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BRUSSELS (Reuters) - The European Union has launched a legal challenge against Canada at the World Trade Organization to protest against provincial backing for solar and wind energy projects, the bloc's executive said on Thursday.
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.
It focuses on a scheme in Canada's Ontario province 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.
"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," it added.
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.
Caitlin Workman, a spokeswoman for the Canadian Department of Foreign Affairs and International Trade, said Ottawa would "defend Canada's interests" in the row with Europe, 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, adding that the federal government was not responsible for the actions of Ontario.
Under WTO law, member countries must bring all levels of government -- federal, provincial and local -- in line with WTO rules governing subsidies.
In May 2009, Ontario set a minimum guaranteed price for electricity generated from renewable sources -- part of Canada's battle against climate change -- but reserved this 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 multi-billion 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 amounted to up to 600 million euros ($856 million) a year in recent years, would be given a boost if Ontario removed its restrictions.
Additional reporting by Randall Palmer in Ottawa; Editing by Karolina Tagaris