By Cheryl Johnson

GLOBE-Net, March 30, 2012 -  After significant delays, a date has been set for the World Trade Organization (WTO) to hear two disputes against Ontario's Green Energy Act feed-in tariff (FIT) program for its domestic content requirements (DCRs).  

The FIT program provides guaranteed prices with long-term contracts for renewable electricity production, and includes minimums on the amount of goods and services that must originate in Ontario. 

Japan and the EU have identical complaints that the DCRs violate WTO provisions prohibiting supplying subsidies for domestic products and discriminatory treatment between domestic and imported goods. 

The WTO challenges offer an interesting example of sustainability-focused policies coming into conflict with international trade commitments. DCRs are tools that entrenched trade policies aim to prevent and eliminate; however, the capacity of national or sub-national governments to pursue locally sustainable energy systems benefit from such initiatives. 

The relationship between trade commitments and governments' sovereignty regarding innovative policy choices may be an emerging issue in international trade relations as sustainable energy and environmental policies become increasing common. 

In addition to Japan's references, the challenges to Ontario's DCRs will also depend on how the dispute panel considers exemptions under GATT (the General Agreements on Tariffs and Trade) for some government procurement activities, as well as Canada's constitutional distribution of mandates between the federal and provincial governments. 

The two complaints have been joined and will be heard by the same WTO officials at one dispute panel. The hearing will take place in July, with a final ruling by September. 

If Canada loses the dispute it will have to harmonize its policy with WTO recommendations. In addition,  a serious question related to the future of existing contracts under the FIT program is raised if the WTO deems Canada responsible for changing the program design to satisfy trade-related obligations. 

This article appears in the March 2012 Climate Change Policy & Sustainability Update published by the Delphi Group and is reprinted here with the kind permission of the author.