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Canada-EU free trade and the Ontario Green Energy Act

Two weeks ago I spoke about the trade threats to Ontario’s Green Energy Act at a Centre for Civic Governance conference in King City called ‘Connecting to Communities’. I joined Harry French, director of the Ontario Sustainable Energy Association, and Heather Fussell, a researcher at the Colombia Institute, who spoke about the community energy development opportunities in the Act and the risks of private-public partnerships respectively. The Centre is part of the Colombia Institute. Click on “read more” to see my speaking notes, which focus on Europe’s procurement requests in the Comprehensive Economic and Trade Agreement negotiations, but also the effect of the recent Canada-U.S. Agreement on Government Procurement on progressive government spending strategies.


I would like to thank the Colombia Institute and its Centre for Civic Governance for inviting me to present on the Green Energy Act, specifically its procurement aspects – or how government procurement is used in a very positive way in the Act to encourage the creation of a local green energy industry and how it is threatened by new trade agreements.

I will probably spend more time talking about these agreements than procurement per se but the two have become inseparable recently with the coming into force of the Canada-US Agreement on Government Procurement and now free trade negotiations with the European Union.

In fact procurement has been under attack from many areas in Canada for the past year despite it being embraced globally as one of the few remaining, and perhaps one of the most effective policy tools in the hands of local, municipal and in Canada’s case provincial governments when it comes to promoting local, sustainable development.

Many of you might be keeping an eye on news articles about the European trade negotiations toward what they’re calling a Comprehensive Economic and Trade Agreement. Ontario’s economic development minister Sandra Pupatello has stated a few times that EU negotiators have put a bulls-eye on Ontario’s back because of the Green Energy Act.

European services companies in the energy sector are upset with the Act’s local content quotas and want them removed as a condition of signing this broad, NAFTA-plus type trade agreement with Canada. I think it’s important for Ontarians to fight this request that is coming not just from Europe but also from the federal government, which last month declared war on Ontario and the Act, in a speech to the Economic Club by Trade Minister Van Loan, but more on that in a bit.

The Green Energy Act
The Green Energy Act is progressive in many ways, most obviously because it will allow Ontario to phase out coal but more importantly, and more progressively, in how it will go about creating local, green jobs here in the province. The McGuinty government has set the bar high at 50,000 jobs within the next three years. The plan involves using provincial procurement in a creative and proven way to incentivize companies to source components and labour locally.

The Act gives energy producers – and these can be public, private, community-owned – assured rights to connect to the grid and guarantees them long-term premium ‘feed-in tariff’ rates that are above market for different forms of renewable energy such as wind and solar. To get those rates, producers must meet minimum domestic content quotas of at least 25% cent for wind project costs and 50% for large solar projects. Requirements for solar will increase on Jan. 1, 2011 and requirements for wind will increase on Jan. 1, 2012.

These conditions are transparent and in an important sense they do not discriminate between companies from different countries. The feed-in tariff is available to any company wanting to sell energy to the Ontario grid so long as they meet the local content requirements. From news articles since the coming into force of the Act, there is evidence the conditions are working.

Just this week the Windsor Star reported that Indian multinational HHV Solar and Solar Bancorp Inc. of Canada have decided to jointly open Ontario’s first solar panel manufacturing centre in Windsor. The joint venture received $4 million from Windsor City Council as incentive to set up shop and it will help companies, municipalities and others looking to contribute solar to the grid meet their local content quotas. The company will also hire 200 assemblers and engineers from the community.

So clearly another benefit to local sourcing in these hard economic times for Windsor, Canada in general, and other depressed manufacturing sectors in North America, Europe, China, Latin America, etc – is to help shift the province toward more green collar jobs – the jobs of the future.

Earlier this year, the Ontario Power Authority announced 184 projects that would produce clean power for 600,000 homes and create 20,000 jobs in the process through the feed-in-tariff program. I can’t say the Council supports how many of these projects were private, but we defend the Act as a crucial tool for green job creation.

This is exactly how the major European clean energy industries were built up in the 1980s and 1990s.

