EU, Canada At Odds Over Renewable Energy Policies

by Ulrika Lomas, Tax-News.com, Brussels

18 August 2011

The World Trade Organisation (WTO) has been called in to arbitrate a dispute between the European Union (EU) and the Canadian province of Ontario over its renewable energy policy.

The EU has requested that the WTO step in to consult with Canada over Ontario's provision of subsidies to producers of renewable energy when they use domestic technology. This, the EU says, is in clear breach of the WTO rules that prohibit linking subsidies to the use of domestic products.

The EU argues that the promotion of renewable energies must be done in a manner consistent with international trade rules, and believes that the Ontario Green Energy and Economy Act (OGEA) is inconsistent with Canada's WTO obligations. As the EU has explained, the OGEA empowers the Ontario Power Authority (OPA) to develop programmes to encourage the use of renewable energy. Under this regime, the OPA developed a feed-in-tariff (FIT) programme that allows it to buy renewable energy at an above market price. The EU classes this as a subsidy.

In order to benefit from this incentive programme, the OPA has set conditions that favour domestic products and services. The EU provides the following as examples: for solar energy 40-50% of the initial costs to develop a project must be made of up products or services from Ontario, rising to 60% for projects developed after 2011; for wind energy these rates amount to 25% for the initial costs, rising to 50% for projects developed after 2012.

The EU initially sought a negotiated solution with Canada, but says it was not possible to achieve this.

The WTO has confirmed the request for consultations, explaining that such action formally initiates a dispute in the WTO. Consultations give the parties an opportunity to discuss the matter and to find a satisfactory solution without proceeding further with litigation. After 60 days, if consultations have failed to resolve the dispute, the complainant may request adjudication by a panel.

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