The Right FIT

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November was an up-and-down month for Ontario’s renewable energy industry. The Minister of Energy released a directive on November 23 to resume accepting applications for the province’s Feed-In Tariff (FIT) program. It’s good news for a program that has been on hold for review for several months, leaving solar manufacturers and applicants twisting in the wind.

But just days earlier, the World Trade Organization upheld protectionism claims made by the EU and Japan against Ontario. That’s some potentially bad news. The province stands accused of requiring FIT program participants to source roughly 50 per cent of their equipment from Ontario manufacturers, in direct contravention of the WTO’s General Agreement on Free Trade (GATT). It’s a difficult claim to refute, since this is precisely and explicitly – minus attracting the official dispute – what the province meant to do.

Ontario’s FIT program is part of a wider effort to capitalize on the green economy. The program offers to purchase renewable energy from provincial residents at higher prices – 71.3 cents per kWh for small rooftop solar panels, for example, compared to the usual Ontario electricity price of 9.9 cents per kWh – for renewable energy supplied back to the grid. If the future is to be ruled by renewable energy, then Ontario clearly has its sights set on becoming a leader.

Helping a fledgling industry gain momentum is a little different from helping a fledgling bird learn to fly, although they both need a little bit of protection before they can get off the ground.

Renewable energy needs to be produced cheaply in order to compete with established technologies, and it can’t become cheap until it is established. This is the vicious cycle that most new technologies face. Governments often decide that a struggling new technology should receive a helping hand, and for this they can select from a whole basketful of economic tools.

Subsidies and domestic content regulations – the latter being favoured by the government of Ontario in this instance – are two such means of providing an artificial boost to help a technology break the cycle, establish itself and achieve cost-parity with its competitors. Germany has used a combination of cost incentives and subsidies similar to those found in Ontario to generate more than a quarter of its electricity from renewable sources. In all, more than $66-billion in subsidies are given out to renewable energies worldwide. Not that these forms of energy are gaining an advantage over fossil fuels. The Global Subsidies Initiative estimates that $600 billion per year in subsidies go toward fossil fuels.

Ontario’s illegal requirement, that a certain percentage of renewable energy parts to come from in-province, is entirely typical of a renewable energy-producing province or country. Also typical are the allegations made against them. Domestic protection can only come at the expense of foreign producers. Gaining access to foreign markets while protecting one’s own is a rough and often hypocritical game played by the world’s biggest powers. Both Japan and the US also provide massive subsidies to their own renewable energy industries – it’s the same protectionism in different form. The U.S. has recently been embroiled in a back-and-forth dispute with China, with both sides threatening to raise taxes on solar energy imports: a move that would instantly boost the price-competitiveness of domestic production relative to the heavily-taxed imports.

Subsidies, feed-in tariffs and domestic content rules are all valuable tools for nurturing the growth of a new industry. It’s clear that few countries are under any illusions about this. We can then chalk up trade disputes to narrow self-interest, but one can’t help but wonder whether a vendetta against protectionism is in anyone’s interest at all.

Update December 19, 2012: The WTO’s official ruling confirms that the local-content requirements do indeed breach free trade rules. Ontario is required to “bring its measures into conformity with its obligations under the…GATT”.

The Renewable Energy blog showcases weekly posts by Stu Campana on current renewable energy issues. With fascinating projects underway across the country- from community solar power in Milton, Ontario to wind farms in Pictou County, Nova Scotia- Stu will connect these stories through attention to the broader scientific perspective, international political climate, and social variables they involve.

Stu is an international environmental consultant, currently working with Fern Ridge Landscaping and Eco-Consulting in Milton, Ontario.

Stu Campana

Stu Campana is an international environmental consultant, with expertise in water, energy and waste management. He is the Water Team Leader with Ecology Ottawa, has a master’s in Environment and Resource Management and writes the A\J Renewable Energy blog. Follow him on Twitter: @StuCampana.