Canada's Coal Power Plants May Pit Kyoto Vs. NAFTA

by Stephen Leahy

(IPS) -- Closing North America's biggest coal-fired power plants is a key part of Canada's plan to meet its Kyoto Protocol obligations, but experts warn that U.S. coal companies could claim such a move violates international trade pacts like the North American Free Trade Agreement (NAFTA).

"I'm surprised that U.S. coal companies haven't already filed claims against Canada," says Andrew Muller, president of the Society of Energy Professionals, an energy workers' union that is seeking a formal legal opinion on the issue.

Under the Kyoto Protocol, which took effect in February, industrialized nations like Canada are legally bound to reduce their greenhouse gas emissions by an average of five percent from 1990 levels each year between 2008 and 2012.

Last year, the province of Ontario committed to improving air quality and reducing greenhouse emissions, and announced the closing its five publicly owned coal-fired electricity generating stations by 2007. The coal for these plants is supplied by U.S. companies.

To replace the power from the closing coal plants, Ontario has asked for bids from the private sector to supply locally produced renewable energy from wind and biomass, as well as natural gas.

In stipulating locally produced energy, it would be violation of NAFTA because it locks U.S. coal companies out of the bidding, Muller said in an interview. "When you open up the market to privatization, this is the kind of mess you can get into."

Virtually all of Ontario's electricity sector used to be publicly owned, with power generated by large coal, nuclear and hydropower stations.

But deregulation and privatization fever struck in the late 1990s, and by 2001, the 3,000- megawatt Bruce nuclear station had been leased to a British company. Various other parts of the energy sector were put up for auction, but the government backed off after California's electricity deregulation efforts resulted in widespread blackouts and high prices.

In 2004, the government decided to opt for a "hybrid" energy market: retain public ownership of most the system but have the private sector provide any new energy generation. That includes replacing the old, polluting coal-fired power plants with environmentally friendlier sources.

The Nanticoke coal-fired power station is located on the north shore of Lake Erie. It is the largest in North America, producing a total of 4,000 MW of power at full capacity. It also has the distinction of being Canada's top industrial source of pollution, including mercury, hydrochloric acid, nitrogen oxides and other toxins. It also emits greenhouse gases equivalent to 3.5 million cars.

Medical experts and environmentalists in Canada and the U.S. have waged a long battle to shut Nanticoke down.

"There is strong public support for the coal plant phase-out," says Jack Gibbons of the Ontario Clean Air Alliance, a coalition of environmental NGOs. "The (potential) claim that NAFTA prevents this is ludicrous. No one can force the government to continue to operate these coal plants."

The Ontario government is also firmly committed to shutting down Gibbons, officials said in an interview.

"We don't see NAFTA as being an issue," a spokesperson from the Ontario government energy ministry told IPS. The new energy policies don't violate trade rules, he said.

NAFTA is a complex trade agreement with specific chapters on energy, explains Barry Appleton, managing partner at Appleton & Associates International Lawyers. As a leading expert on NAFTA and international trade agreements, Appleton was commissioned by the Society of Energy Professionals to study the issue and give a legal opinion.

"The Ontario government's new energy polices make a number of violations under international trade rules," Appleton told IPS from his Toronto office.

Phasing out coal plants that use U.S. coal and stipulating that private companies that supply the energy to replace them must be in Ontario is "a clear violation of NAFTA," he said. "The NAFTA requires that this (energy) market be adjusted on a transparent, non-discriminatory basis."

The agreement was designed to take local politics of out these decisions and prevent foreign interests from being disadvantaged, he said, adding that "I was surprised as anyone to see how offside these policies are with NAFTA."

NAFTA does have clauses that protect existing publicly-owned institutions. However, if Ontario deregulates the electricity market, NAFTA rules would make it difficult to return to public utilities.

"When governments open up the market it's a one-way effect. They can't go back," says Appleton.

The Ontario government hasn't seriously considered the long-term implications, including its ability to regulate or deal with issues like having sufficient power generated in the province, he warned.

With only about 15 megawatts of wind power, Ontario's nascent wind energy sector needs those new energy policies that favour locally-produced, renewable sources. Under the new policy, private companies signed contracts to generate 350 megawatts late last year. And more are expected this year.

Wind power is not as cost-competitive under the current economic system, says Robert Hornung, president of the Canadian Wind Power Association. It costs a lot of money to build a farm -- about 1.3 million dollars per megawatt -- so investors need government commitments, like the promise to get 10 percent of its power needs from renewables by 2010, half of which is expected to come from wind.

"The industry needs those policy initiatives to grow," Hornung told IPS.

Muller agrees. "The only way Ontario has any hope of controlling its electricity industry is by keeping it in public hands," he says.

According to Appleton, under NAFTA Ontario's utilities could return to full public ownership, although not without paying some penalties. But it would be much less expensive to do so earlier rather than later, when more energy contracts are issued to the private sector.

"Electricity is not a commodity, it can't be stored. The rules of the market don't apply," says Mueller, arguing that electricity is something governments ought to have full control over.