WTO Faults Ontario on Renewable Energy Complaint From EU and Japan

Jennifer M. Freedman, Bloomberg
November 20, 2012 | 2 Comments

World Trade Organization judges largely backed complaints by the European Union and Japan against Canada over subsidies the province of Ontario gives to renewable-energy producers that use domestic technology, according to the Sierra Club and Public Citizen.

Under Ontario’s feed-in tariff program, created by the province’s Green Energy Act, above-market rates are paid to producers of renewable energy provided it is generated with a certain percentage of Canadian-made equipment. The act was designed to help Ontario meet its goal of shutting all its coal- power generators by 2014.

A provision of the program that began in October 2009 requires projects to use goods and labor from Ontario for as much as 60 percent of supply costs, depending on the type of renewable-energy source.

WTO judges agreed with the EU and Japan that provisions of the program discriminate against foreign suppliers of equipment and components for renewable-energy generation facilities by affording less favorable treatment to imported equipment and components than given to like-products originating in Ontario, according to the Sierra Club and Public Citizen. Judges rejected the EU and Japanese argument that the program provisions constitute an illegal subsidy.

Punching Bag

“As countries take steps to address the climate crisis, the last thing we need is the WTO interfering with innovative climate programs,” Ilana Solomon, the Sierra Club’s trade representative, said in an e-mailed statement. “Ontario’s solar and wind incentives program seeks to reduce dangerous carbon pollution and create clean-energy jobs, and it should serve as a model for other countries, not a punching bag.”

The confidential ruling was given to the involved governments. A WTO spokesman in Geneva declined to comment.

The complaints stoked a broader debate over plans by countries including Canada, the U.S. and China to reserve public works as well as energy and environmental projects worth billions of dollars for local companies. Japan’s Trade Policy Bureau has said it is “seriously concerned about a proliferation of such protectionist measures all over the world.”

The Sierra Club and Public Citizen said they were “particularly disappointed” that the U.S. weighed in on the complaint by submitting a brief arguing that Ontario’s program violated WTO rules.

Government Role

“Instead of attacking another country’s clean energy program, the U.S. government should focus on how we will build on our own solutions to tackle the climate crisis and create clean-energy jobs,” Solomon said.

Canada argued that governments have a role in securing a stable supply of electricity for the public benefit and securing renewable electricity to help protect the environment, and that Ontario’s program helps achieve these goals.

EU exports to Canada in wind-power and photovoltaic power- generation equipment are “significant,” according to the Brussels-based European Commission, ranging from 300 million euros ($384 million) to 600 million euros between 2007 and 2009.

Lead image: Golden gavel via Shutterstock

2 Comments

Gerry Wootton
November 22, 2012

To some extent it's potato and potato. Ontario's approach is to drive local industry by paying a premium for locally grown product. The US approach is to use subsidies and tax measures to reduce producer cost and tariff barriers to increase competitor's cost. The Japanese approach is to use technical barriers and vertical integration through national cartels. Each in its own way creates advantages for local producers. The US system works by increasing direct and indirect consumer costs without any guarantee that that expenditure will result in product actually filling out the market while simultaneously restraining demand. The Japanese approach is cleverly structural but effective - their only risk is that it reduces the incentive for domestic manufacturers to deliver product efficiently and cost effectively: their market volumes and prices support that view. The Ontario approach is to only fund the final product (electricity) which avoids taking on risks of reliability of the domestic producers, their financing, their products and their product users. Also, the government investment is spread out over 20 years instead of being paid out up front and establishes a long term fixed price - it's better than you'd guess when looked at as NPV. Winners and losers pick themselves. The problem with technical barriers is that, technically, they're not allowed under WTO; however, in practice that seems to have many work-arounds. The bigger issue is that the evolution of the technology is limited to small pool of IP and the domestic market lags the experience curve. Ontario found a better way. Unfortunately, the WTO is American rules football - not the beautiful game.

PAUL BROOKS
November 21, 2012

I support the Canadian response. Its meeting its obligations under clean energy and why not try and stimulate local jobs, after all governments in so many places are subsidising clean energy technologies. As for the USA they have already got agreement for protection against Chinese PV imports! So they should mind their own business. Also Canada is not alone with the local content rule, Brazil also has implemented the same, but no ones beating up on them!