The WTO's appellate body confirmed the Ontario program to encourage the development of wind and solar power discriminates against foreign firms because Ontario's Green Energy Act mandates that a certain percentage of solar and wind components be domestically made.
EU and Japan say the province's "feed-in-tariff" program for its energy grid discriminates against foreign component manufacturers by declaring a minimum percentage of renewable energy goods and services be provided by Ontario-based companies.
According to the Green Energy Act, wind and solar projects in Ontario must have a domestic content requirement of up to 60 per cent or they won't be eligible for contracts.
"The EU is a significant producer and exporter of wind and photovoltaic power but its exports to Canada could be much higher should the measure promoting use of domestic equipment be removed," an EU statement on its website said.
The WTO ruled last December that Ontario's program discriminated against imports and was inconsistent with WTO rules. Canada appealed that ruling in February. The WTO's appellate body today dismissed that appeal.
"Today's ruling is good news for everyone caring about clean energy and the environment: it has been made clear that use of quality, cost-effective technologies should not be hampered by protectionist measures," EU trade spokesman John Clancy said in a statement.
"The EU supports the promotion of renewable energy but considers this must be done in a manner consistent with international trade rules."
'Reviewing the ruling'
Ontario Energy Minister Bob Chiarelli, in comments emailed to CBC News, said he was "reviewing the ruling in consultation with the federal government. I’ll let that process continue before we determine our next steps."
But Chiarelli said the province is not about to abandon its green energy initiative. "Our renewable energy sector has already created over 31,000 jobs and leveraged billions of dollars in investment," he said.
For its part, the federal government said it would work with the province to address the ruling's implications.
"As this is the first time Canada has received a WTO panel ruling arising solely from provincial policy or legislation, we will work with the Ontario government in order to respond to the decision," said Caitlin Workman, spokesperson for the Department of Foreign Affairs and International Trade.
The EU says the appeal body's report will be formally adopted by the WTO within 30 days.