While Ontario’s ambitious feed-in-tariff (FIT) policy is being put to the test by domestic and international opposition, including a challenge from Japan, Japan has just achieved a major breakthrough for its own FIT policy as it continues to recover from the tsunami and nuclear disaster this past March. Both examples will have implications for renewable energy policies and trade worldwide.

Currently in place in more than 40 countries – most notably in Germany, whose early leadership made it the world’s leading solar power – FIT policies boost initial development in renewable technologies by providing developers with above-market rates guaranteed over a long-term contract, usually 15-20 years. When designed well, they deliver long-term emissions reductions while providing a stable rate of return for clean-tech developers and reasonable costs for the consumer. When costs are not controlled over time, however, an FIT can be doomed to follow the example of Spain, whose program created a rush of solar development that ultimately led to a bust.

Ontario’s FIT Program Faces Many Challenges

The Green Energy Act (GEA) was passed in 2009 in Ontario, Canada, by the Liberal Party as a way to position the province as a long-term renewable energy leader while phasing out coal, spurring clean-tech investment and boosting the economy by creating jobs through domestic content requirements. The Act’s FIT program covers biomass, biogas, landfill gas, on-shore wind, solar photovoltaics (PV) and waterpower. So far, it has created 13,000 jobs and attracted $20 billion in private-sector investment.

Two years later, however, it is facing three international challenges. First, in a dispute initiated under the World Trade Organization (WTO) last year, Japan is calling the Act’s domestic content requirements a prohibited subsidy that discriminates against imported products and violates key elements of international trade law. Europe likewise objects to the domestic requirements in its own complaint it initiated in the WTO last month. The third challenge comes from Mesa Power Group, owned by T. Boone Pickens, who filed a compaint in July under the North American Free Trade Agreement (NAFTA), alleging that Ontario made last-minute, discriminatory changes to its FIT rules, preventing the company from winning contracts for two wind projects it was hoping to build in the province.

The Act also faces significant domestic opposition in Ontario. Some of the opposition comes from communities fighting the construction of wind turbines in their neighborhoods. Some of it comes from a $7 billion deal made in 2010 between the Ontario government and South Korean-owned Samsung, which has sparked anger and which oddly dismisses Ontario’s own goal of promoting local over foreign companies.

Much opposition comes from the Act’s purported role in rising household energy bills. Conservative Leader Tim Hudak, in advance of a provincial election in October, has promised to cancel the FIT program and the Samsung contract, hoping he can oust the Liberals on the perception that the Act’s rising costs hurt the economy. Yet as Pembina Institute shows, the rising prices are due to such factors as the introduction of smart metering and the much-needed replacement of aging infrastructure – and prices would rise even without renewable investment. Others note that prices are expected to fall in the long-term.

As Japan Challenges Ontario’s FIT, it Passes its Own

Meanwhile, as the composition of the Ontario-Japan WTO dispute panel got underway, Japan passed a renewable energy FIT law that will go into effect next July. Some details of the policy remain undecided, but the tariff will cover solar PV, wind, biomass, geothermal and small hydroelectric generation. An overall review will occur every three years, and tariffs and contract terms will be reviewed annually.

Given the long-standing political strength of the nuclear industry in Japan, the measure would not have passed if it weren’t for the Fukushima disaster, as well as the controversies surrounding the government’s handling of it. The powerful but heavily criticized Ministry of Economy, Trade and Industry (METI) will not be responsible for implementing the FIT system; rather, that responsibility will go to a special parliamentary committee.

The law reflects the large shift in public opinion on nuclear energy since the tsunami and disaster at Fukushima, as well as the pressure government officials have been under to phase out atomic power. While it may be considered a victory for long-silenced renewable energy supporters, Prime Minister Yoshihiko Noda is attempting to convince a fearful public that Japan’s precarious position cannot be overcome without any nuclear in the mix.

Implications – and Questions – From Both Cases

The implications of these related examples are likely to be significant. For example, Japan’s new policy could help it recover its leadership in solar PV technology, along with Germany, and place it in competition with China, which last month established its own solar FIT program. (In another parallel example, China’s wind FIT program is currently being challenged by the United States for its support of domestic wind turbine manufacturers, considered also to be an illegal protective subsidy).

It is not certain, however, that Japan’s policy, if successful, will affect other countries’ nuclear policies, given that each country’s nuclear energy needs and capacities are different.  It is also not certain whether Japan will implement its own domestic requirements as part of its FIT policy, but this is unlikely while its own case against Ontario remains open.

With regard to Ontario, it is unclear whether its FIT program is more at risk from the three international challenges or from domestic opposition. Certainly, however, a repeal of the Act would render the WTO and NAFTA challenges moot, leaving the protective subsidy question unanswered.

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