Keeping green energy local and public

December 18, 2013

The Ontario Green Energy Act was a creative effort to reduce the impacts of climate change and revitalize a faltering provincial economy. Though the Ontario government missed a self-imposed 2013 target of 50,000 new jobs, evidence shows the policy has attracted new manufacturing to the province while creating permanent employment in the renewable energy services sector.

A key to the Green Energy Act's success was the local content requirement of 50 per cent for wind projects and 60 per cent on solar. The high feed-in-tariff rate that the province guaranteed to wind and solar power producers could be justified because it was directly leading to new manufacturing in Ontario.

All of this was jeopardized by a World Trade Organization (WTO) decision last December, and upheld by the WTO appellate body this May, declaring that the local content requirement conflicts with international trade rules. It was a surprising decision to many, since government procurement policies are expressly exempted from the national treatment (i.e. non-discrimination) obligations of the General Agreement on Tariffs and Trade (GATT).

But in June, Energy Minister Bob Chiarelli said the province would comply with the decision. Local content quotas were cut by half or more. And this week the minister announced they will be removed altogether next year to reform the Green Energy Act in response to the WTO decision.

This is discouraging. The UN Framework Convention on Climate Change states that in accordance with the principles of sustainable development, climate change measures "should be integrated with national development programs, taking into account that economic development is essential for adopting measures to address climate change." Despite this, the WTO embraced an unacceptably restrictive interpretation of the GATT government procurement exclusion that undermines Ontario's efforts to pursue sustainable development and casts a chill over similar initiatives around the world.

There is a path forward for the Green Energy Act that would salvage its job-creating local content rules without going against Canada's obligation to abide by the WTO decision. The solution is for the province to shift from providing incentives for private renewable power to more public power production.

In the case of renewable energy contracts, where a public entity such as Ontario Power Generation (OPG) or a municipal government acquires the generation equipment, the province would still be free under WTO rules to stipulate that any portion of that equipment be manufactured in Ontario. This is possible only because Ontario has not included its energy agencies or power utilities in WTO procurement commitments.

No doubt there will be those who complain this can only increase the price of energy in Ontario, but this is highly misleading. The public sector can deliver renewable energy more affordably by eliminating the need to profit from solar and wind projects. In Germany, a leader in progressive renewable energy policies, the current trend is toward remunicipalization of formerly privatized power systems.

The provincial government has pledged major changes to its procurement strategy in the Green Energy Act to encourage public sector entities, including OPG, to produce more renewable energy. The FIT subsidy for large projects is being phased out, replaced by a request for proposals process with extra points for municipal, aboriginal or OPG-backed projects. As long as they retained ownership of the generating equipment, these public bodies, including hospitals or universities developing rooftop solar panel systems, could favour local content in the supply of components.

However, there is international pressure to bind subnational governments to procurement rules prohibiting domestic content quotas on all purchases above certain low thresholds. This would include municipalities and energy utilities. The most immediate pressure comes from nearly completed Canada — European Union negotiations on a Comprehensive Economic and Trade Agreement (CETA).

A technical briefing note on the "agreement in principle" with the EU shows that the municipal sector and 70-80 per cent of energy utilities will be bound by non-discrimination rules in the CETA, prohibiting "buy local" policies of any sort. Consequently, the agreement could dramatically reduce the flexibility of the Ontario government to use procurement strategically to create jobs in the renewable energy sector.

In light of the WTO decision, and Ontario's efforts to use procurement to provide economic benefits to Ontarians, it is crucial for the government to fully safeguard its existing policy flexibility over renewable energy procurement under the CETA and other future trade agreements.

Local content is an important and demonstrably successful way to make the most of our shift to a greener electricity grid. Combining local content rules with public power will ensure that this transition is more affordable, accountable and ultimately accepted by the voters of this province.

Scott Sinclair is a senior researcher with the Canadian Centre for Policy Alternatives and author of the new report, Saving the Green Economy: Ontario’s Green Energy Act and the WTO. Stuart Trew lives in Hamilton and is a trade campaigner with the Council of Canadians.

This op-ed originally appeared in the Hamilton Spectator.