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Ontario Environment Minister Glen Murray introduced legislation that will provide the legal basis for the cap-and-trade program.Fred Lum/The Globe and Mail

Ontario's Liberal government defended its plan Wednesday to give a break to large polluters in its proposed carbon-pricing regime, saying industry needs time to adjust while consumers will barely notice the hike in energy prices.

Environment Minister Glen Murray introduced legislation that will provide the legal basis for the cap-and-trade program, which will set province-wide limits on greenhouse-gas emissions, with annual reductions in the cap to meet a 2020 target.

On Thursday, the government will release draft regulations under which 102 large industrial emitters will get free allowances to produce GHGs at current levels in 2017 and would then have to reduce their emissions by more than 4 per cent a year until 2020, The Globe and Mail reported Wednesday.

Distributors of gasoline, home heating fuel and natural gas will have to purchase permits for every litre or cubic metre they sell, a government source told The Globe. The levy would add 4.3 cents to a litre of gasoline and about $5 to $6 a month for heating the average home, while raising more than $1.3-billion from consumers.

Premier Kathleen Wynne argued that Ontario energy consumers would not feel much financial pain from the cap-and-trade plan because the province is investing in measures to help households and businesses cut their energy use, and will use cap-and-trade revenues to continue that effort. She said electricity costs could actually fall as a result of those programs.

But the premier added that the world must adopt carbon-pricing plans as a means of avoiding the worst impacts of climate change, which pose costly threats to the economy. "And so the cost of doing nothing is much, much higher than the cost of going forward and reducing greenhouse-gas emissions," she told reporters Wednesday.

New Democratic Party Leader Andrea Horwath slammed the government for providing the largest industrial polluters with free allowances, instead of forcing them to pay for every tonne of carbon dioxide they emit. "When we see the first things government is doing is going to impact everyday folks, and yet big polluters get to take a bit of a vacation in terms of their participation, that's very sad," she said. "We want to see fairness."

Ms. Horwath also worried that the increases in the price of gasoline and home heating fuels will put an additional strain on low-income families.

Mr. Murray said Ontario is matching the approach taken by Quebec and California – which it is joining in a carbon market – by giving large industrial emitters time to adjust. He also noted that industry in Ontario has already cut GHGs substantially – provincial data show industrial emissions dropped by 21 per cent between 1990 and 2012, in large part due to an overall decline in the manufacturing sector.

The Environment Minister said the provision of free allowances would be "transitional," with a government source saying the plan is to review the system in 2020 and then reset the rules for large industrial polluters – such as those in the steel, petrochemical and cement industries – that are vulnerable to competition from outside the province.

The government is taking that approach "because we have to protect jobs in Ontario and ensure that trade-exposed industries, when they are competing with jurisdictions that don't have a cap-and-trade or a carbon-price system, are competitive," Mr. Murray said.

He added that the revenue generated by the system – expected to be well over $1.3-billion in the first year – will be allocated to a separate fund that will have strict rules on where it can be spent. Critics fear the money will be used to finance pet projects of the provincial Liberal government, regardless of the impact on emissions.

But Mr. Murray insisted that would not be the case. "Legally, we have to take this money and put it back into families and Ontarians – back into their businesses and their homes in a way that reduces their emissions and, from this government's perspective, reduces their costs," he said.