect on 60,000 to 100,000 small businesses. Up to 30 percent of the affected small businesses were estimated to have failed as a direct result of the storm. The vulnerability of most small businesses is result of operating out of a single physical location. This makes small businesses much more vulnerable than larger companies that have the resources to withstand the loss of a single location.

The Zurich Insurance Group’s 2016 fourth annual global SME survey found that climate change is a major concern for small and medium-sized enterprises (“SMEs”),. Almost four-fifths (78%) of the SMEs surveyed expected risks associated with climate change to have a significant effect on their business. Heavy rain (22%) and droughts (20%) were the most significant climate change risks while material damage (36%) and business interruptions (26%) were expected to have the most severe impact on these businesses.

Background

On September 11, 2018, public notice was provided for Bill 4, Cap and Trade Cancellation Act, 2018 on the Environmental Registry of Ontario and the Environmental Bill of Rights Environmental Registry. Unusually, the public notice was posted forty-eight days after Bill 4 was introduced into the Ontario Legislature on July 25, 2018. Bill 4 is currently being debated in the Ontario Legislature. If passed, Bill 4 will repeal the Climate Change Mitigation and Low-carbon Economy Act, 2016 (CCMLEA) and set out the legal framework for an orderly wind-down of the cap and trade program including the compensation framework.

Recommendations

1.0 General Commentary and Recommendations

First and foremost, we would like to note our concern that Bill 4 eliminates a detailed and comprehensive greenhouse gas (GHG) emission reduction regime and does not offer a comparably robust replacement.

The scarce detail with respect to the establishment of GHG emission targets and the climate change plan is concerning considering the impending implementation of the federal government’s carbon pricing backstop. The passage of Bill 4 will leave Ontario with no price on carbon, no climate change action plan, and no GHG emissions targets. While we take no position on whether the federal backstop is preferable to a regime tailored to the province, we are concerned with the uncertainty created by the lack of a climate change plan for the public and a burgeoning low-carbon economy when the federal backstop is implemented in early 2019.

Bill 4 repeals Ontario’s existing climate legislation and offers in its place a piece of legislation that provides vague provisions with very little detail. The Environmental Commissioner of Ontario’s (ECO) recent Greenhouse Gas Progress Report stated that Bill 4 “lacks most of the features of a good climate law”. This is a harsh assessment by Ontario’s independent watchdog, but one which requires a response by the Ontario government. We agree with and support the recommendations cited in the ECO’s Greenhouse Gas Progress Report.

We believe it is essential that Bill 4 adopt concrete emission targets and timelines for implementation of climate goals, propose a means of driving down GHG emissions (a market-based mechanism or a regulatory approach), and direct funds to climate change research and mitigation/adaptation measures.

We support adoption of a “polluter pay” model, to disincentivize inefficient production methods, and incentivize conservation, GHG reductions, and foster investment in a low-carbon economy. Alternatives to cap and trade are the federal backstop, other provincially imposed market mechanism which puts a price on prescribed behaviour, or regulatory action. Whatever option is selected by Ontario, it should be clearly articulated in Bill 4, so that the province maintains an effective, predictable, transparent climate law.

Also, of central importance to good climate law and policy is government support and investment in low carbon solutions and initiatives that reduce GHG emissions. It is important that the government provide incentives for companies and individuals to invest in GHG emission-reduction projects. Bill 4 should address how low-carbon solutions and climate change mitigation and adaptation programs will be funded, and what the government will do to foster a low-carbon economy.
It is also essential that Ontario ensure that Bill 4 proposes an approach to climate change that will be consistent over time, and able to (a) support climate research, training and innovation; (b) attract investment in our province and (c) foster a low-carbon economy. Ontario should avoid abrupt change in favour of long-term planning. The Environmental Commissioner of Ontario referenced the United Kingdom’s Climate Change Act as the “best international model for long-term consistency” because it sets “legally binding long-term emission limits, plus five-year carbon budgets 12 years in advance, based on non-partisan, expert advice and reporting.” Further, we believe it is imperative that the government compensate companies that have invested, in good faith, in reliance on government contracts.

