Did Black Liquor Credits Pave the Way for Healthcare Legislation?

The Democrats' healthcare plan hasn't even been approved by Congress yet, but it already seems to be doing wonders for several hundred pulp-mill workers in Baileyville, Maine.

Pundits have been expressing surprise the past few days that the House version of healthcare reform includes a seemingly unrelated provision to block the so-called "Son of Black Liquor" loophole that could be worth $50 billion in tax credits to U.S. pulp mills. But as The Reel Time Report newsletter pointed out this week, that doesn't seem to be the first time that black-liquor subsidies have been entwined with healthcare politics.

The newsletter, published by Forestweb, suggests Democrats used the oldest trick in the book to get a woman to say yes -- plying her with liquor. In this case, the woman is Sen. Olympia Snowe (R-Maine), and the liquor is black liquor, an energy-rich byproduct of the kraft pulping process.

The following chronology from the past eight months tells the story:

• March 5: Domtar Corp. announced it would indefinitely idle its Woodland pulp mill in Baileyville, ME in May, putting 300 people out of work.
• Late March: Stock analysts and the news media revealed that some pulp companies had discovered a loophole in a U.S. law that was meant to encourage production of "green" motor fuels. By mixing a bit of diesel with black liquor, the companies were able to get government alternative-fuel payments equal to one-third to one-half the market value of the pulp they produced. See Pulp Fiction: Eco-Credits for Black Liquor.
• April 5: Word started circulating that Sen. Max Baucus (D-Montana), chairman of the Senate Finance Committee, wanted to close the black-liquor loophole before its scheduled expiration at the end of this year. Reports indicated that legislation, supported by the Obama Administration, was imminent.
  
• April 6: Sen. Snowe visited the Woodland mill and told workers that her goal was to save the mill.
• April 23: "The black liquor tax credit is crucial to the survival of the paper industry, and to maintain and create jobs," said Sen. Snowe as she joined joining several other senators from pulp-making states to urge continuation of the credits. NewPage, Verso, and Sappi also own kraft pulp mills in Maine.
  
• June 10: Domtar announced it would reopen the Woodland mill, partly because of black-liquor credits.
• June 11: Baucus and Sen. Chuck Grassley (R-Iowa) released a draft of legislation that would close the black-liquor loophole.
  
• Sept. 16: After months of Finance Committee work on the subject, Baucus introduced his version of healthcare-reform legislation.
• Late September: Baucus and other Democrats backing healthcare reform stepped up their wooing of Sen. Snowe because she was the only Republican member of the Finance Committee who was not clearly opposed. A yes vote by Sen. Snowe, some said, would kill any hopes of a Republican filibuster if the legislation made it to the Senate floor.
• Oct. 13: Sen. Snowe joined 13 Democrats on the Finance Committee in approving Baucus' bill.
• Nov. 5: The Reel Time Report published a special report estimating that about $6 billion in black-liquor credits have been paid out to U.S. pulp mills this year and that the total will surpass $8.5 billion by the end of the year. If anything, the estimates appear to be a bit low because in some cases the newsletter used companies' reports of black-liquor credits "net of expenses" rather than the full, pre-tax amount of the credits.
• Nov. 8: As of this date, the Baucus-Grassley draft on black liquor has not been introduced. The Reel Time Report notes that Baucus and other Democratic critics of the credits "became quiet" at the same time that Snowe "took up the cause of the kraft pulp producers." The newsletter adds, "The point is that Senator Snowe was the key that kept this money flowing."

Another black-liquor/healthcare-reform connection arose a few days ago when House Democrats decided to help "pay" for healthcare legislation by closing the "Son of Black Liquor" loophole. (See Son of Black Liquor: A $50 Billion Loophole for the U.S. Pulp and Paper Industry for an explanation of the loophole and 'Black Liquor' Tax Credit Restriction Rides on Health Care Bill for a description of the House's action.)

Never mind that closing the loophole would not add any money to the federal budget, just prevent the government from doling out funds that weren't in the budget. And never mind that the Son of Black Liquor loophole probably doesn't even exist because EPA regulations won't allow it. (See Will the EPA Stop 'Son of Black Liquor'?)

With the kind of Alice in Wonderland accounting that occurs only in Washington, House Democrats can claim they found a way to help pay for healthcare legislation and to prevent a continuation of controversial pulp-mill subsidies. But if Democrats once again find themselves coveting some key moderate votes from paper-producing states, don't be surprised to see Son of Black Liquor rise miraculously from the dead.