Ontario may soon find itself part of the brewing protectionist battle over renewable energy subsidies. Though the protectionist debate is currently grabbing headlines in the US, as Congress decides on whether "Buy American" rules should be imposed on renewable-energy investments backed by the US government, it will likely soon trickle North of the Border as a result of the province’s Green Energy Act.

Thanks to the Green Energy Act, the Ontario government imposes “Buy Ontario” rules on renewable energy projects in the province. Currently, all wind and solar projects benefiting from the province’s generous Feed-in Tariff—which pays renewable energy projects a premium for their output—are required to include a minimum percentage of goods and services from Ontario.

The Domestic Content Requirement for wind projects over 10 kW is 25% until then end of 2011, and 50% for projects after 2012. For solar projects over 10 kW, it’s 50%—with that figure rising to 60% in 2011.

Enter the protectionist debate.

Ontario’s renewable energy companies may soon find that offering their goods to other jurisdictions will be a hard sell, as politicians in those areas may follow Ontario’s lead and impose their own domestic content rules. In a strange bit of irony, politicians in other jurisdictions—by following Ontario’s example—will be shutting out the very companies that the province’s Green Energy Act is supposed to be nurturing.

Far more dangerous though is that the Ontario government and the dozens of companies benefiting from “Buy Ontario” policies and other subsidies might also find that the domestic content rules are illegal.

Trade officials from Japan have already asked the Ontario government to "get rid of the local-content requirement" contained in Ontario’s feed-in-tariff program. One Japanese trade official made it clear that Japan "cannot rule out the possibility" of a legal challenge of Ontario’s domestic-content requirements at the World Trade Organization in Geneva.

The Japanese trade officials warned that Ontario’s domestic content requirements will limit its access to the best technology on the market.

They also warned that it could be setting a dangerous precedent.

"FIT programs are being explored by many government entities all over the world," Toshihiko Fujii, director of trade rules and dispute settlement for Japan’s Ministry of Economy, Trade and Industry said. "So far, (Ontario) is the only (jurisdiction) who added a local-content requirement to (a FIT program.) But (if) other local governments or national governments copy the local content requirement idea of Ontario…, that impact will be devastating."

US lawmakers, not to be outdone by their Canadian counterparts, are considering following Ontario’s lead.

Kevin Book, a managing director for Clearview Energy Partners LLC, a Washington-based policy research firm recently told Bloomberg News that, "Congress is feeling pressure to make sure they won’t be held accountable for green jobs going overseas." In order to do so, he says Buy-American restrictions might be added to any climate legislation introduced in the Senate.

Can we blame them? If one government wants to subsidize a “pet” industry, what is stopping another government from doing exactly same thing? If governments around the world want to follow Ontario’s lead, “green” jobs might become nothing more than a zero-sum game, where each government seeks to undercut its peers until everybody is supporting financially-draining industries.

Energy Probe is a keen supporter of renewable energy. We believe renewable energy has the ability to diversify our electricity supply, while allowing for more decentralized sources of power for consumers. But we’re not in favour of throwing massive subsides at forms of energy that are not technically or economically feasible.

Read the previous gangrene economy report, "Taking The Jobs Out Of ‘Green Jobs’ " here.