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Ontario Energy Minister Chris Bentley at a reception Oct 25, 2012 at the Toronto Board of Trade.

Moe Doiron/The Globe and Mail

The World Trade Organization has ruled that a critical component of Ontario's green energy program breaches international trade law, according to sources.

A source familiar with the ruling said it is not favourable to the domestic content requirements contained in Ontario's so-called feed-in tariff program, the centrepiece of the green energy program that provides solar, wind and other renewable energy companies with long-term guaranteed revenue contracts.

Japan and the European Union filed complaints against Ontario, saying the province's program broke international trade law by unfairly pressuring producers of clean energy to buy hardware and services from companies located in the province. A WTO panel looking into the matter completed its work last week.

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WTO press officer Joseph Bosch confirmed Tuesday that the decision was sent to the concerned parties last Friday but that it must remain confidential until all the WTO members receive it "and that could be within the next month."

A spokesman for Ontario Energy Minister Chris Bentley said the provincial government will wait until the WTO report is officially released before commenting. However, he added, the feed-in tariff program is consistent with Canada's obligations under the World Trade Organization. "The requirements are helping to attract innovators and manufacturers to the province to create new job opportunities for Ontarians and invest in projects that bring long-term economic opportunities to our communities," Nauman Khan said in an e-mail response to The Globe and Mail.

Ontario Premier Dalton McGuinty declined to comment on the WTO ruling, but he defended a policy that he says is central to creating jobs and boosting manufacturing in a province hit hard by the recent economic downturn. "We have secured some $27-billion worth of investment," Mr. McGuinty told reporters on Tuesday. "We have the Koreans in here, the Americans in here, the Chinese in here, I think the French and the Germans as well, and that's not stopping them."

George Smitherman, the former Ontario energy minister who played an instrumental role in drafting the Green Energy Act, vigorously defended it.

"We have nothing to apologize for because all over the world similar approaches are being used to ensure that jobs come along with the clean energy," he told The Globe. "It's such hypocrisy that the European Union joined in the WTO challenge considering just how much European companies have benefited from the emergence of a green energy market here in Ontario."

Lawrence Herman, a trade lawyer at Cassels Brock in Toronto said the ruling is not totally unexpected, because local content requirements are prohibited under WTO rules. "No matter how parties try to argue to the contrary, they are almost always condemned by WTO panels," he said.

The ruling will almost certainly be appealed, Mr. Herman said, but "it's a long shot for Canada. If the appeal is lost, I'm convinced Ontario will comply. It doesn't require any compensation to be paid or existing contracts to be rolled back. It rather requires – or will require – that the provision be removed from the FIT legislation."

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Ontario can make those changes and still keep its green energy policies intact in other ways, he said.

Ontario's policy is intended to help boost renewable technologies and clean-energy jobs. The province is also trying to develop new sources of energy because it wants to shut down all of its coal-fired power plants by 2014.

The Sierra Club said in a statement that the WTO ruling against Ontario is a threat to a clean energy future.

"As countries take steps to address the climate crisis, the last thing we need is the WTO interfering with innovative climate programs. 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," said Ilana Solomon, Sierra Club trade representative,.

Aaron Atcheson, an energy lawyer at Miller Thompson in Toronto, said companies in Ontario's renewable energy sector will not likely be too concerned until the lengthy appeal process is completed. In the meantime he said, there is more risk to the sector from a possible change in government in the province. In the last Ontario election campaign, the opposition Conservative party said it would dismantle the Green Energy Act.

There is even a risk to the sector from the upcoming Liberal leadership campaign, Mr. Atcheson said, because some of the candidates will have a different approach to the green energy file from Mr. MdGuinty, the outgoing premier. He also said there are so many problems and delays with Ontario's current green energy program that those practical issues are more pressing for companies than the WTO ruling.

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