In trying to reap the wind, Canada has reaped a whirlwind.
America's northern neighbor is being hit with the double whammy of a World Trade Organization suit and a NAFTA claim for favoring clean power projects that use local suppliers.
The WTO suit was filed by Japan, which complains that Ontario's Green Energy Act of 2009 violates international trade law by tying clean power subsidies to local supplier requirements. This discriminates against foreign producers of solar panels and wind turbines like Mitsubishi, the suit asserts. Two weeks ago, T. Boone Pickens' Mesa Power Group also challenged the Green Energy Act, announcing that it had filed a Notice of Intent to file a NAFTA claim against Canada. Mesa Power argues that the act's "buy local" proviso likewise offends NAFTA's guarantee that Canada treat U.S. investors no worse than local investors.
Taken together, the Ontario green power cases show the potential for the same conduct to prompt claims under both trade and investment law. Precedent for this combination is found in the multifaceted challenges mounted against Mexico's tax on non-sugar sweeteners, and in the long-running U.S.-Canadian war over softwood lumber. Perhaps of more significance, the new Ontario cases also show the potential for renewable energy policy to generate legal sparks. One way or another, as Columbia Law School professor Michael Gerrard concluded in a recent article in the World Climate Change Report: "Climate change is poised to become the next big thing in international trade law."
Earlier this month, the WTO convened a panel to examine Japan's case, which asks Canada to bring its laws into compliance with its trade commitments. A similar claim by the U.S. against China, brought at the behest of the United Steelworkers, is reportedly primed for settlement because China has withdrawn its wind power subsidies.
The Mesa claim is interesting as an effort to hold Canada accountable for alleged overreaching by provincial regulators (in provinces both provincial and cosmopolitan). Last summer, Canada paid a NAFTA record 130 million Canadian dollars to settle a claim by newsprint maker AbitibiBowater, arising out of the confiscation of its Newfoundland water power assets.
Mesa alleges that the Ontario Power Authority made discriminatory last-minute changes to rules for awarding power purchase agreements and gave preferential treatment to Korea's Samsung C&T, which signed a $7 billion agreement with Ontario after committing to build local factories for wind turbines. Mesa filed its Notice of Intent two days after Ontario rejected its application for a power purchase agreement on July 4. Mesa seeks at least $775 million, and its claim could easily exceed $1 billion, according to Mesa's NAFTA attorney, Barry Appleton of Appleton & Associates.
Canada is likely to argue in the NAFTA challenge that it was pursuing legitimate regulatory objectives; in the WTO case it will likely maintain that exceptions should apply for the protection of the environment and conservation of exhaustible natural resources. The Green Energy Act and the Samsung deal have emerged as major issues in the current Ontario elections, and the opposition leader has promised to roll them back. A spokesperson for the Canadian Trade Law Bureau stated that the Mesa Power case would be vigorously contested.
"What we have here is an exceptionally innovative public policy that would be very helpful to the environment, if administered fairly and properly," said Mesa lawyer Appleton. Unfortunately, he added, "This case is about regulatory failure, probably with a nationality tinge because we are dealing with a famous group from Texas."
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.