The price of free trade is unchecked climate change

This excerpt from This Changes Everything appeared in Canada’s Globe and Mail on September 12th.

During the globalization wars of the late nineties and early 2000s, I used to follow international trade law extremely closely. But I admit that as I immersed myself in the science and politics of climate change, I stopped paying attention to trade. I told myself that there was only so much abstract, bureaucratic jargon one person could be expected to absorb, and my quota was filled up with emission mitigation targets, feed-in tariffs, and the United Nations’ alphabet soup of UNFCCCs and IPCCs. Then about three years ago, I started to notice that green energy programs – the strong ones that are needed to lower global emissions fast – were increasingly being challenged under international trade agreements, particularly the World Trade Organization’s rules.In 2010, for instance, the United States challenged one of China’s wind power subsidy programs on the grounds that it contained supports for local industry that were considered protectionist. China, in turn, threatened to bring a dispute against renewables subsidies in five U.S. states.

This is distinctly bizarre behaviour to exhibit in the midst of a climate emergency. Especially because these same governments can be counted upon to angrily denounce each other at United Nations climate summits for not doing enough to cut emissions, blaming their own failures on the other’s lack of commitment. Yet rather than compete for the best, most effective supports for green energy, the biggest emitters in the world are rushing to the WTO to knock down each other’s windmills.

As one case piled on top of another, it seemed to me that it was time to delve back into the trade wars. And as I explored the issue further, I discovered that one of the key, precedent-setting cases pitting “free trade” against climate action was playing out in Ontario – my own backyard.

Suddenly, trade law became a whole lot less abstract.

Sitting at the long conference table overlooking his factory floor, Paolo Maccario, an elegant Italian businessman who moved to Toronto to open a solar factory, has the proud, resigned air of a captain determined to go down with his ship. He makes an effort to put on a brave face: True, “the Ontario market is pretty much gone,” but the company will find new customers for its solar panels, he tells me, maybe in Europe, or the United States. Their products are good, best in class, and “the cost is competitive enough.”

As chief operating officer of Silfab Ontario, Mr. Maccario has to say these things; anything else would be a breach of fiduciary duty. But he is also frank that the last few months have been almost absurdly bad. Customers are convinced the factory is going to close down and won’t be able to honour the 25-year warranty on the solar panels they purchased. Suppliers who had been planning to set up their own factories nearby to cut down on transport costs are now keeping their distance.

Even his own board back home in Italy (Silfab is owned by Silfab SpA, whose founder was a pioneer in Italian photovoltaic manufacturing) seemed to be jumping ship – cancelling a $7-million investment in custom machinery. What are the chances he would choose to open this factory here today, given all that has happened, I ask. At this, all attempts at PR drop away and he replies, “I would say below zero if such a number exists.”

And yet in 2010, the decision to locate the company’s first North American solar manufacturing plant in Ontario seemed to make a great deal of sense. One year earlier the province had unveiled its climate action plan, the Green Energy and Green Economy Act, centred on a bold pledge to wean Canada’s most populous province completely off coal by 2014.

The plan was lauded by energy experts around the world, particularly in the U.S., where such ambition was lagging. On a visit to Toronto, Al Gore offered his highest blessing, proclaiming it “widely recognized now as the single best green energy [program] on the North American continent.” The legislation created what is known as a feed-in tariff program, which allowed renewable energy providers to sell power back to the grid, offering long-term contracts with guaranteed premium prices.

The catch was that in order for energy providers to qualify, they had to ensure that a minimum percentage – 40 to 60 per cent – of their workforces and materials were local to Ontario.

The provision was an attempt to revive Ontario’s moribund manufacturing sector, which was reeling from the near bankruptcy of General Motors and Chrysler. Compounding these challenges was the fact that Alberta’s tar sands oil boom had sent the Canadian dollar soaring, making Ontario a much costlier place to build anything.

In the years that followed the announcement, Ontario’s efforts to get off coal were plagued by political blunders. Large natural gas and wind developers ran roughshod over local communities, while the government wasted hundreds of millions (at least) trying to clean up the unnecessary messes.

Yet even with all these screwups, the core of the program was an undeniable success. By 2012, Ontario was the largest solar producer in Canada and by 2013, it had only one working coal-fired power plant left. And by 2014, more than 31,000 jobs had been created. Silfab is a great example of how it worked.

