The existing feed-in tariff (FIT) programme requires participating electricity generators to source up to 60 per cent of their equipment in Ontario if they wish to be eligible for generous subsidies. This clause was found to be incompatible with Canada’s WTO commitments. Canada had appealed against the WTO’s initial ruling this past February, but the WTO ruled against the appeal earlier this month.

The first complaints of the legislation were brought to the WTO by Japan in 2010. Since then, both Japan and the European Union have argued that Ontario’s incentives for green energy were illegal because they discriminated against foreign firms.

In an attempt to dispel concerns over potential adverse effects of the change on Ontario’s burgeoning green energy manufacturing sector, Chiarelli said that Ontario will continue to build a “robust renewable energy sector that creates tens of thousands of good jobs”.

ICTSD reporting; “Ontario to Change Green Energy Law after WTO Ruling,” THE CANADIAN PRESS, 30 May 2013; “Ontario Loses Final WTO Appeal on Green Energy Act,” THE GLOBE AND MAIL, 6 May 2013; “Ontario to Change Local Content Rules on Green Energy to Comply with WTO Ruling,” FORT FRANCES TIMES ONLINE, 29 May 2013.

If approved by State Council, the proposed cap could see the nation’s carbon dioxide per dollar of economic output decline by about 40 per cent by 2020 based on 2005 levels. Since becoming the world’s largest producer of carbon dioxide, China has been giving strong signals that it intends to take a more active stance on reducing domestic carbon emissions.

Lord Nicholas Stern, chair of the Grantham Research Institute on Climate Change at the London School of Economics, China’s agreement to implement absolute cuts in emissions would will help break a deadlock in global climate change negotiations.

ICTSD reporting; “China agrees to impose carbon targets by 2016″, THE INDEPENDENT, 21 May 2013; “China eyes carbon emissions cap,” FINANCIAL TIMES, 28 May 2013; “China proposes to cap emissions by 2016,” CARBON MARKET, 23 May 2013.

Brussels and Tokyo had argued that the FIT system, which was established under the Ontario Green Energy Act of 2009, violates international trade rules by requiring participating electricity generators to source a minimum quota of goods and services from Ontario - in the case of wind, 25 percent, and for solar projects, 60 percent.

The complainants had said that this “local content requirement” was a barrier for foreign competitors looking to get a foothold into the Ontario market. However, Ontario officials had said that the measure aims to encourage the production of clean energy by incentivising producers to use electricity derived from renewable sources.

The Appellate Body result confirmed an earlier panel ruling that was issued last December, while revising a few specific points from that decision. Canada had filed its appeal to the case in February, citing certain points of law and legal interpretation that it wished WTO judges to review. Despite receiving a favourable outcome in December, the EU and Japan also filed their own cross-appeals, looking for clarifications in the original panel ruling. (See Bridges Weekly, 19 December 2012 and 20 February 2013)

“The Appellate Body supports the panel’s conclusions that local content requirements accord preferential treatment to products made in Ontario by requiring the purchase or use of products from domestic sources, which is prohibited in the illustrative list of the [Trade-Related Investment Measures, or TRIMS] Agreement, and therefore places Canada in breach of its national treatment obligation under [the General Agreement on Tariffs and Trade, or GATT] Article III and TRIMS Agreement Article II,” the report said.

Furthermore, the WTO judges also “[reject] Canada’s rebuttal that the local content requirements should be considered as government procurement which can be exempted from the national treatment obligation,” the findings continued, referring to one of the main arguments that Ottawa had made in its case.

Parties respond to the ruling

The dispute (DS412 and DS426) had been a particularly high-profile one for the global trade arbiter, in light of its potential to elucidate the extent to which governments can help their domestic producers and suppliers in promoting renewable energy - particularly given the number of other countries designing their own clean energy support schemes.

“Today’s ruling is good news for everyone caring about clean energy and the environment: it has been made clear that use of quality, cost-effective technologies should not be hampered by protectionist measures,” said EU Trade Spokesman John Clancy in a statement. “The EU supports the promotion of renewable energy but considers this must be done in a manner consistent with international trade rules.”

Japanese officials similarly welcomed the result. “Japan considers this ruling can be highly evaluated from the viewpoint of preventing protectionism in the renewable energy sector, which can be regarded as a major growth industry,” Toshimitsu Motegi, Japan’s Minister of Economy, Trade, and Industry said.

