Japan takes Green Energy Act to the WTO

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

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 Bundestadt. 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 their senses, and instead of appealing to the WTO, instead encourages their solar panel makers to invest in Ontario as others are doing.

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