The Italian owners had already decided to open a solar panel plant in North America. But Ontario – overcast and cold a lot of the year – wasn’t “on the radar screen,” Mr. Maccario admitted. That changed when the province introduced the green energy plan. Its local-content provisions meant that in communities that switched to renewable energy, manufacturers like his could count on a stable market for their products, one that was protected from having to compete head-to-head with cheaper solar panels from China. So Silfab chose Toronto for its first North American solar plant.

Ontario’s politicians loved Silfab. It helped that the building the company purchased to produce its panels was an abandoned auto parts factory. And many of the workers the company hired also came from the auto sector. Then things started to go very wrong. Just as the U.S. has acted against local renewable supports in China, so Japan and then the European Union let it be known that they considered Ontario’s local content requirement to be a violation of World Trade Organization rules.

The WTO ruled against Canada, determining that Ontario’s buy-local provisions were indeed illegal. And the province wasted little time in nixing the local-content rules that had been so central to its program. It was this, Mr. Maccario said, that led his foreign investors to pull their support for factory expansion. “Seeing all those, for lack of a better term, mixed messages … was the straw that broke the camel’s back.”

From a climate perspective, the WTO ruling was an outrage: If we want to keep warming below catastrophic levels, wealthy economies like Canada must make getting off fossil fuels their top priority.

How absurd, then, for the WTO to interfere with that success – to let trade trump the planet itself.

And yet from a strictly legal standpoint, Japan and the EU were perfectly correct. One of the key provisions in almost all free trade agreements involves something called “national treatment,” which requires governments to make no distinction between goods produced by local companies and goods produced by foreign firms outside their borders.

Worse, it’s not only critical supports for renewable energy that are at risk of these attacks. Any attempt by a government to regulate the sale or extraction of particularly dirty kinds of fossil fuels is also vulnerable to similar trade challenges.

For instance, in 2012, the U.S.-incorporated oil company Lone Pine began taking steps to use NAFTA to challenge Quebec’s hard-won fracking moratorium. It has since announced plans to sue Canada for at least $230-million U.S. under NAFTA’s rules on expropriation and “fair and equitable treatment.”

None of this should be surprising. Of course the richest and most powerful companies in the world will exploit the law to try to stamp out real and perceived threats and to lock in their ability to dig and drill wherever they wish in the world.

In some cases, governments may successfully defend their emission-reducing activities in trade court. But in too many others, they can be relied upon to cave in early, not wanting to appear anti-free trade. Trade challenges aren’t killing renewable energy, but the growth is not happening fast enough. And the legal uncertainty that now surrounds some of the most significant green energy programs in the world is bogging us down at the very moment when science is telling us we need to leap ahead.

To allow arcane trade law, which has been negotiated with scant public scrutiny, to have this kind of power over an issue so critical to humanity’s future is a special kind of madness. As Nobel Prize-winning economist Joseph Stiglitz puts it, “Should you let a group of foolish lawyers, who put together something before they understood these issues, interfere with saving the planet?”

The greatest tragedy of all is that so much of this was eminently avoidable.

We knew about the climate crisis when the rules of the new trade system were being written. After all, NAFTA was signed just one year after governments, including the U.S., signed the landmark United Nations Framework Convention on Climate Change in Rio.

And it was by no means inevitable that these deals would go through. A strong coalition of North American labour and environmental groups opposed NAFTA precisely because they knew it would drive down labour and environmental standards.

But for a complex set of reasons, the leadership of many large environmental organizations decided to play ball. “One by one, former NAFTA opponents and skeptics became enthusiastic supporters, and said so publicly,” writes journalist Mark Dowie in his critical history of the U.S. environmental movement, Losing Ground.

The errors of this period cannot be undone, but it is not too late for a new kind of climate movement to take up the fight against so-called free trade and build this needed architecture now.

That doesn’t – and never did – mean an end to economic exchange across borders. It does, however, mean a far more thoughtful and deliberate approach to why we trade and whom it serves.

Excerpted from This Changes Everything: Capitalism vs. the Climate. Copyright © 2014 Naomi Klein. Published by Knopf Canada, a division of Random House of Canada Limited a Penguin Random House Company. Reproduced by arrangement with the Publisher. All rights reserved.