The problem with using "it" to refer back to the proposition expressed by the entire independent clause "The government has decided to plant one million trees in the city" is not that "it" is, in itself, grammatically incapable of doing so, but rather that "it" will likely miscue some readers into thinking that there is a noun-phrase referent rather than a clausal referent.
It would be easy for readers to interpret "it" as referring to "the government," for example, which is the subject of the preceding sentence: "It [=the government] will improve the air quality in the environment." Since you don't want readers to interpret the sentence that way, and since "this" (or "that") guards against that interpretation, it is better to use "this" (or "that") rather than "it."
You are mistaken if you think the Web-page to which you have linked is encouraging learners to use "it" to refer to the propositional content of a preceding independent clause. The Cambridge dictionary merely has not denied that it is possible for "it" to do so, but neither have I. I have responded to your questions in reference to the examples you have provided.
Here are two cases where "it" comfortably refers to propositional content:
2-He smokes a lot. It is something his mother worries about.
3-He smokes a lot. His mother worries about it.