Michigan is one of seven states with discriminatory clean energy laws because they favor locally produced content, a World Trade Organization panel ruled last month.
Provisions in Michigan’s clean energy laws first passed in 2008 and extended in 2016 provide additional renewable energy credits on projects that use in-state labor and equipment. The rule provoked India in September 2016 to file a complaint against the United States and specifically policies in Michigan, Minnesota, Montana, Washington, California, Delaware and Connecticut. A panel report issued June 27 found various aspects of the states’ renewable energy laws violated international trade agreements.
Michigan was cited for its renewable portfolio standard that gives additional renewable energy credits to electric providers with a system built with equipment made in Michigan or that is constructed using a Michigan workforce.
In what experts describe as an unsurprising ruling, the WTO panel agreed with India that the states’ policies violate the General Agreement on Tariff and Trade of 1994 and “distinguish between renewable energy systems solely on the basis of origin.”
The United States argued that the in-state equipment provision accounted for less than 1/100th of a percent of renewable energy credits (RECs) since 2009 and therefore didn’t act as an incentive. The WTO panel said it could in theory “affect the sale, purchase, transportation, distribution or use of the relevant products.”
Michigan’s renewable energy program is administered by the state Public Service Commission. MPSC spokesperson Nick Assendelft said the ruling’s immediate effect remains unclear.
“The (MPSC) is a creature of statute, therefore until there is some finality to the issue, the Commission must continue to follow what’s spelled out in the current law regarding the Renewable Energy Standards Program,” Assendelft said. “Any changes to the law would result in the MPSC evaluating the impact on our compliance enforcement.”
However, analysts say revoking these provisions would require legal action against these states by the Trump administration, which they call possible, but unlikely.
Major changes not expected
The WTO panel’s ruling isn’t the first time Michigan’s renewable energy law has come under scrutiny.
In 2013, a federal appeals court questioned Michigan’s renewable portfolio standard that banned out-of-state renewable generation from counting toward its mandate. Judge Richard Posner wrote at the time that the provision violates the Commerce Clause by discriminating against out-of-state renewables, and referenced Indiana-based wind energy transmitted into Michigan.
However, the appeals court ruling didn’t cause widespread repeal of statewide renewable portfolio standards. Experts say the WTO panel’s ruling is unlikely to have a major effect either.
Douglas Jester, principal at the Lansing-based consultancy 5 Lakes Energy LLC, noted the bonus RECs expire three years after a project is built, and most have already expired. While more projects are underway to come into compliance with the 15 percent renewable energy target, they will effectively end in 2021 unless the policy is extended.
“It’s just not likely to have an effect on Michigan in a timely way to affect any projects,” he said.
Jester said policymakers working on the 2016 energy rewrites had been aware of India’s complaints before the bills passed.
“We assessed then that it probably wasn’t consequential,” Jester said.
The U.S. can now appeal the ruling or refuse to act on the WTO’s finding. By ignoring it, India and other countries that were part of the complaint could impose tariffs to offset the costs, although these would likely be minimal.
Alternatively, the Trump administration could comply with the WTO ruling and sue the states, although this hasn’t happened since the WTO formed in 1995, according to legal analysts.
“(The Trump administration) would have to take that step in order to get Michigan to make a change,” Jester said. “That’s not to say the state couldn’t voluntarily make a change if it wanted to, but it would have to be done legislatively.”
The Office of the U.S. Trade Representative did not respond to a request for comment.
Todd Tucker, a political scientist and fellow at the Roosevelt Institute, wrote in a recent Washington Post analysis that the policies in all seven states are designed to “soften the inevitable economic dislocations of moving away from the carbon economy.”
While Jester said the ruling may be inconsequential for Michigan, Tucker writes that it could have broader implications on federal clean energy policy if, for example, a Green New Deal were enacted. These policies would likely include provisions meant to support the U.S. economy as it transitions to renewable energy.
The Green New Deal “uses Buy Local or Hire Local requirements to make its proposed climate solutions politically sellable and viable,” Tucker wrote. “These are the sorts of provisions that India and other countries can be expected to challenge if and when a Green New Deal gets through Congress. … As environmentalists gear up their policy ambitions, there will be increased clashes with the existing international trade regime, and calls for change from the left as well as the right.”