Canadian federal officials, for their part, have said that they will comply with the ruling. However, it remains unclear how or when the Government of Ontario - which falls under a separate jurisdiction - will comply.

“Canada will comply with its obligations,” a Canadian Government official told Bridges. “But the specifics on how that might be and the implications of the ruling would be a matter for the Government of Ontario to respond to.”

Because countries can only be represented at the WTO in a federal capacity, the Government of Ontario could not represent itself in Geneva. And while the Canadian federal government is obligated to implement the Appellate Body ruling, it cannot compel the province to change its policy.

“We have no legislative power to do anything specifically about the programme,” the official said.

Ontario has not yet issued a statement on how it plans to comply with the ruling, but underscored its commitment to the green energy initiative. “Our renewable energy sector has already created over 31,000 jobs and leveraged billions of dollars in investment,” Ontario Energy Minister Bob Chiarelli told CBC News, Canada’s national public broadcaster.

Recurring topic

The topic of how governments can support their renewable energy sectors while meeting their international trade obligations is set to play out in another WTO dispute in the coming months. In mid-February, the US filed a complaint over a local content requirement in India’s national solar programme, which Washington claims discriminates against foreign equipment manufacturers relative to their domestic counterparts. (See Bridges Weekly, 13 February 2013) That case is currently in the consultations phase - the first stage in dispute settlement proceedings.

New Delhi, for its part, raised its own questions last month about Washington’s support to US renewable energy producers. “India is concerned that some of these subsidy schemes have provisions relating to local or domestic content requirements, which raises issues of consistency” with parts of the GATT, TRIMS, and SCM Agreements, New Delhi said in a notification filed with the Committee on Subsidies and Countervailing Measures.

In light of the growing global demand for energy, and the burgeoning questions of how these relate to current and future trade rules, WTO Director-General Pascal Lamy recently called for increased dialogue at the global trade body on the relationship between the two subjects. (See Bridges Weekly, 2 May 2013)

ICTSD reporting; “Canada loses WTO appeal over Ontario’s green energy program,” CBC NEWS, 6 May 2013.

Lamy, who was speaking at a workshop on trade and energy held at the WTO’s Geneva headquarters, was one of several presenters to emphasise the crucial role of renewables in helping supply the planet’s growing demand for energy while reducing adverse environmental impacts.

However, the Director-General cautioned that countries urgently need to begin discussing the trade implications of ramping up renewable energy in order to ensure success.

“A discussion on the trade-related aspects of measures to promote clean energy, which is both rooted in political reality and informal, remains almost completely absent from the WTO in spite of the existence in the organisation’s institutional structure of dedicated fora for such discussions,” Lamy said.

With this in mind, the workshop - organised by Brussels-based Energy Charter Secretariat - aimed to generate discussion on the subject, while helping clarify the system of trade regulation in the energy sector and finding ways to improve it. A range of experts from around the world attended the meeting and discussed issues ranging from international regulation to investment rules to adaptation of current trade law.

With the accession of several fossil fuel-rich countries in recent years - including Saudi Arabia, Ukraine, and Russia - and an array of other energy giants such as Kazakhstan, Libya, Iran, and Iraq in the process of joining the WTO, discussion of energy-related issues at the global trade body will certainly increase.

Workshop participants discussed the possible development of an individual WTO agreement on energy, such as that seen for agriculture or textiles, but generally agreed that such a move would be unlikely. Both the complexity of achieving consensus on such a sensitive issue and the potential fragmentation of the multilateral trading system would make such a move undesirable, several experts said.

A more likely scenario, experts indicated, is to rely on the use of the WTO’s dispute settlement system and to agree to specific terms at the point of a country’s accession.

Maxim Medvedkov, Russia’s Head of Trade Negotiations, noted that while many of the provisions of the General Agreement on Tariffs and Trade (GATT) are applicable to energy exports - particularly relating to transit - these rules do not sufficiently address pertinent issues, such as trade with countries within regional trading blocs, like the EU.

Medvedkov stressed that, although the existing multilateral rules are too vague to be relied on exclusively, they could be more useful and effective if ambiguities are clarified.