It is equally crucial that the government take seriously its obligation to consult with the public on proposed legislative and policy changes, including stakeholders in the low-carbon economy, and those likely to be most severely impacted by climate policy decisions. Not only should notice of proposed decisions be provided, but Indigenous and low-income communities should have an opportunity to weigh in as early as possible in the decision-making process and have a seat on advisory panels struck by the Minister. Meaningful public participation will result not only in improved decision-making but enhanced public perception of the legitimacy of the government’s decisions and credibility of its initiatives. We support the ECO’s recommendation and urge that Bill 4 be amended to include provision for regular monitoring, progress reporting with third-party validation, and public participation.

2.0 Specific Recommendations

Climate Change Plan

Subsection 4(1) of Bill 4 requires the government to prepare a climate change plan but does not indicate the timeframe in which the climate change plan must be established, or what its contents must include. Bill 4 also provides, at subsection 4(2), that the government may for the purpose of preparing the climate change plan, appoint advisory panels. Subsection 5(1) requires that the Minister prepare reports in respect of the climate change plan “on a regular basis”.

2.1 Recommendation

Bill 4 should state the purpose and required content of the climate change plan. Bill 4 should require the climate change plan to: (1) set out actions to modify behaviour that would enable Ontario to achieve its targets for the reduction of GHG emissions,(2) commit the Province to achieve these emissions levels, and (3) establish a timetable for taking the action set out in the plan.

2.2 Recommendation

Bill 4 should provide direction on the composition of the proposed advisory panel, including mandating inclusion of members, under section 4(2), to ensure the advisory panel consists of members that have the requisite qualifications and experience in the field of climate change and public health to provide informed advice, as well as including representation by other stakeholders, including representatives from the low-carbon economy, Indigenous communities, and low-income communities.

2.3 Recommendation

The climate change plan should be required to consider prescribed factors, including: the precautionary principle, science-based evidence, and environmental justice especially with respect to the likely impacts on vulnerable and Indigenous communities. Further, in the spirit of reconciliation, the climate change plan should consider and give weight to Indigenous traditional ecological knowledge, if offered.

2.4 Recommendation

Bill 4 should require that the climate change plan, and any revisions thereto, be brought before the Legislative Assembly, and be made publicly available on a website of the Government, via the Environmental Bill of Rights Environmental Registry, and in such other manner as may be prescribed by the regulations prior to its implementation.

2.5 Recommendation

Bill 4 should include a specific deadline for the laying of the climate change plan before the Legislative Assembly. The Bill should also include provisions to enable revisions to the climate change plan, at any time, and to require the review of the action plan at least every 5 years.

2.6 Recommendation

Bill 4 should require the Minister to prepare an annual progress report describing the status of the actions set out in the climate change plan. The Bill should also require that the Minister lay the progress report before the Legislative Assembly and make it publicly available in the same way that the climate change plan was made publicly available.

3.0 Greenhouse Gas Emission Targets

Subsection 3(1) of Bill 4 provides that the government must establish targets for the reduction of GHG emissions. Like the climate change plan, no further detail is provided to indicate the timeframe in which reduction targets must be established, or what those targets will be. There is also no requirement to ensure that the reduction targets, when established, be set to achieve any specific GHG emissions levels.

3.1 Recommendation

Bill 4 should include specific emission targets and timeframes. The emission targets should be established, and revised, in accordance with the obligations set under domestic and international law, and with any temperature goals recognized by the Conference of the Parties established under Article 7 of the United Nations Framework Convention on Climate Change.

3.2 Recommendation

If Bill 4 is passed, we recommend the Minister ensure the legislation be prescribed under O. Reg. 73/94, so that regulations enacted under the legislation, will be subject to the EBR notice and comment provisions.

3.3 Recommendation

Bill 4 should be amended to include a requirement that the Act be binding on the government. Bill 4 should also require that, in the administration of this Act, decision-makers under the Act exercise their powers in a manner that employs the precautionary approach to protect the environment and human health.

4.0 COMPENSATION

The compensation scheme proposed in section 8 of Bill 4 provides that certain participants will be eligible for compensation, while others will not. The Bill proposes to provide compensation to a small percentage of participants for a small percentage of purchased allowances. Essentially, compensation would be limited to those entities that purchased more allowances than were required (i.e., in excess of their GHG emissions) from January 1, 2017 to July 3, 2018 and did not pass on the cost to consumers. Entities that did not hold enough instruments to satisfy their compliance obligation as of July 3, 2018 will be forgiven without consequence.

