Canada will appeal a World Trade Organization ruling that could derail a key element of Ontario's green energy program designed to encourage manufacturers to set up shop in the province.
The formal ruling, released Wednesday, said the program breaks international trade rules because it forces companies selling premium-priced clean energy into the province's electrical grid to source a proportion of their equipment and services in Ontario.
Japan and the European Union had complained about those provisions to the WTO, although the complaint was actually filed against Canada, because the WTO deals with nations rather than regional governments.
The WTO's 160-page decision says Ontario breached its obligations under the General Agreement on Tariffs and Trade, because the local-content requirements essentially treat imported equipment and components differently than domestic products.
However, the WTO did not uphold part of the Japanese and European complaint that suggested the local content rules amount to an illegal subsidy. "We recommend that Canada bring its measures into conformity with its obligations under the … GATT," the ruling said.
A spokeswoman for the federal Department of Foreign Affairs and International Trade said that "as this is the first time Canada has received a WTO panel ruling arising solely from provincial policy or legislation, the government of Canada will be appealing the decision as requested by the government of Ontario."
Ontario Energy Minister Chris Bentley said through a spokesman that the province's position has always been that the FIT (Feed-in tariff) program is consistent with Canada's obligations under the WTO agreements. Ontario's clean energy policies have already created more than 28,000 jobs, he said.
An appeal will likely take many months.
Lawrence Herman, international trade counsel at Toronto law firm Cassels Brock & Blackwell, said the WTO's ruling will dampen Ontario's efforts to build up domestic renewable energy product makers, even if the appeal is eventually successful. "No one is going to commit any capital to a project while the appeal is pending," he said. "It blows out of the water a lot of the underpinnings of the Green Energy Act" which was supposed to lead to a flourishing green energy industry in Ontario, he said.
However, Mr. Herman said the ruling is absolutely consistent with the WTO's decisions in many other cases, where it has said it won't allow imported products to be treated any differently than domestic ones. The only way for Ontario to keep supporting renewables would be to remove its local content rules, while maintaining its higher payments for all clean power generated under its feed-in tariff program, he said. "Anything that smacks of discrimination in favour of domestic products is likely to run afoul of the WTO agreement."
Stuart Trew, trade campaigner with the Council of Canadians, said the WTO is inviting a backlash with its ruling. If there is no way to provide incentives for green energy in a free market system, "there is little hope of reducing our greenhouse gas emissions and addressing the climate crisis," he said. "As long as the trade rules are stronger than our environmental rules, we'll continue to do nothing." Other countries should also be defending Ontario's policies, or their own support programs could be challenged in the same way, he added.
John Bennett, executive director of Sierra Club Canada, said it is ironic that Japan and the EU were the source of the complaints, because they use subsidies and support for their solar and wind industries. He said he would advise the next premier of Ontario to ignore the ruling "like the Prime Minister is ignoring the Kyoto Protocol."