Heroic Senators Rush to Close Non-Existent 'Son of Black Liquor' Loophole

Senate Democrats started circulating a proposed jobs bill Tuesday that would be paid for partly by closing the "Son of Black Liquor" tax loophole. There are only three problems with that:

1. Congress never budgeted any money to pay for the loophole, so closing it would not reduce the federal budget. 
2. The $25 billion in "savings" from closing the loophole are already supposed to be used to pay for the Democrats' stalled healthcare legislation. 
3. An EPA official recently confirmed that the loophole doesn't actually exist.

A leaked draft of the "Hiring Incentives to Restore Employment Act" includes a provision intended to exclude black liquor from the new Cellulosic Biofuel Producer Credit program. It would block the eco-credits from being paid for any fuel consisting of more than 4% water and sediment or having an ash content of more than 1%.

Talk of a Son of Black Liquor loophole arose a few months ago because of an IRS ruling that black liquor, an energy-rich byproduct of the kraft pulping process, is indeed a cellulosic biofuel. The original black liquor loophole resulted in pulp and paper companies receiving $8 to $10 billion last year from the government without doing anything extra to help the environment.

With the CBPC being twice as generous and lasting for three years, the tab for Son of Black Liquor could theoretically exceed $50 billion. But an EPA official confirmed recently that black liquor does not meet a requirement for the program -- approval by the EPA as a gasoline or diesel fuel for motor vehicles.

"Based on available and limited information at this time, black liquor would not appear to be either a motor vehicle gasoline or diesel fuel," wrote Karl J. Simon, director of the EPA's Compliance and Innovative Strategies Division, in response to a coalition of 27 environmental groups. "As a result it does not appear that EPA would register black liquor as a fuel."

A manufacturer could request registration of a motor-fuel additive, but that has never been done, Simon wrote. Having, in Simon's words, "the consistency of molasses", black liquor is an unlikely motor-fuel additive. Pulp manufacturers derive value from black liquor by burning it to power their mills, not by using it in motors.

Still, brave Congress will probably try to slay the evil Son of Black Liquor and tell us how many billions that will save us. Here's how you can apply Congress' budgeting magic to your personal life: Suppose your budget is tight -- in fact, you're spending more than you are making -- and a neighbor hurts herself falling in your yard. You are concerned that you will have to pay her $25,000 in medical bills, but then learn you are not liable. Now you can use the $25,000 you saved to pay for a new car!

The jobs bill would also reinstate the "alternative fuel mixture credit" program that was the source of the original black liquor loophole but with language excluding "any fuel . . . derived from the production of paper or pulp."

Related articles:

• Environmentalists Try To Put a Cork Into Black-Liquor Loopholes: A coalition of environmental groups asked the EPA to block the subsidization of black liquor, which encourages the use of virgin rather than recycled pulp.
• Did Black Liquor Credits Pave the Way for Healthcare Legislation?: Senate Democrats apparently left the original black liquor loophole open as a favor to Sen. Olympia Snowe of Maine. The "Maine Squeeze" got far less press than the Cornhusker Kickback or the Louisiana Purchase that were also intended to line up votes for healthcare overhaul.
• Black Liquor Bonanza: Earnings Exceeding Projections of Experts and Congress: For pulp and paper companies, the original black liquor credits were fun while they lasted.