Japan Protests Ontario’s Renewable Energy Subsidies

17 December 2010

Japan has initiated a WTO challenge against Ontario's green energy subsidies, alleging that they discriminate against foreign suppliers.

At issue are stringent local content requirements in the province's Feed-in Tariff Programme (FIT). FIT allows Ontario to subsidise electricity operators that use renewable energy if up to 60 percent of the inputs are manufactured in the province.

The motivation behind the disputed programme is two-fold: local job creation (50,000 by 2012) and the elimination of coal-fired power stations by 2014.

Foreign companies are eligible for the subsidy - the world's highest at up to 80 cents per kilowatt hour of electricity produced - but only if they set up shop in Ontario and produce the electricity and equipment there, which a number of manufacturers have done. One deal stands out in particular: the C$7 billion contract awarded to South Korea's Samsung Group in January 2010 to build four huge wind and solar power clusters in the province with a combined generating capacity of 2,500 megawatts by 2016.  In all, the deal is expected to create 16,000 local jobs.

Japan alleges that Ontario's local content requirements breach the GATT principle of national treatment, as well as provisions expressly prohibiting such measures in the GATT, the Agreement on Subsidies and Countervailing Measures (SCM) and the Agreement on Trade-related Investment Measures. Tokyo also argues that the green energy benefit falls under the category of prohibited subsidy under Articles 3.1(b) and 3.2 of the SCM Agreement because it is "contingent upon the use of equipment for renewable energy generation facilities produced in Ontario over such equipment imported from countries such as Japan." The EU and the US have joined the dispute as third parties.

So far, Canada's federal government, which will defend the case at the WTO, has adopted a conciliatory tone. Trade minister Peter Van Loan said Canada "always wants to maintain good trading relationships with our major partners, and we always want to make sure that our actions are WTO compliant. In this case, we certainly encourage the Ontario government to take advantage of the consultations phase of this process to seek a satisfactory resolution.''

In contrast, civil society groups have expressed serious concern. Stuart Trew, trade campaigner at the Council of Canadians, wrote on rabble.ca about the threat that the provincial government would eliminate the local preferences, but keep the high feed-in tariffs renewable projects, leaving companies free to import their solar panels and wind turbines from anywhere in the world and still profit from high renewable energy rates. "It's an unacceptable compromise. We will need both green jobs and green energy to make a truly sustainable economy. If global trade rules threaten that goal - Japan's WTO complaint suggests they do - we should be thinking about how to change those rules, not the policies that get us part way there," he concluded.

Not all Ontarians believe in the subsidy policy, however. There is considerable opposition to wind turbine parks, which home-owners blame for lowering property prices, but the most vocal critics complain that companies, not consumers, are benefiting from the governmental manna. With projections showing that electricity bills will go up 46 percent over the next five years, the energy policy is shaping up as one of the key issues of next fall's general election.

The ‘made in Ontario' policy, as well provincial government procurement more broadly, are also among the hot topics of the free trade negotiations that Canada and the EU are hoping to finalise in the course of next year (see page 18).

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