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Commuters board a TTC subway at Kennedy Station in Scarborough, Ontario Wednesday, September 25, 2013. Police are investigating another armed robbery, this time at Chester station, the evening of Oct. 6.

Kevin Van Paassen/The Globe and Mail

Ontario plans to introduce special bonds as a new way to borrow money for environmentally friendly infrastructure, including desperately needed transit projects.

These bonds could be available to investors as early as next year, when the province faces the possibility of an election that hinges on transportation and gridlock.

"The green bond issue really is about infrastructure writ large across the province," said Premier Kathleen Wynne at an announcement Wednesday morning in Etobicoke.

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Many details about the bonds remained murky after the rollout, which sparked a lukewarm reception from opposition parties and some on Bay Street. Still unclear is how much money the government hopes to raise, how soon the first issue could happen and which projects would be deemed green enough to qualify for the funds. The province has a large infrastructure deficit but fixing roads and bridges does not fit traditional notions of green projects.

"The green bonds will be associated with specific projects that would qualify for it, so they would be certified for that project," Finance Minister Charles Sousa said in a later interview. "They're associated only with those projects that lower the carbon footprint and enable environmental conditions to be enhanced."

The government is banking that people will buy the bonds out of a desire to help the environment. Both the World Bank and the U.S. state of Massachusetts have similar programs. Mr. Sousa said there is a pent-up demand among ecologically minded investors for these bonds, which he hopes will enable the government to pay a lower interest rate than they do on conventional bonds.

Sonya Gulati, TD Economics' senior economist, government finance and public policy, cautioned that one of the challenges of this type of bond is that "green means something different to each person" and that those who certify projects as being environmentally friendly enough have varying criteria. But she also said that the market for this sort of bond has been growing.

"It's not typically for infrastructure reasons, it tends to be things, very specific projects, climate change and whatnot," she said in a telephone interview. "The announcement today that came from the Ontario government was linked specifically for infrastructure. And I think part of the reason for that is governments, more generally, are in difficult times, they're fiscally constrained, but yet there's this huge investment gap."

The provincial government has committed to a $50-billion transit plan, only $16-billion of which is currently funded. There are ongoing and divisive debates about how best to pay for the remainder, a huge bill that monies borrowed through the issuing of these bonds could help cover.

Money raised through green bonds would not be reserved for transit projects, though, and could be used to fund infrastructure across the province. However, there were not specific projections available Wednesday for how much money this could attract.

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The bonds will be aimed initially at institutional investors, with the government looking for ways to offer them to retail investors as well.

"We're talking to the tune of billions of dollars, the tranches are in the millions," Mr. Sousa said at the announcement.

Estimates about the size of the green-bond market vary wildly. A report last year by the Ottawa think-tank Sustainable Prosperity said that $7.2-billion (U.S.) had been issued around the world, though that figure rose to $174-billion (U.S.) when a broader definition was used. Ms. Wynne pegged the current market at $346-billion (U.S.).

There is a growing demand for sustainable investment options, according to Deb Abbey, executive director of the Social Investment Organization (SIO), an industry trade organization. She said that a social or "green" aspect to an investment product can be a "sweetener," which provides the rationale that entices people to buy the bonds.

The government plans to consult with investors on how to structure the bonds, seek certification and pass the appropriate legislation.

New Democratic Leader Andrea Horwath sounded open to the idea, at least in theory.

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"Ideas that come up that help us deal with some of these challenges in terms of our infrastructure are good and I think people will look at this and think it's probably not a bad idea," she said at Queen's Park.

However, she questioned why Ms. Wynne would put this idea forward after she had already tasked a panel with looking into transit funding, and pointed out that the actual legislation on the matter is a long way off.

"The government seems to be in a bit of a scramble," she said. "They seem to be grasping at straws, just throwing ideas out there and seeing what's going to stick. In my humble opinion, it doesn't look like we should be taking it all that seriously at this point."

Progressive Conservative Leader Tim Hudak said he would need more time to look at the proposal before deciding whether to back it.

"It's tough for me to answer and be direct about it," he said. "I have not seen the details. I need a moment to catch up on the details here."

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