Guest Post: Glen Estill on Ontario’s local content controversy

Japan is appealing Ontario’s Green Energy Act procurement policies to the World Trade Organization, on the basis that the Ontario content requirement violates international trade agreements. Japan’s interest is obvious. It is a major supplier of solar panels, with major brands such as Sanyo, Kyocera and Sharp playing a major role in the world markets. It will be interesting to see the interaction between Canada’s federal government and Ontario on this one. After all, the federal government doesn’t have jurisdiction over electricity procurement.

I have an undergrad degree in economics. I understand that freer trade generally results in all parties paying less for products. And generally, when products cost less, more are used. Instead of products being produced where it can be done most cost effectively, trade barriers, like the Green Energy Act’s Ontario procurement requirements, result in smaller production runs for local markets, less economies of scale, and higher costs. So should we support Japan’s appeal?

The answer is a difficult, but resounding no. The problem with energy markets, and electricity in particular, is they are not governed by normal supply and demand and competition. Rather, they are, and have been for a century or more, governed by politics. We get our energy, and electricity, from where the governments decide. In Canada, think of the development of Ontario Hydro by Sir Adam Beck, or the building of the TransCanada pipeline, or the nationalization of the electricity system in Quebec. Think of Ontario and the federal government’s investment in the oil sands, or Hibernia, or the National Energy Policy of the Trudeau years. Think of the Nuclear Liability Act which shields nuclear power operators from liability, passing it to taxpayers. So energy is not governed by competitive economics. It is governed by politics.

And that is why protectionism makes sense for renewable energy. Germany has widespread adoption of all types of renewable energy, from biogas, to wind, to solar. And they have hundreds of thousands of jobs dependant on the renewables business. When the German government tried to change the renewables policies a few years ago, they had 10,000 workers demonstrate in front the Bundesstadt. The policies didn’t change.

“We all would agree barriers to trade in these areas do penalize the planet,” Mr. Lamy, Director General of the WTO said. In normal economics, if prices are higher, less are deployed, which penalizes the planet, because less clean energy is produced. But he is wrong. It is true, with less trade barriers, prices for renewable energy might be lower. But that is not what drives procurement policies. Jobs do. Jobs are a large part of what has driven the Green Energy Act. And indeed, it may not exist without the jobs. And jobs are being created in the renewables sector at a rapid rate, with announcements of a wind turbine blade plant, many fabricators working on solar hardware, several panel manufacturers etc. Thousands of jobs have already been created.

Further, if you accept the contention that policy drives energy choices, and that jobs drive policy, then you could also argue that perhaps the adoption of renewable energy would be less, as the policies would not be in place to drive renewables without the ability of a jurisdiction to drive local jobs. And with less renewable energy adoption around the world, volumes would be lower, and costs could indeed be higher than they are today.
At the end of the day, jobs foster political support. And politics is all that matters in energy markets. Lets hope Japan comes to its senses and instead of appealing to the WTO decides to encourage their solar panel makers to invest in Ontario, as others are doing.

Glen Estill is president and CEO of wind energy company Sky Generation Inc.

4 thoughts on “Guest Post: Glen Estill on Ontario’s local content controversy”

  1. The McGuinty government has done the same thing to the Harper government as Danny Williams did in the kerfuffle over AbitibiBowater. The federal government is on the hook to resolve trade disputes, even if instigated by the provinces. Unlike a NAFTA challenge which Williams provoked, here there are no lawyers involved; it’s settled by bureaucrats, and instead of the large cheque possibly due under NAFTA (like the AbitibiBowater settlement), the WTO remedy is the ability to retaliate with trade penalties.

    If Japan does have a valid claim under national treatment provisions, then as believers in the rule of law, I would hope we all support the results of due process. However, an opinion from Lawrence Herman quoted in the Globe is that proving the claim will be an “uphill battle.” We’ll have to wait for further details on the claim or the final outcome.

    It would be unwise to negate decades of negotiations which have resulted in our multilateral trade agreements simply to support domestic politics. WTO agreement violations have implications for all global trade with our partners who are WTO signatories not covered by bilateral agreements (like NAFTA).

    I’ve been watching these trade disputes closely because many sustainable solutions have a large overlap with trade issues. The big one being how tariffs for carbon emissions would be dealt with. This is a concern particularily under NAFTA rather than GATT/WTO because of the dispute settlement process.

    Jeremy Rifkin talks about the requirement for the development of global consciousness, and some elements of that will have to appear in international trade law to allow for equitable and “legal” global sustainable solutions.

  2. We should start worrying about our free trade obligations to the international community…just as soon as said international community can agree to a *serious* treaty on climate change. If we had a real, international price on carbon, then the protectionist mesure would be unnecessary and uncalled-for.

    Until then, major early adopters like Ontario are paying a price to move the technology forward, and it’s only reasonable to try and mitigate that somewhat.

    Nicholas Stern called climate change the result of the greatest market failure in the history of the world. Until we address that failure, we can’t exactly be talking about free trade, can we.

    Andy Revkin recently blogged about the importance, in the face of high unlikeliness of getting a comprehensive, effective agreement on climate change anytime soon, of willing parties to move ahead uni- or bi-laterally. Japan ought to see Ontario as a like-minded collaborator–something like the Samsung deal, maybe? Deals like this might be the most effective way of getting the footdraggers to finally do something…

  3. All those who are suppoters of wind and solar in Ontario, should read comments to a blog on These are people who actually have the experience of living with electricity from solar and wind.
    I always maintained that the green dream of solar and wind will become a nightmare when the higher prices of electricity kick in. This is wasting public money to satisfy a noisy loby.

  4. If Japan does have a valid claim under national treatment provisions, then as believers in the rule of law, I would hope we all support the results of due process. However, an opinion from Lawrence Herman quoted in the Globe is that proving the claim will be an “uphill battle.” We’ll have to wait for further details on the claim or the final outcome.

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