Green energy in Europe and the CETA requests
As explained by Scott Sinclair in his new report on the Canada-EU trade negotiations, in Denmark, in order to spur wind energy development, the government required utilities to buy wind-generated energy at highly subsidized rates, which were restricted to members of local cooperatives living close to the turbines. The policy was enormously successful by increasing wind generation of electricity while encouraging local ownership and acceptance of an environmentally friendly technology. More recent Danish governments have removed many of the local ownership requirements, explains Sinclair. But there is no denying the industry is well established because of them.

Somewhat hypocritically, European corporate leaders in green tech, including suppliers of wind power, have successfully lobbied the European Commission. EU negotiators are demanding that the Ontario government eliminate its own local procurement rules on energy projects. A confidential memo from the European Commission on Europe’s objectives in its free trade negotiations with Canada that was leaked earlier this year reads as follows:

In the short term, to convince the governments of Ontario and Canada to abandon the requirement to use domestically produced equipment to produce renewable electricity in order to benefit from high feed-in tariffs. In the medium term, to avoid the Ontario initiative becoming a precedent for other provinces some of which are on the verge of implementing similar schemes.

A leaked copy of the January draft of the CETA agreement between Canada and the European Union, which was made public by the Trade Justice Network last month, shows that Europe is in fact requesting that all provincial agencies, as well as all Ontario municipalities, be included in the conditions of the procurement chapter.

The chapter would not simply ban local preferences – for example a Buy Canadian policy at the provincial or municipal level, which is completely legal under NAFTA and the Agreement on Internal Trade – but the European agreement would also ban offsets on government procurement, meaning any “measures to encourage local development or improve the balance-of-payments accounts by means of domestic content, licensing of technology, investment requirements, counter-trade or similar requirements.”

Saying bye to buy local
Ms. Pupatello has answered questions about the European requests in the CETA agreement by claiming correctly that Ontario does not pursue these kinds of conditions on government procurement very often and nor do the municipalities. She says cynically that we have also signed away the right to do so in the February 16, 2010 Canada-US Agreement on Government Procurement, and this is true also in many areas but not for the Green Energy Act and not, at least not permanently, for Ontario’s cities.

In the US agreement, in return for fleeting and insignificant access to a fraction of the US stimulus package money for state and municipal infrastructure projects, Ontario sacrificed its right to maximize the local return on government spending in a number of areas, including by the province’s water crown corporation. It wisely excluded energy and electricity, and transportation – both areas where as we’ve seen the province is committed to using public spending to boost the local economy. Toronto also is a leader when it comes to the progressive use of transit money to create jobs within the province and locally.

Other examples of progressive procurement in Canada include Vancouver’s ethical purchasing policy which requires suppliers of food and clothing to meet high labour and sustainability criteria, buy local food policies in Toronto and elsewhere, preferences in some municipalities for Canadian goods and services even when the cost is marginally higher (this we should add is common practice in many US cities and states), and Manitoba’s Aboriginal Procurement Initiative, which sets aside a portion of contracts for Aboriginal companies.

All of these policies, and of course most notably the Green Energy Act, could become obsolete under the Canada-EU trade agreement as written.

The main point I’d like to leave with you is that procurement has and can be a valuable public policy tool for achieving broader social goals. Most countries realize this and have carved out crucial areas, and often municipal government procurement, from international trade agreements.

Bottom line considerations are important in these economically stressed times. Resources in our cities and provinces are constrained. However, I feel strongly that it would be reckless of Canada’s cities to sit back and watch provincial and federal trade negotiators sacrifice their spending powers for the sake of uncertain access to European markets for goods such as beef and grain.

This is not a hypothetical trade-off. According to government sources on both sides of the Atlantic in a recent Inside US Trade article, this is exactly the bargain Canada’s trade minister Peter Van Loan is offering and exactly why he has asked Canadian businesses to put the heat on Ontario to remove the local content quotas in the Green Energy Act.

The Council of Canadians, the Trade Justice Network and others are committed to defending the Green Energy Act and defending the right and duty of municipalities to maximize the social value of government spending. It is a democratic right to buy locally that we cannot afford to be banned in US, European or international procurement agreements like those our federal and provincial governments have been too quick to sign without adequately discussing the issue with Canada’s cities and the public.