While the specifics of how compensation will be allocated will be set out in regulations, it appears from Bill 4 that the proposed compensation scheme penalizes participants that attempted to comply with legislative requirements, and rewards emitters that failed to comply (by having not acquired sufficient compliance instruments to match their GHG emissions). Those to be penalized (i.e., not compensated) under Bill 4 include participants that complied with the law (and bought allowances to match their emissions in good faith); invested time, talent and money in GHG reduction projects; and those that acquired allowances with the intent to sell them.

Further, Sections 9 and 10 of Bill 4 include prohibitions against compensation claims and other causes of action against the Government of Ontario related to cancelled compliance instruments and the repeal of the CCMLEA. Bill 4 also proposes to prevent any cause of action against the Crown from various specified matters by legislating the extinguishment of any existing proceedings, and the prevention of any future proceedings, against the Crown and other specified related persons, in relation to specified matters.

While it is to be expected that incoming governments will make changes to government policy, legislating government immunity from civil liability is a significant departure from common practice. We are concerned that the inclusion of these legislative immunizing clauses will create apprehension and reluctance amongst investors and commercial enterprises and likely stifle growth of a low-carbon economy.

4.1 Recommendation

It is recommended that the compensation provisions of Bill 4 be expanded to fully compensate participants that relied to their detriment on the cap and trade program.

4.2 Recommendation

In recognition of the harm it will cause to the province’s reputation as a reliable, predictable, and safe jurisdiction for business and investment, it is recommended that sections 9 and 10 be struck from Bill 4.

Submitted by:

Rizwan Khan
Counsel, Viridius Lex LLP
300-192 Spadina Ave Toronto, ON. M5T 2C2
T/F: 647.362.0302
E: rizwan@viridius.com

Burgandy Dunn
Counsel, Viridius Lex LLP
125-221 Queen St
Kingston, ON. K7K 1B4
T/F: 613.900.1981
E: burgandy@viridius.com

References:
[1] Agriculture and Agri-Food Canada, “Impact of climate change on Canadian agriculture”, online: http://www.agr.gc.ca/eng/science-and-innovation/agricultural-practices/…
[2] Ministry of the Environment and Climate Change, “Why we need to address climate change” online: https://www.ontario.ca/page/why-we-need-address-climate-change
[3] Environmental Commissioner of Ontario, “Climate Action in Ontario: What’s Next – 2018 Greenhouse Gas Progress Report” (2018) online: https://docs.assets.eco.on.ca/reports/climate-change/2018/Climate-Actio…
[4] Small Business Majority and the American Sustainable Business Council, “Climate Change Preparedness and the Small Business Sector” (2013) online: http://asbcouncil.org/sites/default/files/small_business_climate_report…
[5] Zurich Insurance Group (Zurich), Four out of five SMEs fear impact of climate change on their business, (2016) online: https://www.zurich.com/en/media/news-releases/2016/2016-1103-01
[6] Environmental Registry of Ontario, Bill 4, Cap and Trade Cancellation Act, 2018) ERO no. 013-3738, online; https://ero.ontario.ca/notice/013-3738; Environmental Bill of Rights Environmental Registry, “Bill 4, Cap and Trade Cancellation Act, 2018” (Date Proposal Loaded ot the Registry: Sept 11, 2018) EBR Registry No. 013-3738, online: http://www.ebr.gov.on.ca/ERS-WEB-External/displaynoticecontent.do?notic…
[7] Government of Ontario, Ontario Legislature, “Bill 4, Cap and Trade Cancellation Act, 2018“ online: https://www.ola.org/en/legislative-business/bills/parliament-42/session…
[8] Environmental Commissioner of Ontario, “Climate Action in Ontario: What’s Next – 2018 Greenhouse Gas Progress Report” (2018) online: https://docs.assets.eco.on.ca/reports/climate-change/2018/Climate-Actio…
[9] Environmental Commissioner of Ontario, “Climate Action in Ontario: What’s Next – 2018 Greenhouse Gas Progress Report” (2018) online: https://docs.assets.eco.on.ca/reports/climate-change/2018/Climate-Actio…
[10] Environmental Commissioner of Ontario, “Climate Action in Ontario: What’s Next – 2018 Greenhouse Gas Progress Report” (2018) online: https://docs.assets.eco.on.ca/reports/climate-change/2018/Climate-Actio…
[11] Environmental Commissioner of Ontario, “Climate Action in Ontario: What’s Next – 2018 Greenhouse Gas Progress Report” (2018) online: https://docs.assets.eco.on.ca/reports/climate-change/2018/Climate-Actio…