Following on the heels of a similar challenge by Japan, the row highlights a global battle for a slice of the lucrative and growing renewables market, with countries including Canada, the United States and China moving to reserve public works projects worth billions of dollars for local firms.
The EU complaint focuses on a scheme in the province of Ontario that guarantees above-market prices for renewable energy as long as it is generated with a set proportion of Canadian-made equipment or services.
The EU says the plan is illegal under global trade rules because it gives an unfair advantage to local producers, but Ontario dismissed the charge as baseless and stemming from European envy.
"It is illegal to condition access to a subsidy to the use of domestic products," the European Commission said in a statement. "The EU is also increasingly concerned by such measures taken by other trading partners."
Known as the Ontario Green Energy and Economy Act, the initiative admits solar projects only if at least 40 percent of their initial development is made up of Ontario products and services, according to the EU.
Wind energy projects qualify if at least 25 percent of development can be traced to local firms.
Ontario Says EU is Just Envious
Caitlin Workman, a spokeswoman for the Canadian Department of Foreign Affairs and International Trade, said Ottawa would "defend Canada's interests", echoing its response when Japan launched similar legal proceedings in June.
"Any specific questions on this initiative should be directed to the government of Ontario," she said, asserting that the federal government was not responsible for the actions of the province, which is Canada's manufacturing and financial heartland.
Under WTO law, member countries must bring all levels of government -- federal, provincial and local -- in line with WTO rules governing subsidies.
Ontario Energy Minister Brad Duguid said in an e-mailed response to a Reuters query: "It is our view that the Ontario feed-in-tariff program is in compliance with Canada's obligations under the World Trade Organization."
He then said it was no surprise that the clean energy program was attracting world attention.
"We're now seen as the world leader and, when you're in that position, you're going to have other jurisdictions looking somewhat enviously at what's being achieved here," Duguid said.
"We're going to stand up for Ontario ... against anybody that wants to threaten our efforts to create jobs."
In May 2009, Ontario set a minimum guaranteed price for electricity generated from renewable sources as part of a plan to phase out coal-fired generation, cut greenhouse gas emissions and create new jobs. But it reserved reserved the above-market feed-in tariffs for generators partially or completely built in Canada.
Since Ontario launched its scheme, a number of domestic and foreign companies including South Korea's Samsung C&T have announced plans to set up multibillion-dollar operations in the province, most likely to benefit from the guaranteed prices.
The EU argues its wind and solar power-related exports to Canada, which have totaled as much as 600 million euros ($850 million) annually in recent years, would be given a boost if Ontario removed its restrictions. (Reuters)
