November 14, 2012

WTO ruling may pull the plug on Ontario’s green energy rules

RICHARD BLACKWELL | The Globe and Mail | Nov 14, 2012 |

A crucial ruling from the World Trade Organization, expected as early as this week, could force a dramatic rethink of Ontario’s green energy policies.

The WTO will decide whether to side with complaints from Japan and the European Union that insist Ontario’s “local content” rules breach international trade law. Those rules force firms that sell premium-priced renewable energy to the province to buy a proportion of their equipment and services in Ontario. The policy, part of the province’s Green Energy Act passed in 2009, was designed to try to create a 21st-century manufacturing sector with an emphasis on renewable technology.

Reports from Europe in October suggested Ontario is set to lose on at least some of the issues in the WTO case.

If the WTO rules against the local content rules, “it would certainly have a chilling impact on green energy projects,” not just in Ontario but around the world, said Lawrence Herman, international trade counsel at Toronto law firm Cassels Brock & Blackwell. Still, he said, it is almost standard practice to appeal WTO decisions, and that would “kick it down the road for another year.”

Ontario’s Energy Minister, Chris Bentley, has already said the province will ask Ottawa to appeal if it loses the case. (WTO cases are lodged against countries, rather than provinces, so the complaints were technically against Canada.)

Mr. Herman also noted that WTO rulings are not retroactive, so contracts signed under the old rules would continue. If Japan and the EU prevail, however, Ontario will have to alter its local content requirements, or agree to pay compensation to those damaged by it.

That could hit the renewable product manufacturers that have already set up shop in Ontario because of the local content rules. One of those is Silfab SpA, a large Italian solar panel maker. The company’s chief operating officer in Canada, Paolo Maccario, said he hopes the provincial government would find a way to support local makers of renewable equipment, even if it has to drop the specific local content rules.

If all incentives for local manufacturing disappeared, it would be disastrous for firms that have already invested in the province, Mr. Maccario said. Some might begin bringing in imported equipment, but that would dent innovation and employment, he said.

Some renewable energy developers, who are forced to buy local equipment, would be happy if the rules changed. Kerry Adler, CEO of solar developer SkyPower Global, said local content rules have actually “stifled growth.” He maintains most jobs created by renewable power are in construction, not in manufacturing.

It would be better to give developers incentives to buy equipment locally – by paying them a slightly higher price for power produced by domestic equipment – rather than making it an obligation, Mr. Adler said. “In stead of hitting someone over the head with a stick, it is better to give them a carrot.”

Aaron Atcheson, an energy lawyer at Miller Thompson in Toronto, said a WTO ruling against Ontario could have far reaching ramifications in other jurisdictions that have similar local content rules, including Quebec.

“Quebec has been doing this for far longer than Ontario, in a somewhat different form,” Mr. Atcheson said. “They have got some great economic benefits out of it, in the wind sector in particular.” A ruling against Ontario could mean similar challenges against Quebec’s policy down the road, he said.

However, the renewable energy industry in North America has been hit by so many other setbacks in recent months – such as the end of tax credits and incentives – that this decision won’t likely make much more of a dent, Mr. Atcheson said. “There are so many factors that have been putting a chill on the industry, that this is going to be lost in the midst of all the other ones.”

Delays in getting permits and a lack of investment funding are much bigger concerns for Ontario developers. The WTO decision “would not be concern No. 1, this might be concern No. 6,” he said.

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