Black Liquor Credits Top $3 Billion So Far

Pulp and paper mills in the United States earned more than $3 billion in controversial "black liquor" credits during the first half of this year, a Dead Tree Edition analysis shows.

The companies are on pace to earn even more in "alternative fuels tax credits" during the second half of the year if the federal program is not terminated prematurely. The program expires at the end of the year, but the Obama Administration and some members of Congress want to end it early. A few Congress members have advocated some sort of extension.

Twenty-one companies that operate kraft-pulp mills reported to the U.S. Securities and Exchange Commission that they earned or received$2.86 billion from the federal "alternative fuels tax credit" in the first and second quarters.

That doesn't include at least 11 other privately held pulp makers that do not file reports with the SEC. One of those private companies, Georgia-Pacific, manufactures enough pulp to earn well over $200 million per quarter in black liquor credits, according to Equity Research Associates.

The alternative-energy program was originally intended to subsidize the use of bio-fuels to replace petroleum fuels. But International Paper set off a feeding frenzy among pulp makers early this year when it revealed that, by mixing some diesel fuel with the black liquor used to power its kraft mills, it had qualified for the program. Black liquor is a byproduct of the kraft process that pulp mills around the world have been using as an energy source for decades.

For more background on the tax credits, please see "Black Liquor" Credits Are Helping Paper Buyers and Boozing It Up on Black Liquor: One Company's High Is Another's Hangover.

IP, the largest kraft producer in the U.S., has already earned just over $1 billion from the program, it reported to the SEC.

Most other publicly traded pulp makers were late to the liquor party. Many started blending diesel with black liquor in mid- to late January, but Weyerhaeuser and SAPPI apparently didn't start until the 2nd Quarter. Now that all of the eligible public companies have qualified for the program, they seem to be on pace to earn at least $1.6 billion in both the 3rd and 4th quarters.

Accounting for the credits varies among the public companies. Some recognized only the payments they had received from the Internal Revenue Service, while most seem also to have booked credits that were earned but not yet in hand. Some reported the amount of credits they had earned, while others first backed out related expenses.

Here are the credits earned from January to June, as best as I can interpret from the SEC reports:

• International Paper: $1.022 billion
• Smurfit-Stone Container: $294 million
• Domtar; $183 million
• MeadWestvaco: $180 million
• Verso Paper: $144 million
• NewPage: $120 million
• AbitibiBowater: $118 million
• Weyerhaeuser: $107 million
• Rayonier $92 million
• Packaging Corporation of America: $81 million
• Boise: $79 million
• Temple-Inland: $79 million
• Clearwater Paper: $76 million
• Kapstone Paper & Packaging: $70 million
• Graphic Packaging; $62 million
• P.H. Glatfelter: $43 million
• SAPPI: $37 million
• Rock-Tenn: $34 million
• Buckeye Technologies: $25 million
• Appleton Papers: $8 million
• Wausau $6 million