The lack of clear global rules in energy trading is an opportunity to begin a conversation on the establishment of a system of rules for trade in fossil fuels and clean energy technologies, according to Ricardo Meléndez-Ortiz, Chief Executive of ICTSD, the publisher of Bridges.

He said that an important contribution to the development of a multilateral approach should be a dialogue on Sustainable Energy Trade Initiatives between energy and trade policymakers. The lack of such an agreement - even at the national level - demonstrates the need for such discussions in order to ensure energy objectives are in sync with the goals of sustainable development.

ICTSD reporting.

Under the EU ETS, limits are set on emission levels from factories and plants within the 27-member bloc. These companies can then buy allowances to offset these emissions, and trade whatever surplus permits they have. In recent years, however, the EU carbon market has struggled with the persistently low prices of these permits, which have fallen from €30 per tonne in 2008 to an average of around €5 per tonne.

This has, in turn, sparked questions over the long-term prospects for the emissions trading scheme, which is one of the key components of the EU’s plan to reduce greenhouse gas emissions by 20 percent from 1990 levels by 2020 in order to help combat climate change.

The low prices have largely been blamed on a surplus of permits in the EU market, as well as the bloc’s broader economic struggles. The Commission proposal would have entailed “backloading” - or delaying - the auction of the permits from the years 2013-2015 to 2019-2010, in an effort to boost these prices. Tuesday’s decision saw 334 Members of the European Parliament (MEPs) vote against the measure, with 315 in favour and 63 abstaining.

Supporters had argued that the backloading proposal is essential for the survival of the EU ETS, at least until a long-term solution can be found. Opponents, however, had warned that delaying permit auctions could have the adverse effect of increasing energy costs and undermining confidence in the overall programme. Some detractors of the backloading plan have called for a broader reform of the EU emissions scheme, rather than just a “short-term measure.”

While some, such as Poland environment minister Marcin Korolec, called Tuesday’s result a “vote of reason,” others warned that the result could have devastating effects for the ETS’ survival.

“I deeply regret today’s vote. It is the beginning of the repatriation of climate policy,” said Matthias Groote, a German member of the S&D group that was tasked with steering the proposal through the European Parliament.

Speaking to the Financial Times ahead of Tuesday’s vote, International Energy Agency (IEA) chief economist Fatih Birol stressed that the failure of backing the proposal would have international consequences.

“Europe is the region that started this endeavor, which the world, perhaps with some modifications, has to follow,” he said. “If we say that this exercise didn’t work out, this would be a loss not only for Europe, but for everybody.”

Next steps

Tuesday’s vote is not the end of the backloading proposal, supporters of the measures have stressed. The plan is now set to return to the Parliament’s environment committee - which had approved the original plan in February - for further consideration.

“The Commission of course regrets that the European Parliament has not approved the backloading proposal,” European Commissioner for Climate Action Connie Hedegaard said in a statement following the vote. “Europe needs a robust carbon market to meet our climate targets and spur innovation.”

However, Hedegaard noted that the Commission still supports the backloading plan as a way to help restore confidence in the EU’s Emissions Trading System in the short term, “until we decide on more structural measures.”

The proposal is ultimately subject to co-decision in the EU, which means that both the Parliament and the European Council must back the Commission plan in order for it to become law. While Irish Minister for the Environment, Community and Local Government Phil Hogan called the vote result was “disappointing,” he noted that the process is far from over. Hogan serves as President of the Council of Environment Ministers, as Ireland is the current holder of the rotating EU presidency.

The Council, Hogan said, will instead continue working toward reaching an agreed position on the backloading proposal, with two meetings of the Environment Working Party already scheduled for the coming days.

“The ETS is Europe’s flagship response to greenhouse gas mitigation, and the extent to which its effectiveness is now undermined by the economic downturn is a regrettable setback to Europe’s progressive transition to a competitive, low-carbon economy,” Hogan said. “Early and cost-effective transition is key to Europe’s leadership on climate change and European competitiveness in the emerging global green economy.”

ICTSD reporting; “EU in pivotal battle over carbon market,” THE FINANCIAL TIMES, 15 April 2013; “Vote Leaves EU Emissions Trading in Tatters,” WALL STREET JOURNAL, 16 April 2013.

