Environmentalists Try To Put a Cork Into Black-Liquor Loopholes

Twenty-seven environmental groups are ganging up to bury the black-liquor tax loophole and to prevent “Son of Black Liquor” from being born.

They sent a joint letter this month to EPA Administrator Lisa Jackson asking her not to let “cellulosic biofuel producer credits” subsidize the burning of black liquor by pulp mills. The so-called Son of Black Liquor loophole has the potential to dole out $50 billion to U.S. pulp mills from 2010 to 2012 if the EPA makes a favorable ruling.

Signed by such organizations as Forest Ethics, Green America Better Paper Project, the National Wildlife Federation, and the Natural Resources Defense Council, the letter urges the EPA to declare “that black liquor is not eligible for the cellulosic biofuels producer credit.”

The letter also expresses concern about Wisconsin Congressman Steve Kagen’s recent proposal to extend the original black-liquor loophole rather than allowing it to expire at the end of this year. U.S. pulp mills are on pace to receive more than $8 billion from the U.S. government in 2009 for burning black liquor, a byproduct of the kraft pulping process, to power their mills.

“The original intent of both of these tax credits is to reduce dependence on fossil fuels and incentivize the production and use of domestic alternatives,” the letter says. “Instead, paper companies brazenly crafted a creative yet crude way to dip into the pockets of US taxpayers and are being paid billions for what they have been doing for over 75 years, and would continue to do without the credit.”

The letter cites a Goldman Sachs analysis stating that the “black liquor to gold scheme” is doing the “opposite of what the lawmakers likely had in mind when the tax credit was established” to encourage the use of ethanol and other biofuels. The letter also notes that subsidizing kraft pulp through black-liquor credits creates perverse incentives for paper makers to use virgin rather than recycled pulp.

“Thus, an incentive to increase the use of products that have less impact on our climate had the opposite effect: high energy and carbon intensive virgin paper was rewarded while lower energy and lower carbon recycled paper products were not,” states the letter, which is dated Dec. 4 but not released publicly until this week.

For further reading:

• The letter sent to Jackson, including a list of the 27 organizations that signed it.
• Will the EPA Stop 'Son of Black Liquor'?, which explains why the EPA is crucial to determining whether black liquor can qualify for cellulosic biofuel producer credits.
  
• Wisconsin Congressman Tries To Extend Black-Liquor Credits, about Rep. Kagen's proposal.
• Less Than Free Enterprise, which links to a report discussing the connection between black-liquor credits and healthcare legislation. It also provides a company-by-company projection of black-liquor credits that pulp and paper companies will earn this year; the total is $8.5 billion, even higher than the $6 to $8 billion estimated in the 27 non-profits' letter to Jackson.
• A report from the Confederation of European Paper Industries to the U.S. Senate providing various examples of how the black-liquor credits “lead to market distortions and constitute unfair competition.”