Paper Companies Getting Liquored Up

Now we can add tax breaks to the long list of valuable byproducts that come from the kraft pulping process.

The kraft, or chemical, pulping process has long been known to produce such marketable items as turpentine, cholesterol-lowering food additives, electricity, and chemicals used in everything from inks to asphalt to chewing gum – not to mention the pulp that forms the main ingredient in freesheet papers and is a significant part of many groundwood papers.

The Toronto Globe and Mail reported a few days ago that “the devastated forestry industry is agog over potentially huge U.S. alternative-fuel tax breaks based on a substance the sector has in plentiful supply: black liquor, a byproduct of the chemical pulp-making process.” (Not that becoming agog over liquor is anything new for paper companies, as evidenced by the recent Paper Week gathering in New York, but that was mostly brown liquor.)

Several paper companies revealed last week that they have received or will receive millions of dollars from the U.S. government this year for using black liquor to power their plants. For using black liquor at one of its mills, Verso Paper received a government payment in the fourth quarter of 2008 worth $29.7 million, which earlier this month was enough to buy all of the company's stock.

Pulp mills have been using black liquor as a power source for decades. In an odd twist on the concept of alternative fuels, they have to add a conventional fuel, such as diesel, to the black liquor to qualify for the government handouts. A stock analyst said Verso, International Paper, Domtar, and others are “burning black liquor into gold".

Kraft pulp mills have often been a target for environmentalists because they convert two pounds of tree to one pound of pulp, not to mention the rotten-egg odors they can produce. An idea kicking around the industry for several years has been to convert kraft mills to “forest biorefineries” (Doesn’t that sound greener?).

Rather than focusing on pulp, with byproducts as afterthoughts, a biorefinery would maximize the value of the wood by making a wide variety of products -- including ethanol, black liquor, and acetic acid – with less energy consumption and waste. Now Uncle Sam is sweetening the pot by offering subsidies for both the ethanol and the black liquor.

But converting a pulp mill to a biorefinery doesn't solve one problem: The plant would still produce pulp, which no one seems to want much of these days. Perhaps the paper companies could get a government grant to convert an idle paper machine (plenty of those these days) into a "biomass dryer" that would process the pulp into a burnable product that could qualify for more alternative-fuel subsidies.

Don't you just love free-market capitalism?