Monday, February 15, 2010

News Media and Congress Are Confused About Black Liquor Subsidies

With so much confusion in the mainstream news media and Congress about black-liquor subsidies for U.S. pulp mills, it's time to set the record straight.

Many mis-statements emanated from Washington in the past week regarding how proposed jobs legislation would deal with black liquor, a pulp byproduct. Examples:
  • Reuters: The Democratic proposal "eliminates 'black liquor' tax break used by paper companies. Such companies have reaped big benefits from the credit, qualifying for it by blending a paper by-product known as "black liquor" with small amounts of diesel, which critics say was not the intention of the law."
  • Associated Press: "Many elements would be financed by a variety of provisions closing tax loopholes such as one enjoyed by paper companies that get a credit from burning a dirty pulp-making byproduct known 'black liquor' as though it were an alternative fuel."
  • Joint statement from the leading members of the Senate Finance Committee, Max Baucus (D-Montana) and Chuck Grassley (R-Iowa): "The provision would modify the $1.01 per gallon cellulosic biofuel producer credit to exclude fuels with significant water, sediment, or ash content, such as black liquor. . . . This proposal is estimated to raise $24 billion over ten years."
To set the record straight, black liquor is a byproduct of making kraft pulp, not of paper. (I'm not splitting hairs; there are companies that make paper but not kraft pulp and companies that make pulp but not paper.) Opposition to black liquor subsidies last year had to do with lack of "additionality" -- that is, the government shelled out billions to pulp mills for getting them to do what they would have done without the tax credits -- and the favoring of virgin pulp over recycled pulp.

There are two U.S. government programs at issue, alternative fuel mixture credits and the cellulosic biofuel producer credits. The former required a bit of diesel to be mixed with black liquor and resulted in an estimated $8 to $10 billion being given out to pulp and paper companies last year. The program expired Dec. 31.

Some versions of the jobs legislation would extend the alternative fuel mixture program while excluding black liquor. But, contrary to the Reuters article, even Congress isn't claiming that would save money, just prevent even more money from being given out for black liquor.

Where Congress members are going wrong is their claim that they would save taxpayers $25 billion by not allowing cellulosic biofuel producer credits from being issued for black liquor. That so-called "Son of Black Liquor" tax loophole does not exist, as explained in Heroic Senators Rush to Close Non-Existent 'Son of Black Liquor' Loophole.

Below is the full text of a letter that Karl J. Simon, director of the Compliance and Strategies Division at the Environmental Protection Agency's National Vehicle and Fuel Emissions Laboratory, sent on Dec. 28 to Pam Blackledge of the Environmental Paper Network stating that black liquor does not qualify for the credits. You can click on the image above to see the letter, which was sent in response to a letter from 27 environmental groups opposed to Son of Black Liquor.

Thank you for your letter of December 4, 2009 expressing concern over alternative fuel tax credits being given for the use of black liquor from kraft pulp and paper mills and requesting that the Environmental Protection Agency (EPA) clearly state that black liquor is not eligible for the cellulosic biofuels producer credit.

The $1.01 cellulosic biofuel producer credit is a tax credit put in place by the 2008 Farm Bill and administered by the Internal Revenue Service. The act's language requires that among other things, in order to qualify as cellulosic biofuel, the fuel must meet "the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C 7545)." These registration requirements are applicable only to motor vehicle gasoline, motor vehicle diesel fuel, and additives for these fuels. Our understanding of black liquor is that it is a byproduct of the paper milling process with the consistency of molasses.

EPA has designated only motor vehicle gasoline and diesel fuels for registration. Based on available and limited information at this time, black liquor would not appear to be either a motor vehicle gasoline or diesel fuel. As a result, it does not appear that EPA would register black liquor as a fuel. Additionally, a manufacturer could pursue registering black liquor as a fuel additive. There is a series of requirements that apply if any applicant wishes to pursue registering a fuel additive. We do not have any application for registering black liquor as a fuel or fuel additive before us, and we are not aware of anyone intending to apply.

Again, thank you for your letter. If you have further questions, please contact Jim Caldwell of my staff at (202) 343-9303,

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