For U.S. Papermakers, the (Black) Liquor's Gone, But the Party Goes On

The huge black-liquor subsidy of pulp mills expired last week, but that isn’t stopping the U.S. forest-products industry from tapping taxpayers' money in other ways.

Three-fourths of the pulp and paper companies that received U.S. black-liquor tax credits are signed up to benefit from another biofuel subsidy, the new Biomass Crop Assistance Program (BCAP). But also among the more than 100 mills that have been approved as BCAP "biomass conversion facilities" are at least several that were put at a competitive disadvantage by the black-liquor program, which expired on Dec. 31.

Various paper companies are also getting government help to reduce reliance on fossil fuels, using state grants funded by federal economic-stimulus programs. Just this week, Maine awarded $2 million to Verso Paper’s Bucksport mill and smaller amounts to five other paper companies for investments in such projects as heat recovery and biomass boilers. Last month, Wisconsin made similar energy-efficiency grants totaling about $5 million to four paper companies.

Say hello to Uncle Sam
U.S. paper companies have historically avoided government entanglement. But after some left millions of dollars on the table last year by being late to the black-liquor party, they are definitely keeping an eye on Uncle Sam's wallet now.

BCAP is nowhere near as generous as the black-liquor credits, and the benefits to paper mills and other buyers of biomass will be indirect and uncertain. Boosted by a $517 million appropriation for the first quarter of 2010, the program provides subsidies to suppliers rather than users of biomass.

By being BCAP-approved sites, biomass users – such as paper mills that burn bark, limbs and sawdust to fire their boilers – will presumably be able to buy at less-than-market prices. As with the black-liquor credits, critics are already complaining that BCAP will distort markets in a way that unfairly hurts some businesses without doing much for the environment.

Among the companies and mills on the list of BCAP-approved facilities are:

• All of the top 12 producers of kraft pulp in the U.S. and 24 of the 32 known producers. Those companies earned an estimated $8 billion-plus last year from a federal alternative-fuel program simply by following the standard industry practice of using black liquor, a pulp byproduct, as an energy source for their mills.
• Eighteen mills owned by International Paper, the #1 recipient of the black-liquor credits.
  
• The Woodland pulp mill in Baileyville, ME, which Domtar reopened last year (while simultaneously closing a Canadian kraft pulp mill) specifically because of the black-liquor credits. An improving global pulp market has enabled the mill to continue running even without the credits.
• An East Millinocket, Maine directory mill affiliated with Fraser Papers. Fraser said the black-liquor credits helped push it into bankruptcy reorganization last year; it couldn't get the credits because its kraft pulp comes from Canada. The Maine program also made grants to three other Fraser mills.
• The Boise Inc. mill in DeRidder, LA that used the black-liquor credits to grab share – and hurt competitors -- in the newsprint market. Last spring, Boise publicly announced a decrease of more than 20% on newsprint prices, made possible by its unusual use of (subsidized) kraft pulp in its newsprint.
• Catalyst Paper’s 100%-recycled newsprint mill in Snowflake, AZ, which lost significant business because it wasn’t able to match Boise’s pricing. It became a poster child for opposition to the black-liquor credits, a supposed environmental subsidy that in this case encouraged a switch from recycled to virgin pulp.
• AbitibiBowater newsprint mills in August, GA and Grenada, MS, which also suffered from Boise’s move.

For further reference:

• The U.S. Department of Agriculture's BCAP Web site.
• Black Liquor Scorecard: $4.7 Billion Through September, which lists black-liquor credits earned through Third Quarter 2009 by each of the publicly traded kraft-pulp producers.
  
• International Paper Drowns Its Sorrows in Black Liquor: The giant company earned more in black-liquor subsidies last year than it made from selling actual products.
• Did Black Liquor Credits Pave the Way for Healthcare Legislation?: How the reopening of Domtar's Woodland mill played a role in a key Congressional vote.