Dalton McGuinty had a dream.
The Ontario Premier imagined a vibrant green-energy industry that would help ease the transition to a post-auto-manufacturing economy.
He would do it by offering power producers premium rates for wind and solar power as long as they committed to using Ontario-made equipment and labour. By the end of next year, there would be billions of dollars worth of investment and 50,000 new jobs.
“Our intention is to create an explosion of new green energy,” Mr. McGuinty said as he unveiled his plan in February, 2009.
It hasn’t quite worked out that way. The explosion he envisioned is looking more like an implosion.
The jobs and investments have been slow to come, in part because of unexpectedly fierce grassroots opposition to wind farms on Ontario’s Great Lakes.
Meanwhile, key trading partners Japan, the U.S. and Europe are challenging the legality of the plan’s buy-local provisions at the World Trade Organization.
And Conservative leader Tim Hudak, who polls suggest could beat Mr. McGuinty’s Liberals in the October election, says he’ll rip up the energy plan, along with the preferential rates that got South Korean-based Samsung to commit to building four wind and solar equipment plants in the province.
With all this uncertainty, it’s hard to imagine the green-energy plan will survive unscathed.
Samsung has so far invested $100-million of a planned $7-billion, including a plant in Windsor, Ont., to produce wind towers. But the company has hinted it would sue the province if Mr. Hudak scraps its “commercially binding” agreement, under which the company gets $437-million over 25 years for delivering nearly 16,000 jobs.
Even if Mr. Hudak wins the election, and then backs off on his threat, the WTO trade case could become a major hurdle. Worried that Samsung is getting a preferential entree into the Canadian wind and solar energy market, producers in Japan, the U.S. and Europe are crying foul.
Last week, Japan requested a formal WTO panel to decide the case, after Canada – on Ontario’s behalf – refused to budge during a mandatory consultation period. The U.S. and Europe are backing Japan in the dispute.
Trade lawyer Lawrence Herman said the case is being closely watched around the world as a test of what governments can legally do to promote a green economy.
“If the Japanese win, the whole scheme would be impacted, and implicitly the Samsung deal,” Mr. Herman pointed out.
The Japanese case is two-pronged. They object to the local content requirements (up to 60 per cent) for green-energy projects, arguing they breach WTO “national treatment” rules. The Japanese also say the inflated rates that the province is paying producers (up to 30 times normal) under the so-called feed-in tariff program are an illegal subsidy.
The case will likely take roughly two years to resolve – an extended period of uncertainty that could delay or even kill investment in production and equipment.
But the biggest hurdle for the green plan is economics. Even the generous rates on offer haven’t led to a gusher of green investment. The plan has so far created just 1,200 factory jobs, and overall just 13,000.
And roughly 15 projects have added 10.6 megawatts of power to the grid, roughly enough to power 1,600 homes. That’s well shy of the hundreds of megawatts that would be needed to displace any significant amount of coal or nuclear generation. And it’s still too small to create any economies of scale that would bring down the cost of production over time.
Samsung isn’t explicitly saying so but the threat that heavily subsidized green-power rates may vanish – either due to politics or a WTO ruling – must be making the company rethink the other three plants it has promised.
That’s unfortunate. Mr. McGuinty was on to something in 2009. Using government purchasing power to jump-start an innovative homegrown industry and jobs is sound policy.
The potential payoff is a market for the province’s green products that extends far beyond Ontario. Companies locating here because of the green-energy program see Ontario as potential jumping-off point for the entire North American market. Like autos a generation ago, green energy has the potential to be a powerful economic engine.
Not being in the game at all seems shortsighted.
But more time, and perhaps a rethink of the incentives, may be needed to make Mr. McGuinty’s dream a reality.
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