A World Trade Organization appellate panel ruled last year that the US dolphin-safe labelling scheme violated core trade rules and discriminated unfairly against Mexican tuna products (see Bridges Trade BioRes, 17 May 2012). The ruling found that the labelling system was discriminatory because tuna caught with “purse-seine” nets - encircling nets that temporarily set on dolphins to attract the tuna that swim below - are ineligible. Because the nets are today used almost exclusively by Mexican fisheries, due to specific conditions in the Eastern Tropical Pacific (ETP), the majority of Mexican tuna is effectively blocked from the US marketplace.

The purse-seine rule applies even where independent veterinarians certify that no dolphins were killed or injured during the specific catch. Outside the ETP - where purse seine nets are largely not effective - importers are not obliged to prove that no mortalities or serious injuries occurred. The May 2012 ruling found that the label did not sufficiently address dolphin bycatch outside the ETP, where dolphins are harmed by fishing techniques other than purse-seine nets.

The Mexican tuna fleet invested heavily to comply with international standards – namely the Agreement on the International Dolphin Conservation Programme (AIDCP) – which have reduced observed dolphin mortality in the ETP by around 99 percent since 1990. However, the US argues that the law is designed to prevent non-observed injuries and mortalities, which occur most frequently with purse-seine nets.  The WTO found the US objectives legitimate, but still ultimately concluded that the scheme was unnecessarily trade restrictive.

But rather than relaxing the labelling requirements within the ETP to comply with the ruling, as expected, the new US National Oceanic and Atmospheric Administration (NOAA) proposal expands the rules to require ETP and non-ETP fisherman to certify that no dolphin mortalities or serious injuries occurred. Outside the ETP, the captain of the vessel would need to issue a statement that no dolphins were killed or seriously injured in order to comply.

Mark Robertson, a spokesman for the Campaign for Eco-Safe Tuna, which represents Mexico’s tuna industry says the proposed system would be unfair because non-ETP captains would be able to essentially self-certify compliance with the law, while Mexican fisheries would still be subject to an elaborate third-party observation, verification, and tracking system.

While the dolphin-safe label is not technically required for access to the US market, the market is effectively closed for non-certified tuna. But Mexico has argued that the consumers are not being given enough information to make an informed choice about purchasing their tuna.

Indeed, the WTO expressed concern in its initial ruling that American consumers could be misled by dolphin-safe labels affixed to tuna sourced outside the ETP, where it did not necessarily mean that the tuna was caught without mortality or serious injury to dolphins. Mexico has argued that its methods are actually safer than alternative methods, namely the use of Fish Aggregating Devices (FADs), which are employed frequently outside the ETP and have higher incidences of “bycatch”, the unintentional deaths of dolphins and other animals. Nevertheless, the NOAA proposal has seen support from US policymakers.

“As the author of the original 1990 US Dolphin-Safe tuna label law, I am pleased that the National Oceanic and Atmospheric Administration has reaffirmed its commitment to protecting the integrity of this label that consumers have come to trust and rely on,” US Senator Barbara Boxer said in a statement.

The proposal is open for comments until May 6, and the deadline for the US to comply with the WTO ruling is 13 July.

ICTSD Reporting; “U.S. tuna plan pleases conservationists, upsets Mexican industry,” REUTERS, 10 April 2013.

Douglas Beltman, Stratus’ executive vice president, and Ann Maest, the company’s managing scientist, released affidavits stating “I disavow any and all findings and conclusion in all of my reports and testimony on the Ecuador Project.”

Chevron has vowed not to pay the US$19 Billion judgement after arguing that they were only minority stakeholders in the oil drilling that occurred in conjunction with state-run Petroecuador. The company also has argued that Stratus published information in their report that had been obtained from a neutral party, but in reality was written by Steven Donziger, a lawyer representing the plaintiff. Chevron has called the fines a “shakedown” and has filed suit against the plaintiff’s lawyers in the United States for extortion and racketeering.

The winners of the suit have attempted to enforce the judgement in other countries where Chevron has assets but their efforts have been unsuccessful.

ICTSD reporting; “Chevron says Ecuador environmental claims now in question,” REUTERS, 15 April 2013.

