Item - 2023.IE3.4

City Council considered Items IE3.3 and IE3.4 and EX4.2 together.

The Infrastructure and Environment Committee recommends that:

1. City Council adopt the proposed wording set out in Attachment A to the report (April 12, 2023) from the Executive Director, Environment and Climate, for the bill that Council has authorized to be brought forward and enacted as part of Chapter 669 (Climate Change Goals and Governance) to the Toronto Municipal Code.

2. City Council adopt the Offset Credits Policy, set out in Attachment B to the report (April 12, 2023) from the Executive Director, Environment and Climate, as a net zero-aligned approach to offset credits applicable to all City of Toronto Divisions, Agencies and Corporations.

3. City Council direct that no offset credits for carbon removal be purchased from the voluntary market on behalf of the Corporation of the City of Toronto for the purpose of achieving net zero emissions in 2040 or subsequent years, unless the Executive Director, Environment and Climate, or delegate, receives authorization for doing so after reporting to City Council on: (i) the offset credits intended for purchase and the protocol used to establish them; and (ii) the validity of the offset credits for achieving net zero emissions based on best available science.

4. City Council direct the Executive Director, Environment and Climate, or delegate, in the second quarter of 2025 as part of the next short-term implementation plan for the TransformTO Net Zero Strategy, to report to City Council on a limit for the amount of offset credits the Corporation can purchase to achieve net zero emissions in 2040 or subsequent years.

Toronto set an ambitious target of net zero greenhouse gas (GHG) emissions by 2040 and developed the TransformTO Net Zero Strategy to help lead the way. 

The next step is defining an accountability and governance system that can institutionalize progress in reducing GHG emissions and establish the City of Toronto as a climate governance leader through enhanced transparency and accountability.

The Carbon Accountability system proposed in this report would support actions across the City government to reduce GHG emissions in the community and from the City's own operations ("Corporate" emissions). This will increase value for money and facilitate deeper engagement by Council, residents and stakeholders' on the City's implementation of the Net Zero Strategy. It will also support the City's commitment to lead by example by reducing emissions from Corporate operations even further and faster than community emissions.

Increasingly, Council and stakeholders are asking whether sufficient financial investment is being allocated and/or spent to achieve annual progress towards Toronto's ambitious targets. Council's desire to understand the link between financial decisions about current and future policy, programs and projects and their impact on GHG reductions is the basis for establishing a "Carbon Budget". The Carbon Budget process, which is part of the Carbon Accountability system sets both a standard and a process for managing to meet that standard - analogous to a household or organizational budget but instead of limited dollars being managed according to institutionalized processes, limited units of GHGs must be managed.

The process of establishing a Carbon Accountability system that relies on a Carbon Budget, both of which are outlined in this report, raises the bar on accountability for the City with respect to its actions to reduce greenhouse emissions.  The proposed process goes beyond monitoring and reporting activities and their associated emissions to adding proactive elements that identify and support plans to align GHG emissions with absolute "emissions budgets" that are consistent with Council-adopted GHG targets and global science-based pathways to achieve the Paris Agreement 1.5 °C goal, as determined by the Intergovernmental Panel on Climate Change (IPCC), an United Nations body charged with advancing scientific knowledge about human sources of climate change.

Moreover, the Carbon Budget contributes a critical piece to a more holistic and broader accountability framework by linking governance and budget planning to the ideas, priorities, and realities of City leaders via the Net Zero Climate Leadership Table (NZCLT) as well as the broader community, through consultation with the Community Advisory Group (CAG).

The three elements in this report that support a Carbon Accountability system and Carbon Budget process include:

1. A new Climate Change Goals and Governance chapter for Toronto's Municipal Code. This codifies the foundation of the Carbon Accountability system and provides 'process certainty' for City Divisions, Agencies and Committees around GHG management prioritization and public reporting aligned with key target years and integrated with the financial budget process;

2.  A new corporate Offset Credits Policy. This clarifies the "net" of net zero by defining whether and how the Corporation will purchase and/or sell carbon offsets in a science-based, fiscally responsible way as we work toward the net zero goal;

3.  A description of the tools and resources for implementing the Carbon Accountability system. These will assist with quantifying estimates of GHG impact in the annual Carbon Budget process and the generation of a Carbon Budget Report, also annually. They will also provide for more accessible public engagement through a dashboard of key metrics.

Using a Carbon Budget process will deepen the consideration of climate action within the annual financial budget process and provide more information on the expected impact of the City’s actions to reduce GHG emissions. Key metrics will be presented publicly on a dashboard to enhance transparency.

Additionally, every Carbon Budget Report that immediately follows a municipal election will be an "enhanced" report for the new Council, including information on the status of progress towards climate goals, actions and investments needed to address any gaps in progress, and requests for confirmation of continued or enhanced support for achieving Council adopted goals.

Staff from the Environment & Climate Division ("E&C") have been working together with Financial Planning Division to prepare for initial implementation of the first annual Carbon Budget process and Carbon Budget Report in 2024. There will be some initial limitations including around lack of data to support estimates of GHG reductions from City-led actions and integrating new tools and resources into the financial budget process. Lessons from the 2024 budget cycle will be applied to future budget cycles as the process is expected to evolve and grow more robust over time. In fact, a key lesson from other jurisdictions with advanced accountability and governance approaches is that it is better to start from where you stand and improve over time than to delay implementation until data, tools and processes are perfected.[1]

Staff in E&C have consulted on the Carbon Accountability system externally with the Climate Advisory Group and internally with the Net Zero Climate Leadership Table, other net zero related working groups and relevant Divisions, Agencies and Corporations. Feedback from these consultations has been integrated.

Pending Council’s decision, the Carbon Accountability system and Carbon Budget process will make Toronto one of the leading cities for demonstrating credible and systemic climate governance as part of our drive to net zero emissions. Taking the steps to be accountable for net zero climate action - year in and year out until 2040 - will further institutionalize climate action into the cultural DNA of the City of Toronto.

[1] Arup and C40 Cities, "Climate Budgeting: Transforming governance to mainstream climate action" (October 2022).