Currently, there is a range of obstacles to the innovation, production, scale up and deployment of clean energy, including to the movement of relevant technologies, goods and services across national borders. Such obstacles go beyond pure border measures and include policies such as standards, subsidies, requirements that a certain degree of the content in the production of renewable energy goods and services is supplied domestically, government procurement practices or investment rules. Altogether, this prevents economies of scale and affects efficiencies in supply chains, hampering a broader participation of producers in multiple countries and keeping costs high. In some cases, such barriers effectively hinder the physical deployment of the relevant technologies. In combination with the fact that the external costs of more polluting forms of energy supply are not adequately internalized, this prevents renewable energy from becoming a viable option.

The purpose of the session is to raise awareness among CEM members of how domestically designed policies relate to the world market of renewable energy goods and services, and of how an improved cooperation between countries could effectively remove stumbling blocks to the scale-up of the relevant technologies and instead become a stepping stone to a more sustainable global energy mix. Moreover, the session aims specifically at engaging high-level decision makers in the quest for a conducive regulation of trade related to clean energy.
This session will seek to include representatives of all the CEM participating countries at a senior level. It will also include key experts from think tanks, academia and research institutes, as well as high-level private sector representatives.

This dialogue is on invitation only.

Under the original EU scheme, airlines landing in or taking off from any of the bloc’s 27 member states - as well as Iceland, Liechtenstein, and Norway - would have had to surrender carbon permits for the emissions they produce. The aviation component of the ETS entered into force in January of last year, with the requirement that airlines buy permits for 15 percent of those emissions; the remaining 85 percent would initially have been provided to them for free. Various non-EU countries - including the US, China, India, and Russia - had opposed the aviation rule, arguing that Brussels was overstepping its authority by charging for emissions created outside of European airspace.

The decision to temporarily “stop the clock” for the EU aviation rule was first announced by the European Commission in November, following a meeting of the International Civil Aviation Organization that saw signs of movement toward a potential pact on global aviation emissions (see Bridges Trade BioRes, 15 November 2012). Last year’s Commission proposal, however, still had to go through the necessary EU internal procedures in order to take effect.

The European Commission, the European Parliament, and Ireland - which is the current holder of the EU presidency, and thus represents the European Council - have now agreed on a legal text for the suspension, which will go through a few more additional steps before the Parliament formally signs off on it during next month’s plenary in Strasbourg.

The latest version of the text shows some changes from the proposal that the Commission announced last November. Specifically, the plan was modified in the European Parliament’s Environment Committee last month to allow the option for the suspension to last for over a year - but only if “clear and sufficient” progress is made in the talks at ICAO, the UN’s civil aviation body, toward a global emissions deal.

A high-level group of ICAO negotiators is slated to meet in Montreal next week, in a meeting that is expected to be closely watched for signs of what might lie ahead at the UN body’s General Assembly this autumn.

The planned suspension only applies to emissions from 2012; had the EU aviation scheme not been put on hold, emissions permits would have had to be submitted by the end of April. The ETS still applies to flights within the EU bloc, however, regardless of airline.

Backloading permits?

Meanwhile, the EU carbon market that underpins the ETS continues to face its own series of difficulties, with the oversupply of carbon permits - and the bloc’s broader economic struggles - having been largely blamed for the allowances’ persistently low prices.

According to Bloomberg News, the European Commission has reportedly told member states that it expects the European Parliament to approve next month the start of talks on a controversial process known as backloading. This measure - if passed - could eventually involve delaying the auctioning of 900 million carbon permits from 2013-2015 to 2019-2020, with the hopes of propping up permit prices.

The European Parliament Environment Committee already approved last month a proposal that would allow the Commission to, “in exceptional circumstances,” interfere in the timing of auctions, so long as an impact assessment indicates that the sectors involved would not be at risk of companies relocating outside of the EU bloc. Such a move would only be allowed in one instance, according to the amendment approved by the committee.

The backloading proposal has already sparked substantial debate in Europe, over concerns by some that the delay would raise energy prices and make the market less predictable.

ICTSD reporting; “EU agrees text of ‘stop the clock’ aviation law,” REUTERS, 12 March 2013; “EU lawmakers back suspension of airline carbon payments,” REUTERS, 26 February 2013; “EU Told States It Expects Parliament to Back Carbon Fix in April,” BLOOMBERG, 17 March 2013; “EU Carbon Fix in Energy Report Survives Rejection Attempt,” 15 March 2013.